JAPAN Law and Practice Contributed by: Rintaro Hirano, Yutaro Fujimoto, Yurika Masakane and Yutaro Kato, Nagashima Ohno & Tsunematsu
facilities, the scale of investment in GX-related research and development, and the status of equipment upgrades or decommissioning. If the actual emissions of a business exceed the allo- cated allowances, the business will be required to procure additional allowances. Conversely, businesses that achieve emission reductions and generate surplus allowances may sell them or carry them forward to subsequent years. Long-Term Decarbonised Power Source Auction As a special category of auction in the capacity market, long-term decarbonised power source auctions started from 2023, aimed at promot- ing investment in decarbonised power sources. Generators who plan to establish new decar- bonised power sources (including LNG power plants) may participate in these auctions at a bid price equal to the fixed costs expected to be required for the construction and operation of such power sources, plus certain profit margins to secure approximately 5% of the weighted average cost of capital. If a bid is successful, the generator is entitled to receive an amount equivalent to the bid price annually from OCC- TO, on the condition of maintaining its genera- tion capacity for 20 years (or a longer period, if the generator designates a longer period at the time of bidding), commencing from the next fiscal year in which generation capacity is to be provided. In addition, instead of receiving the full amount of such fixed remuneration, generators must pay OCCTO approximately 90% of the profits earned from the operation of such power sources. Grid-Scale Battery Promotion In order to relax supply-demand pressures and prevent price spikes in the electricity market, the grid-scale battery business is being encouraged. In the grid-scale battery business, electricity is (i)
stored when the electricity market price is low; and (ii) discharged when the electricity market price is high to earn a profit. To establish an appropriate business environment, METI has reformed legal frameworks for the grid-scale battery business. The 2023 Amendment stipu- lates that the discharge from grid-scale batteries that have stored electricity over a certain capac- ity is to be regulated, as electricity generation business under the Electricity Business Act. At the time of writing, the supply of electricity for charging grid-scale batteries is regulated as electricity retail business under the Electric- ity Business Act. However, since the electricity supply to charge grid-scale batteries is different in nature from that supplied to consumers, METI is considering the introduction of a new type of licence for such supply to grid-scale batteries. Master Plan and Network Construction Plans In March 2023, OCCTO prepared a master plan for the construction of a cross-regional intercon- nection network in Japan (the “Master Plan”) to promote renewable energy and achieve the Jap- anese government’s proclaimed carbon-neutral target in 2050. Individual network construction plans for each transmission-grid (which corre- sponds to the major utilities’ coverage) are to be prepared with the costs and benefits of the networks under each plan taken into account, in accordance with the Master Plan. As of the date of this article, several network construc- tion plans have been under development, the implementation of some of which is estimated to cost over hundreds of billions of Japanese yen. For example, implementation of the construc- tion plan for the submarine network connecting the Hokkaido–Tohoku–Tokyo areas is forecast to cost approximately JPY2.5 trillion to JPY3.4 trillion. However, recent significant increases in construction costs and changes to the power business environment have provoked discussion
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