Friday Dec 02, 2022

In review: renewable energy policy and regulation in Japan – Lexology

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An extract from The Renewable Energy Law Review, 5th Edition

The policy and regulatory framework

i The policy background

In April 2021, the Japanese government drastically pushed up its emissions targets for 2030, setting a new target to reach a 46 per cent reduction of its greenhouse gas emissions by 2030 (compared with its 2013 levels). In consideration of the new targets, the Japanese government revised its strategic energy plan in October 2021.3 The plan calls for nuclear energy to account for 20 to 22 per cent of power generation by 2030, with 36 to 38 per cent coming from renewable energy sources. In addition, the share of coal will be reduced to 19 per cent, liquefied natural gas to 20 per cent, oil to just 2 per cent, and hydrogen and ammonia to 1 per cent. This clearly indicates that the government aims to convert renewable energy into a major power source.

ii The regulatory and consenting frameworkMain source of law and regulation

In Japan, the main source of law and regulation on this topic is the Act on Special Measures concerning the Promotion of Renewable Energy Use (the Renewable Energy Act), which was revised and renamed on 1 April 2022.

Under the Renewable Energy Act, renewable energy subject to the FiT scheme and the FiP scheme is currently limited to certain renewable energy sources: solar, wind, water (currently statutorily limited to small and medium-sized hydroelectric generators with an output of less than 30,000kW), geothermal and biomass.

Regulators

The energy industry in Japan, which encompasses electric power, gas and other energy resources, is regulated by the METI or, more specifically, the METI’s Agency for Natural Resources and Energy. As such, the Renewable Energy Act is administered under the supervision of the METI. For example, under the FiP scheme, the METI grants certification for generation businesses, and determines the FiP price (as defined below) and the term for which the FiT price applies (the FiP term) on an annual basis.

Outline of the FiT scheme and transition to the FiP scheme

In summary, the FiT scheme ensures that the total volume of electricity generated by renewable energy generation facilities is purchased by utility companies (in most cases, one of the 10 major utility companies) at the FiT price for the FiT term.

On the other hand, the FiP scheme, which was introduced on 1 April 2022, does not require utilities companies to purchase such electricity. The FiP scheme is a framework that provides investment incentives for renewable energy generators by allowing them to receive, in addition to sales revenue from market transactions, a premium at a wholesale power exchange or through over-the-counter transactions. The premium is calculated by deducting a reference price based on the market price (i.e., the reference price) from the designated base price (i.e., the FiP price). The FiP price is determined in advance as a fixed amount for each fiscal year. There are two ways to determine the FiP price: a decision by the METI minister or via a bid system. The reference price is determined monthly based on the annual average wholesale price of electricity for the previous year adjusted by the difference between the monthly average wholesale price for the relevant month in the previous year and the one in the current year.

Please note that the current FiT scheme will continue to exist independently of the FiP scheme, though the scope of the FiT scheme for solar power projects will be gradually limited. That is, for the projects certified by METI in 2022, the FiP …….

Source: https://www.lexology.com/library/detail.aspx?g=294b1bc7-b56a-4ac8-884d-dadf6067dbb0

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