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Amendments to Japanese Rules on Renewable Energy

1. Amendment to the Renewable Energy Special Measures Act pursuant to the Energy Resilience Act

The Act to Amend the Electricity Business Act, Etc. for Establishing a Resilient and Sustainable Electricity Supply System (the “Energy Resilience Act”) was enacted effective as of June 5, 2020 upon the passage of the bill therefor by the House of Councilors of the Japanese Diet. The Energy Resilience Act provides for various amendments to energy-related laws, such as the Act on Special Measures Concerning Procurement of Electricity from Renewable Energy Sources by Electricity Utilities (the “Renewable Energy Special Measures Act”) and the Electricity Business Act, and is planned to be enforced starting from April 1, 2022.

Upon the enactment of the Energy Resilience Act, the name of the former law (i.e. the Renewable Energy Special Measures Act) was amended to the “Act on Special Measures to Promote Use of Electricity from Renewable Energy Sources” (the “Renewable Energy Promotion Act”). For renewable energy business operators, the following four items seem the most relevant to their operation under the Renewable Energy Promotion Act and should therefore be noted.

(1) Establishment of an FIP System which is tied to the market
(2) Use of the money collected as public charges for augmentation of the electrical connection system
(3) Legal obligation to accumulate and set aside funds in an external account for the disposal of solar power generation facilities
(4) System for revocation in response to long-term suspension to commence the operations of a power generation plant

In the following paragraphs, we explain the general outlines of the above 4 points.

(1) Establishment of an FIP System tied to the market
The measures and policies in Japan to adapt the renewable energy were previously supported by the feed-in tariff (FIT) system, wherein generated electricity is purchased by utilities. Under the FIT system, the share of the renewable energy was significantly increased. On the other hand, in order to further adopt and promote renewable energy as a main power source, and in view of the present circumstances in foreign countries where the transition to a different system has been promoted in order to consolidate the renewable energy markets, it is considered absolutely necessary to introduce a certain system which allows the renewable energy business to be operated independently from the FIT system. Accordingly, after the enforcement of the Renewable Energy Promotion Act (hereinafter in this Section 1.(1); the “Act”), in addition to the FIT system, Japan has decided to adopt a “feed-in premium” (FIP) system where the power purchase price of a utility is determined based on the market price by adding a certain premium. Under the FIP system, the Renewable Energy Promotion Act (cf. Article 2-2, Paragraph 2 of the Act) stipulates that an accredited business operator under Article 9, Paragraph 4 of the Act (cf. Article 2, Paragraph 5) shall be eligible to receive the subsidy (i.e. the FIP premium) to promote renewable energy supply when supplying the electricity generated by an accredited power plant falling within the eligible plants for such premium by way of market trading, etc. (cf. Article 2-2, Paragraph 1 of the Act). More specifically, such premium is granted when the accredited business operator freely trades the electricity generated by certain renewable energy business on the wholesale market for electricity or through bilateral transaction, by adding “the difference between the prescribed price (i.e. the base price) which constitutes the basis for the income from such electricity sale and the market price (i.e. reference price), multiplied by the amount of the electric power actually sold.” It is interpreted that such premium is designed to ensure investment incentives by granting additional income (i.e. FIP premium) in addition to the ordinary income based on the market price (cf. Article 2-4, Paragraph 2 of the Act; the interim report published in February 2020 by the subcommittee for reformation of the system for making renewable energy the main source of electrical power, which belongs to the sectional committee for basic policy of the natural resources and energy research committee of the Ministry of Economy, Trade and Industry (the “METI Interim Report”)).


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