JAPAN Trends and Developments Contributed by: Takahiro Kobayashi, Shigeki Okatani, Yusuke Murakami and Hirohiko Tanaka, Mori Hamada & Matsumoto
between the designated “FIP price” (ie, strike price) and the “reference price” based on the average market price. The essential purpose of this reform is to incentivise developers to make more effort to sell electricity at higher prices through the wholesale market or over-the-coun- ter transactions, in order to reduce the public burden to subsidise renewable energy sources. Although this regulatory policy seems reason- able, it has generated many uncertainties for developers. The category of renewable energy sources subject to this new FIP scheme includes large PV and onshore/offshore wind projects, which are already considered “competitive” energy sources. For example, in the 2025 finan- cial year, the FIP scheme is mandatory for PV projects of 250 kW or more, onshore wind pro- jects of 50 kW or more, as well as offshore wind projects (bottom-fixed) in general water areas (outside near-shore port areas). The FIP price is typically determined through public auction for each type of renewable energy source. The length of the FIP period is currently set at 20 years for PV and wind projects, the same as the FIT period. The FIP price is fixed throughout the FIP peri- od, while the premium (the difference between the FIP price and the reference price) fluctu- ates every month depending on market prices at the Japan Electric Power Exchange (JEPX). The reference price is calculated every month based on the annual average of market prices (weighted average based on actual power out- put for PV and wind) in the preceding year, with a certain monthly adjustment. Also, it should be noted that there is no negative premium – a power generator will not be required to pay back the “premium” even when the reference price is higher than the FIP price (strike price), unlike the
two-sided contract for difference (CfD) mecha- nism adopted in some other countries. As a result of the surge in PV development since 2012, numerous developers have rushed to obtain FIT approval for PV projects. Many of these projects remain pre-operational for various reasons, such as lack of feasibility or financing, but, in the meantime, a substantial amount of grid capacity is reserved for them. Under the New FIT/FIP Act, FIT approval for projects that have not commenced commercial operations by an applicable long-stop date will be automatically cancelled. The long-stop date for automatic cancellation is provided in the relevant ordinance for each cat- egory of renewable energy source. In a nutshell, the long-stop date is set after a certain period has elapsed from the deadline of the commer- cial operation date (COD). Essentially, develop- ers will need to complete the application for grid connection construction no later than one year from the original COD deadline and, by so doing, the long-stop date for automatic cancellation will be further extended up to the time when the original period for completion (commercial operation), counted from the original COD dead- line, has lapsed again. In addition, for projects with 2 MW capacity or more, the period before the long-stop date can be further extended until the end of the FIT period if METI confirms within one year from the original COD deadline that a construction plan has been duly filed or that an environmental assessment preparation docu- ment ( jumbisho ) has been obtained. In order to receive such confirmation from METI, the devel- oper is required to apply for METI’s confirmation of progress, separately from filing the construc- tion plan or obtaining the environmental assess- ment preparation document.
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