JAPAN Trends and Developments Contributed by: Takahiro Kobayashi, Shigeki Okatani, Yusuke Murakami and Hirohiko Tanaka, Mori Hamada
Measures Concerning Procurement of Electricity from Renewable Energy Sources by Electricity Utilities (the amended act (including subsequent amendments) is referred to in this article as the “New FIT/FIP Act”). Under the New FIT/FIP Act, the government has moved away from the existing FIT system based on a guaranteed fixed-price tariff for a fixed term (eg, JPY40 per kWh for 20 years in the case of large PV projects approved in the 2012 financial year) to the more market-driven FIP system where developers will receive a premium (“supply promotion subsidy”) to cover the gap 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 whole- sale market or over-the-counter transactions, in order to reduce the public burden to subsidise renewable energy sources. Although this regulatory policy seems reasonable, 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 2026 financial year, the FIP scheme is mandatory for PV projects of 50 kW or more, onshore wind projects of 50 kW or more, as well as offshore wind projects (bottom-fixed) in general water areas (outside near- shore port areas). From the 2027 fiscal year onwards, PV projects of 10 kW or more will cease to be eligible for the FIT/FIP subsidy – except for some limited cat- egories including roof-top solar, the details of which are to be discussed by the relevant government com- mittee in 2026. 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 period, while the premium (the difference between the FIP price and the reference price) fluctuates 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 (weight-
ed average based on actual power output for PV and wind sources) 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) mechanism adopted in some 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 started commercial operations by an applicable long-stop date will automatically be can- celled. The long-stop date for automatic cancellation is pro- vided in the relevant ordinance for each category of renewable energy source. In a nutshell, the long-stop date is set after a certain period has elapsed from the deadline of the commercial operation date (COD). Essentially, developers 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 cancella- tion will be further extended up to the time when the original period for completion (commercial operation), counted from the original COD deadline, 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 dead- line that a construction plan has been duly filed or that an environmental assessment preparation document ( jumbisho ) has been obtained. In order to receive such confirmation from METI, the developer is required to apply for METI’s confirmation of progress, separately from filing the construction plan or obtaining the envi- ronmental assessment preparation document.
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