Among the main reasons are the higher costs and challenging project development procedures. Currently, the price of solar energy in Japan is almost double that of Germany. Fortunately, the Government has recognized the problem, and an auction system for non-residential solar power is currently underway. The Government intends to make generating electricity from offshore wind power cheaper than thermal energy between and Currently, onshore wind development projects are considered challenging due to the lengthy approval processes and land-use restrictions.
It is segmented and consists of many smaller grids with weak interconnections. The supply-demand balance should be maintained at each of the small grids, which further challenges the renewable energy transition. Another part of the high-potential region is within national parks, which are subject to nature conservation programs. These combined factors make the development of geothermal plants costlier and more time-consuming. The slow growth in hydropower generation is attributed to the fact that the most fruitful locations have already been identified.
This means little potential remains within areas for the development of new power plants. Achieving net-zero is an urgent task for the Japanese government. To ease the process, the Government plans to introduce a new strategic energy plan in The country will devote a bigger slice of the budget to foster renewable energy development in the country.
Besides, it will focus on improving transparency and easing the electric power industry in planning and making investment decisions on future projects. If the country remains true to its plans, it can create more than 67, new jobs by Japan Wood Biomass Association. Biomass Power Association.
Japan Geothermal Association. CS Japan Contact. Minae Suzuki. Commercial Assistant. Suzuki trade. Japan - Country Commercial Guide. Renewable Energy. Last published date: Minae Suzuki Commercial Assistant Minae. However, in order to ensure that necessary funds will be more effectively secured, the Act intends to introduce a new system for external reserves by means of directly withholding the required amounts from the revenue from power purchase agreements PPA to be reserved at the Organization for Cross-regional Coordination of Transmission Operators OCCTO.
Developers may submit a business plan with the amount and method for reserving the necessary funds for future decommissioning; if the plan meets certain criteria, then internal reserves under the approved plan may be made in lieu of the mandatory external reserves. The detailed criteria for internal reserves will be further discussed and determined by METI in the future.
As a result of the surge in solar power development since , numerous developers rushed to obtain FIT approval for solar power 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.
As a result, many pre-operational FIT projects will continue to survive until the FIT period is reduced to zero after 20 years, and grid connection capacity will continue to be reserved for them. In this regard, the Act introduces a new rule to automatically cancel FIT approval for projects that have not commenced commercial operations, providing a long-stop date.
The new long-stop date for automatic cancellation will be provided in the relevant ordinance for each category of renewable energy source. Details are still under discussion within METI, but the long-stop date is expected to fall after a certain period has elapsed from the COD deadline.
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 cancellation 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.
The Act will certainly have a huge impact on developers that are already investing, or will invest, in renewable energy projects in Japan. The uncertainties regarding the detailed implementation policy of the new framework set forth under the Act, as well as how the renewable energy market in Japan will change due to this new legislation, is the biggest issue for such developers.
Thus, existing and potential market participants are very concerned about the effect of the new framework on existing and pipeline projects. Having said that, it is clear that the Japanese government and METI are committed to further promoting renewable energy as the main energy source in Japan in the near future. This fundamental reform of the FIT programme should be considered a positive step to further develop renewable energy sources for a more resilient and sustainable industry integrated with the wider electricity market in Japan.
The renewable energy sector has been rapidly growing since the government introduced the FIT programme in The government continues to implement various measures to make renewable energy a main power source amid global decarbonisation trends.
The government has been introducing various policy measures, including legislation to establish new rules for the use of offshore areas, to promote offshore wind power. Although only a few pilot offshore wind farms are operating in Japan, there are more offshore wind projects being planned and many of them are currently in the process of environment impact assessment EIA ; see further below.
Thus, the offshore wind market in Japan is expected to grow in the next few years, with the government setting targets of 10 GW by and 30—45 GW by In February , Marubeni and other co-sponsors announced the financial close of an offshore wind project in two port areas in Akita Prefecture with an aggregate capacity of approximately MW.
Once completed, the project is expected to be the first large-scale and commercial-basis offshore wind project in Japan. Although most ongoing commercial offshore wind projects have adopted fixed-foundation turbines, the development of floating wind farms is also highly anticipated because shallow waters are limited on the Japanese coast. Regarding project sites, the legal framework for the long-term use of marine areas used to be limited. However, the Port Act was amended in to create a legal framework to allow renewable energy projects to use port areas kouwan kuiki , or regulated offshore areas around certain designated ports for longer periods.
The General Marine Act came into force in April The General Marine Act established rules for the use of offshore areas for wind power projects, and provides for:. In December , the government designated an area off the coast of Goto City, Nagasaki Prefecture, as the first promotion zone, and issued a request for proposal and commenced a bidding process under the General Marine Act in June Subsequently, the government designated three promotion zones two areas in Akita Prefecture and one area in Chiba Prefecture in July , and started the bidding processes for these areas in November Projects are under way and regulations are being set.
The Japanese offshore wind market is ready to emerge. Although only a few offshore wind farms are currently operating in Japan, there are more offshore wind projects being planned.
Also, the government continues to promote new offshore wind farms under the General Marine Act, which came into force in April In addition to the four promotion zones mentioned above, the government recognises ten potential marine areas where preparation for projects has proceeded to a certain extent; among these marine areas, the government intends to start preparation for the designation of four marine areas as promotion zones in the near future. Furthermore, the government amended the Port Act in to introduce a long-term lease scheme for base ports and harbours for offshore wind farms.
Following this, four base ports designated by the Ministry of Land, Infrastructure, Transport and Tourism are under construction to strengthen soil-bearing capacity, which is necessary for the installation and maintenance of large wind turbines. Although there are some hurdles for developing offshore wind farms in Japan, the government is continuing its efforts to promote offshore wind power.
Investors and banks have also expressed a positive stance towards this form of alternative energy. METI is preparing a new mechanism under which a part of the wheeling charge currently borne by the electricity retailers and, eventually, the end users is charged to the electricity generator the so-called Generator-side Wheeling Charge.
On 3 July , the Minister of Economy, Trade and Industry, Kajiyama Hiroshi, announced that METI will reconsider this mechanism to align with the new usage rules for main transmission lines, which purport to accelerate installation for renewable energy.
After the reconsideration, METI determined that a commodity charge will be charged on a per kWh basis, as well as a capacity charge that will be charged on as per kW basis. Initially, the ratio between capacity charge and commodity charge will be The electricity generator may shift the burden to the electricity retailers through bilateral negotiations for power purchase agreements, because electricity retailers may benefit from the reduction of the wheeling charge.
However, as for existing renewable projects especially solar and wind projects under the FIT mechanism, the additional burden on electricity generators may be greater than the amount that can be recovered from the electricity retailer ie, the amount of reduced wheeling charge imposed on electricity retailers through the power purchase agreement.
Furthermore, the purchaser of renewable energy generated electricity could be a transmission and grid operator not an electric retailer , who would not be entitled to the benefit of the reduction of the wheeling charge and, as such, it would be impossible for the electricity generator to recover the additional burden through the power purchase agreement with the transmission and grid operator. Some additional relief measures for renewable electricity generators who cannot recover the additional burden through power purchase agreements are also being discussed by the relevant council under METI.
The discussion is continuing, and whether and how much relief will be provided has not been determined yet. The procurement price for larger PV projects with kW or more under the FIT mechanism has already shifted to determination by auction and dramatically reduced. As a result, the number of new development projects particularly large projects using project finance is on the decline.
On the other hand, secondary transactions for PV plants under construction or after COD are increasing. Since the FIT system has undergone complex system changes, the rules applicable to the subject projects, such as procurement prices and output control, should be carefully reviewed in the due diligence process. Onshore wind power generation excluding small-scale projects is also regarded as a competitive power source and reduction of development costs is expected.
However, the actual development cost per kWh has not been reduced enough due to capital costs equipment costs and construction costs remaining at a high level. The auction system for the procurement price was introduced in the financial year. As a result of this discussion, larger biomass projects using imported fuels — such as wooden chips, pellets, palm kernel shells PKS and palm oils — are facing a difficult situation.
GGL has been adapted as a certification system under the FIT mechanism, and discussions regarding other existing certification systems and establishing a new certification system are ongoing.
In addition, the above-mentioned guideline requires that orders for power generation facilities must be made within two years from the date of FIT approval. In some cases, this cannot be met for various reasons, including the effect of the COVID pandemic. In such cases, the period of two years may be extended for "reasonable grounds such as environmental assessment", which is determined by the relevant METI Bureau or Agency of Natural Resources and Energy on a case-by-case basis.
With the increased introduction of PV systems and batteries, the energy resource aggregation business, which operates virtual power plants or demand response by integrating distributed energy resources, is drawing attention as a new business opportunity in Japan. Aggregators are also expected to play an important role in the FIP Scheme, under which power producers have to sell their electricity in the market.
The government has been supporting the promotion of this business by setting up a study group with aggregators and subsidising experimental projects. On the other hand, with repeated electricity outages recently caused by massive earthquakes and typhoons, the government recognised the value and responsibility of energy resource aggregators. This will enable the authority to exercise jurisdiction over aggregators.
The government has been supporting the introduction of microgrids by subsidising experimental projects. The Act to amend the Electricity Business Law introduces a new category of licence allowing non-utility ventures to operate microgrids.
Along with increased environmental awareness, including movements such as RE, and the decreased cost of introducing renewable energy generation facilities, the number of corporate PPAs is increasing. Under a typical corporate PPA, a supplier installs PV systems in the premises of a customer and supplies electricity directly to that customer. The Act to amend the Electricity Business Law enables such suppliers to meter their electricity supply using equipment attached to the generation facilities, such as inverters, instead of meters that comply with strict standards under the Measurement Act.
In addition, the non-fossil value trading market is being formed, and studies on virtual PPAs are being conducted by the authority and aggregators. The government recently began to deregulate off-site corporate PPAs. Currently, a power producer which supplies power through a grid is required to obtain an electricity retail business licence.
However, a government committee is considering making an exception for off-site corporate PPAs under certain conditions. The Japanese government has been promoting the development of hydrogen energy as a prospective energy resource to meet its energy policy goals — namely, energy security, economic efficiency, environment and safety.
It aims to make hydrogen energy one of the new feasible options to compete with existing energy resources in terms of cost of procurement and supply in the future. As one recent move, the Council for Strategy on Hydrogen and Fuel Cells — which consists of members from the government, industry and academia — published a draft interim report, which stipulated three priority issues to be addressed in order to put hydrogen energy into practical use: i development of technology, ii development of infrastructure, and iii reduction of costs.
The Japanese government aims to develop facilities and infrastructure for the production of hydrogen in the country for the purpose of industrial policy and energy security, although Japan will have to import a considerable amount of lower-priced hydrogen to meet increasing demand.
The Japanese government is also intensively studying the utilisation of ammonia as an energy carrier and fuel for electricity generation. Chambers and Partners website Toggle navigation. Last Updated July 20, Law and Practice Trends and Developments. Law and Practice. Expand All. General Structure and Ownership of the Power Industry.
General Structure and Ownership The structure of the Japanese power industry was established during the occupation period after the Second World War when nine vertically integrated companies, each covering a different geographical region in Japan, were incorporated on 1 May , pursuant to a directive from General Headquarters GHQ. Power industry liberalisation This vertical integration and the regional monopolies over the generation, transmission, distribution and retail sectors have been gradually relaxed and liberalised since Since , the power industry has been undergoing further structural reform that consists of: establishing a system to efficiently manage electricity across the transmission networks in Japan; full liberalisation of the retail sector; and "legal unbundling" of the transmission and distribution sectors from the generation and retail sectors see 1.
Electricity Generation Business hatsuden jigyo This is the business to generate and sell electricity to retail sellers and General Electricity Transmission and Distribution Business operators. General Electricity Transmission and Distribution Business ippan sohaiden jigyo This is the operation and maintenance of an electricity transmission and distribution network.
Electricity Transmission Business soden jigyo This is an exception to the principle of non-separation of transmission and distribution services and is the business to transmit electricity to a General Electricity Transmission and Distribution Business operator through transmission lines that the Electricity Transmission Business operator operates and maintains on its own.
Specified Electricity Transmission and Distribution Business tokutei sohaiden jigyo This is a form of electricity business which allows the Specified Electricity Transmission and Distribution Business operator to sell electricity on its own network to consumers within certain limited geographical area. Retail Electricity Business kouri denki jigyo This is the business that sells electricity to consumers.
Generation As of the end of April , there are Electricity Generation Business licence holders. Retail Since , Retail Electricity Business has been gradually liberalised. Also, the waiting period will be shortened to five business days if the investment falls within one of the following categories: incorporation of a wholly-owned subsidiary in Japan or acquisition of equity or debt in a wholly-owned subsidiary in Japan, or the opening of a branch in Japan ie, "greenfield investment" ; acquisition of additional equity in a Japanese company without the foreign investor changing its shareholding in the Japanese company and with no change in the management structure of the Japanese company, within six months from the most recent acquisition of equity in the Japanese company by the foreign investor for which a notification to the Minister was made ie, "rollover investment" ; or acquisition of equity or debt in a Japanese company as a passive investor having no voting rights on material management matters regarding the Japanese company ie, "passive investment".
Notifications in Practice In practice, most notifications fall within one of the three categories above. Since then, and continuing into , the electricity industry has undergone structural reform in stages that consist of: establishing a system to efficiently manage electricity across the transmission networks in Japan; full liberalisation of the retail sector; and a "legal unbundling" of the transmission and distribution sectors from the generation and retail sectors.
Legal Unbundling "Legal unbundling" occurred in April when new rules were introduced prohibiting an operator of a General Electricity Transmission and Distribution Business — except for Okinawa Electric Power Company, Inc — from operating an Electricity Generation Business for the purpose of supplying electricity to retailers or Retail Electricity Business except for such business in certain isolated Japanese islands.
Changes to the Electricity Business Act In recent years, Japan has suffered a number of natural disasters that damaged stable power supply.
The Amendment introduces three main changes to the Electricity Business Act: enhancement of co-operation amongst electricity companies in the case of emergencies; strengthening of the power grid network; and establishing a resilient power distribution system.
Severely tight supply-demand balance and sharp price spike In December and January , Japan experienced a severely tight balance between the supply and demand of electricity. Carbon-neutral target in and raising the GHG emissions reduction target In response to the increased global interest in sustainability and the potential for economic growth, the Japanese Prime Minister declared in October that Japan would aim for net-zero greenhouse gas GHG emissions and seek to become a carbon-neutral society by Market Structure, Supply and Pricing.
Trades available in JEPX as wholesale of electricity are: spot market trading; forward market trading; intraday market trading; and OTC trading. Market Trading in JEPX Spot market trading is trading of electricity supplied on the next day after a trade date, where the minimum trading unit is 30 minutes and 50 kWh, and the trading price is determined through a "blind and single price auction".
New Electricity Markets In addition to the above, several new electricity markets have opened with the aim of meeting the needs of new entrants after full liberalisation of the retail sector.
According to ANRE, the supply mix of electricity in was as follows: natural gas — There are no concentration limits in Japan. Climate Change Laws and Alternative Energy. The FiP Regime In order to improve the FiT regime and harmonise it with the conventional energy market, the Amendment introduces, with effect from 1 April , the feed-in premium regime "FiP Regime".
The Non-Fossil Fuel Energy Certificate Trading Market As an additional measure to achieve the non-fossil energy source target, another new market was established in May the non-fossil fuel energy certificates trading market.
Furth er Promotions To further promote the development of renewable energy, under the Network Codes curtailment rule, renewable energy power plants are prioritised over fossil fuel power plants in that renewable energy power plants are curtailed only after fossil fuel power plants have reached their curtailment limit.
Environmental Impact Assessment Act The operator must perform an environmental impact assessment in accordance with the Environmental Impact Assessment Act whenever the operator intends to construct a generation facility that falls within a prescribed category. Consideration statement The operator prepares a statement on the environmental impact that the operator expects the construction to have and submits it to METI for review. Environmental impact assessment Based on the scoping statement, as revised to reflect the comments of METI, the relevant local government and public feedback if any , the operator performs the environmental impact assessment.
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