IEEJ：September 2022© IEEJ2022

STUDY ON RENEWABLE
ELECTRICITY PROCUREMENT IN
JAPAN

September, 2022
The Institute of Energy Economics, JapanIEEJ：September 2022© IEEJ2022

TABLE OF CONTENTSEXECUTIVE SUMMARY ................................................................................................................................................ 1
GLOSSARY ................................................................................................................................................................... 6
CHAPTER 1. BACKGROUND AND OBJECTIVES OF STUDY .............................................................................................. 7
CHAPTER 2. CORPORATE RENEWABLE ELECTRICITY PROCUREMENT IN JAPAN ............................................................ 92.1. ISSUES WITH HIGH COST AND AVAILABILITY OF RENEWABLE ELECTRICITY..................................................................................... 9
2.1.1 High cost ............................................................................................................................................................. 9
2.1.2 Grid constraints................................................................................................................................................. 14
2.2. OPTIONS FOR RENEWABLE ELECTRICITY PROCUREMENT ........................................................................................................ 15
2.2.1 Environmental attribute certificates (EAC) and tracking renewable electricity ................................................ 15
2.2.2 Corporate PPAs /VPPAs .................................................................................................................................... 21
CHAPTER 3. POLICY RECOMMENDATIONS................................................................................................................. 27
APPENDIX RENEWABLE ENERGY DEVELOPMENT IN JAPAN ....................................................................................... 35
A.1 CURRENT STATUS AND ISSUES OF RENEWABLE ENERGY DEVELOPMENT IN JAPAN ........................................................................ 35
A.2 MAJOR SUPPORTING POLICIES ......................................................................................................................................... 38

Sichao KAN, Senior Researcher, New Energy System Group, Electric Power Industry & New andRenewable Energy Unit
Hiroko NAKAMURA, Senior Researcher, New Energy System Group, Electric Power Industry & New andRenewable Energy Unit
Akiko SASAKAWA, Senior Researcher, Renewable Energy Group, Electric Power Industry & New andRenewable Energy Unit
Yoshiaki SHIBATA, Assistant Director, Electric Power Industry & New and Renewable Energy Unit
The Institute of Energy Economics, Japan (IEEJ)Yu NAGATOMI, Former Senior Researcher, The Institute of Energy Economics, Japan (IEEJ)IEEJ：September 2022© IEEJ2022©IEEJ 2022

EXECUTIVE SUMMARY
Renewable energy is expected to play an important role in Japan’s carbon neutrality strategy.
According to the Sixth Strategic Energy Plan (6th SEP), approved in October 2021, renewableelectricity is expected to account for 36%~38% of the total power generation mix by 2030, which
is much more ambitious compared to the target share of renewable electricity (22%~24%) set out
in the previous SEP. At the same time, an increasing number of Japanese companies have been
seeking direct renewable electricity procurement in recent years. For example, the number ofJapanese companies joining RE100, a global renewable energy initiative for companies committed
to 100% renewable electricity consumption, reached 69 in April 2022 from only three companies
five years ago (2017).
Renewable energy deployment in Japan has seen rapid growth since the implementation of
the Feed in Tariff (FIT) scheme in 2012. However, renewable power generation costs are still highcompared to those of other countries and the high cost is passed on to electricity consumers in theform of FIT surcharges. Corporate purchases of renewable electricity can provide an option forsupporting renewable energy deployment that imposes no additional burden on the general public.
Yet, according to a RE100 report1, Japan is one of the most challenging places in the world forcompanies to switch to 100% renewable electricity. High costs and limited supply are cited as thetwo largest problems.
Given this background, the Institute of Energy Economics (IEEJ) team conducted a study toreveal the main challenges of corporate renewable energy procurement in Japan and what policies
and/or regulations are needed to address the issues pertaining to making Japan’s renewableelectricity market more friendly to corporate buyers. We interviewed various stakeholders,
including renewable energy developers, electricity retailers, consumer companies, industry
associations, as well as experts, to gain firsthand insight into the issues often raised.
Land constraints and grid integration were mentioned to be the two biggest concerns
regarding future cost reductions of renewable power generation and the further expansion ofrenewable capacity. A mountainous country, Japan is not home to as wide an area of flat land
compared to other countries and most of the low-cost flat land suitable for renewable power
generation plants has already been developed. Geographic constraint is not the only reason
behind the land use issue. The acquisition of land suitable for renewable projects can be timeconsuming because of complex land use approval procedures, and more so when property rights
are unclear. Moreover, there are growing concerns regarding the safety and environmental impactof renewable projects.

1

Andrew Glumac, Shailesh Telang, Claire Lambert (2020) Growing renewable power: Companies seizing

leadership opportunities, https://www.there100.org/growing-renewable-power-companies-seizing-leadershipopportunities

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Furthermore, current grid connection and grid operation rules are not favorable for new
renewable projects. In Japan, the current grid connection rule for new projects follows the “firstcome first serve” principle. Free grid capacity for new projects is becoming increasingly limited. If
a new power generation project requires grid expansion, the construction cost is partly borne by
the project owners. The short-term solution to the grid connection constraints issue is the “nonfirm” connection rule 2 , which is currently applied to all high-voltage transmission connections.
While “non-firm” connection can help more new renewable projects connect to the grid, there areconcerns that the risk of unpredictable curtailment faced by the “non-firm” connected projects may
harm the project’s bankability. Further grid capacity expansion and improvement of grid utilization
rules are needed to accommodate more renewable capacity.
Many RE100 companies rely on Environmental Attribute Certificates (EACs) for sourcing
renewable electricity. In Japan, the largest EAC market, the Non-fossil Fuel Certificates market, iscurrently under reform. Consumers and brokers are allowed to participate in the FIT NFC market
from the November 2021 auctions.
And the NFC tracking3 is now managed by JEPX. The tracking system covers both FIT NFC
and non-FIT NFC. NFC with tracking information can be used for RE100 reporting. The tracking
system is expected to be further improved in the future.
In Japan, corporate PPA (Power Purchase Agreement)4 markets are still at a preliminary
stage and there is still room for improvement. A virtual PPA (VPPA) scheme (virtual corporate PPA
without the involvement of electricity retailer), which is a popular corporate PPA scheme overseas,
would require direct transactions of non-FIT NFCs. According to the latest rule revision of the NFC
market, consumer companies with a VPPA contract can have direct transaction of non-FIT NFCs
with renewable power generators when the renewable projects meet certain criteria. There areissues other than institutional barriers that need to be addressed to facilitate corporate PPA/VPPA5
in Japan. For example, evaluating a consumer company’s (off-taker) credibility to guarantee along-term electricity purchase agreement is essential to the bankability of a renewable project. Thishas been expressed by developers as a primary concern regarding corporate PPAs/VPPAs. The
lack of retailers with enough know-how on demand and supply balancing was also cited as a barrier
to corporate PPAs/VPPAs.

2

Under the “non-firm” connection rule, even if there is no free grid capacity, the new power plant can still beconnected to the grid but its generation will be first to be curtailed, without compensation, when there is gridcongestion.
3

Tracking system is typically an electronic database that registers basic information of each MWh of renewablegeneration such as, technology, location, operation year, etc.
4

A corporate PPA is Power Purchase Agreement signed between a consumer company and a renewable power

generator. Details of corporate PPA in Japan are stated in Chapter 2
5

2“PPA/VPPA” means physical PPA and virtual PPAIEEJ：September 2022© IEEJ2022©IEEJ 2022

Given the circumstances stated above, we propose the following measures to further expand
the supply of low-cost renewable electricity and improve the current situation of renewableelectricity procurement for corporations such as corporate PPAs, in Japan:[Measures for expanding renewable supply](1) Accelerate the implementation of local decarbonization initiatives and collectinformation on land ownership and required conditions for land acquirement
approval during the wide area zoning process: Land constraints are one of the mostsignificant problems pertaining to renewable energy development in Japan. The limited
availability of optimal sites affects not only renewable power generation costs but also the
future potential of renewable power development. While cross-ministerial efforts at thecentral government level are required to address this issue, the involvement of local
governments is also indispensable. In the revision of the Act on Promotion of Global
Warming Countermeasures, the Ministry of the Environment (MOE) reinforced thepromotion of local government decarbonization initiatives. The local decarbonization
initiative comprises two important elements: 1) the local renewable development target;and 2) the local decarbonization zone. Measures for local decarbonization zone include
wide area zoning6. And according to the manual for wide area zoning developed by the
MOE, not only environmental regulations at the country and prefecture levels but also local
issues at the municipality level should be considered. Implementing local decarbonization
zoning can accelerate the development of renewable energy and help lower power
generation costs. Japanese EIA (Environmental Impact Assessment) procedures require
the participation of the general public and approval from the prefectural government at
various stages. This time-consuming requirement can be streamlined in the case of wide
area zoning, where the local government and local communities have already participatedin the zone selection process. On the other side, during the wide area zoning process,information collection regarding land ownership and providing the information that can bedisclosed to renewable developers can help addressing the land acquirement difficulties
in the renewable project development process.
(2) Improve grid integration conditions for renewable projects: Grid connection andgrid utilization need to be more predicable to encourage investment in renewable projects.
Uncertainties pertaining to grid connection, grid operation (associated with curtailment),
and the electricity market price can undermine the predictability of a renewable project’s
revenue and thus have negative impact on renewable energy investment. To address such

6

“Wide Area Zoning” is the process of designating area in a municipal for renewable development after

consideration of national and prefectural environmental regulations as well as social concerns in the specificmunicipal, and negotiation with all stakeholders.

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issues, data regarding power generation plants as well as the grid operation status need
to be properly disclosed to electricity market participants. In the longer term, in addition topredictability issues, the increased accommodation of renewable electricity in the power
grid will require accelerated procedures for grid utilization rules reflecting the environmental
benefit of renewable energy.
[Measures for improving environment for corporate renewable procurement](3) Develop a user-friendly NFC market and improve the renewable tracking system:
Direct consumer access to renewable NFCs and tracking renewable electricity are key
elements of encouraging corporate renewable electricity procurement in Japan. Several
factors should be considered while accelerating the rulemaking associated with NFC
market reform and developing a tracking system that covers all renewable energy: It is
important to develop a user-friendly scheme with new rules. For example, the tracking
system can meet consumer companies’ needs such as providing enough information forverification of additionality (“Additionality” means contribution to new renewableinvestment). And under current NFC market rules, the effective period of NFCs terminates
at the end of June, regardless of the timing of NFC acquirement. Given the reporting
timeframe for RE100 companies, for example, revising the current NFC effective period to
one year after the generation period of the NFC, would allow more flexibility for reportingby consumer companies. It is also important that the renewable NFCs managed under the
tracking scheme to be developed will be compatible with the latest international
standards, including RE100 criteria. Further, to make the renewable certificate
management and trading system be as developed as REC (Renewable Energy Certificate)in the United States or the GO (Guarantee of Origin) system in Europe, data from not only
the renewable developers but also other stakeholders such as grid operators and retailers
will be necessary. Therefore, further improvement of the renewable tracking system and
NFC market is not only about renewable energy system. The relevant rules regarding therenewable tracking system and NFC market need to comply with the rules for data
disclosure and management of the whole electricity system.
(4) Scale up the corporate PPA/VPPA market. Rapidly disclose relevant market
regulation revision information companies and develop government guidance forcorporate PPA/VPPAs. In response to the needs of consumer companies, the latest rule
revision of the NFC market enables consumer companies with a VPPA contract to havedirect transaction of non-FIT NFCs with renewable power generators when the renewableprojects meet certain criteria. Detailed information about such market rule revision should
be disclosed and reached to the companies rapidly. Given the complex market structure
and regulation environment, accessible government guidelines can help relevant
stakeholders to gain a better understanding of how corporate PPA/VPPA schemes work in

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Japan, as well as what roles and responsibilities are expected of them by different
stakeholders.
(5) Introduce consumer relief measures to reduce FIT surcharge burden: The
increasing burden of the FIT surcharge shouldered by end users is a critical issue inJapan’s renewable energy development. Given that the FIT purchase period is 10 to 20
years (depending on the type of technology), the current FIT surcharge is rooted in existinghighly priced FIT projects that were approved in the initial years of the FIT scheme. In thelonger term, to reduce FIT surcharge further bring down renewable power generation costis necessary. And to promote the cost reduction, Japan has introduced auctions and has
moved from FIT to market mechanism based FIP mechanism. However, even under the
FIP mechanism, the premium paid to renewable developers is passed on to consumers,
and thus there are still surcharge to consumers (surcharge caused by FIP).
Corporate PPAs for non-subsidized (non-FIT/FIP) renewable projects (corporate PPA with
non-FIT/FIP renewable projects) can help encourage renewable energy development
without increasing the FIT surcharge. However, newly contracted corporate PPAs cannot
contribute to the reduction of the FIT surcharge caused by projects already approved.
Consumer relief measures are needed to reduce the FIT surcharge shouldered byelectricity consumers. When considering such measures one of the examples isGermany’s case. For example, Germany has abolished consumer’s renewable energy
surcharge as of July 1, 2022, and has instead set up a climate fund (financed by revenues
from carbon pricing and the government budget) to support renewable energy.

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GLOSSARY
ANRE: Agency for Natural Resources and Energy
CDP: Carbon Disclosure Project
CfD: Contract for Difference
EAC: Environmental Attribute Certificate
EIA: Environmental Impact Assessment
FIP: Feed-in-Premium
FIT: Feed-in-Tariff
FY: Fiscal Year
GHG: Greenhouse gas
GO: Guarantee of Origin
JQA: Japan Association for Quarity
MAFF: Ministry of Agriculture, Forestry and Fisheries
METI: Ministry of Economy, Trade and Industry
MLIT: Ministry of Land, Infrastructure, Transport and Tourism
MOE: Ministry of the Environment
NFC: Non-fossil Fuel Certificates
OCCTO: Organization for Cross-regional Coordination of Transmission Operators, Japan
PKS: palm kernel shell
PPA: Power Purchase Agreement
REC: Renewable Energy Certificate
SBT: Science Based Targets
SEP: Strategic Energy PlanTEPCO: Tokyo Electric Power Company Holdings
VPPA: Virtual Power Purchase Agreement

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CHAPTER 1. BACKGROUND AND OBJECTIVES OF STUDYJapan is committed to reducing its greenhouse gas (GHG) emissions by least 46% by FY
2030 relative to FY 2013 levels and to achieving carbon neutrality by 2050. The 6th Strategic
Energy Plan (SEP) approved by the Cabinet in October 2021, right after the start of the Kishidaadministration, sets a roadmap toward achieving those targets. According to the 6th SEP,
renewable electricity is expected to account for 36%~38% of the total power generation mix by
2030. This is much more ambitious compared to the target share of renewable electricity(22%~24%) set out in the previous SEP. To achieve the 36%~38% target, Japan needs to double
its renewable power generation capacity from the current level (84GW in 2021) by FY 2030
(147~161GW).
At the same time, carbon neutrality goals have gained recognition beyond government policy
and more companies are pursuing such goals under their corporate business strategies; andtherefore, the corporate appetite for renewable electricity is growing. The number of Japanesecompanies joining RE100, a global renewable energy initiative for companies committed to 100%
renewable electricity consumption, reached 69 by April 2022 from only three companies five years
ago (2017). RE Action, an initiative for smaller companies and organizations with lower levels ofelectricity consumption 7 committed to converting to 100% renewable electricity by 2050 was
established in 2019. As of May 2021, 258 entities have joined RE Action.
Renewable energy deployment in Japan has seen rapid growth since the implementation of
the Feed in Tariff (FIT) scheme in 2012. And as mentioned above, renewable energy is expected
to play an even more important role in Japan’s future electricity supply.
Renewable power generation costs remain high in Japan compared to the global averagelevel. Under the FIT scheme, renewable power generation is purchased at a pre-determined pricethat is higher than the average wholesale electricity price for a given period (10 to 20 years,
depending on the renewable power generation technology). The additional cost is passed on toelectricity consumers as a FIT surcharge included in their electricity bills. Given that almost all of
the new renewable power generation capacity installed over the past 10 years is covered by the
FIT mechanism, the rapid growth of renewable power installation has resulted in increasing
financial burden on electricity consumers. Reducing the FIT surcharge is one of the most criticalissues that need to be addressed for the further development of renewable energy in Japan.
The FIT mechanism has been the main driver of renewable development in many countries.
However, because of the cost reductions achieved in renewable power generation, especially solar
PV and wind, and the increasing burden of FIT surcharges shouldered by electricity end-users,

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Less than 50GWh/year

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most countries are moving away from the FIT scheme, searching for new ways of supporting
renewable energy development.
Corporate buyers have become an important driver of renewable development in recent years.
Corporate purchases of renewable electricity provide an option for supporting renewable energy
while imposing no additional burden in the form of FIT surcharges. It is reported that privatecompanies bought 31.1GW of clean power in 20218, equivalent to about 37%9 of total renewablecapacity installation in Japan. Corporate renewable electricity purchases are expected to continue
to positively contribute to renewable energy development in Japan. However, Japan is one of themost challenging places in the world for companies to switch to 100% renewable electricity
according to a RE100 survey report10. High costs and limited supply are cited as the two largest
problems.
Japan’s electric power system reform has yet to be completed, and thus many market rules
and regulations are still under development. Given this background, the IEEJ team conducted thisstudy to reveal the main challenges in corporate renewable electricity procurement in Japan andwhat policies and/or regulations are needed to make Japan’s renewable electricity market morefriendly to corporate buyers. The IEEJ team interviewed various stakeholders, including renewableenergy developers, electricity retailers, consumer companies, industry associations, as well as
experts, to gain firsthand insight into the issues often raised.

8

BloombergNEF, (January 31, 2022) “Corporate Clean Energy Buying Tops 30GW Mark in Record Year”,

https://about.bnef.com/blog/corporate-clean-energy-buying-tops-30gw-mark-in-record-year/)
9capacity as of September 2021: 84GW

10RE100, (2020) “Growing renewable power: companies seizing leadership opportunities (RE100 Annual

Progress and Insights Report 2020)”, https://www.there100.org/growing-renewable-power-companies-seizingleadership-opportunities

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CHAPTER 2. CORPORATE RENEWABLE ELECTRICITYPROCUREMENT IN JAPANAs mentioned above, Japan is one of the most challenging countries in the world forcompanies converting to renewable electricity. High cost and limited options are the two biggest
barriers to renewable electricity procurement in Japan, according to RE100 companies.

2.1. ISSUES WITH HIGH COST AND AVAILABILITY OF RENEWABLE ELECTRICITY
2.1.1 H IGH COST
Data from the International Renewable Energy Agency (IRENA) reveals that the total installed
cost of Japan’s utility-scale solar PV is relatively higher than that of other countries (Figure 1).11
In particular, Japan’s installation costs, including inspection, electrical installation, and mechanicalinstallation, occupy large portions of the total cost. Since Japan is prone to natural disasters suchas earthquakes and typhoons, solar PV panels and equipment need to be disaster-resistant.
Furthermore, solar power generation systems ten to be installed on the slope of mountainous areas
due to limitations in suitable land. These factors add to the development costs.

FIGURE 1. UTILITY-SCALE SOLAR PV TOTAL INSTALLED COSTS IN 2020
Source: compiled by authors based on IRENA (2021)

11

IRENA, (2021) Renewable Power Generation Costs in 2020. International Renewable Energy Agency: Abu

Dhabi.

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Figure 2 presents weighted-average total installed costs for onshore wind in major countries.
While other countries have experienced gradual cost reductions, Japan has struggled in following
the front-runners and the cost difference between Japan and other countries became even larger
in 2020. This situation is mainly explained by the lack of competition and economy of scale inJapan’s wind industry.

FIGURE 2. WEIGHTED-AVERAGE TOTAL INSTALLED COSTS FOR ONSHORE WIND 12
Source: compiled by authors based on IRENA (2021)

The developers interview referred to land use as one of the major reasons behind highrenewable power generation costs. According to the cost breakdown compiled by the Calculation
Committee for Procurement Prices, the “land formation” cost included in the CAPEX for solar PV
projects (larger than 10kW) has not decreased, but has rather increased over past years.

12

The average cost is substantially affected by a high-cost project in a market like Japan where the number ofwind power projects is much smaller than those of the solar PV, which may have caused some spikes seen in thecost trend.

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FIGURE 3. TRENDS IN CAPEX BREAKDOWN FOR SOLAR PV PROJECTS LARGER THAN
10KW
Source: Calculation Committee for Procurement Prices13
Flat land is not available in abundance in Japan compared to other countries. Existing projects
have already occupied most of the flat land that can be acquired at a low cost and used forrenewable power plant development. Geographic constraint is not the only reason behind the land
use issue. The acquisition of land suitable for renewable projects can be time-consuming becauseof complex land use approval procedures, and more so when property rights are unclear.
Moreover, there are growing concerns regarding the safety and environmental impact of renewableprojects. As a result, the number of municipalities that have implemented regulations on renewableenergy development has increased from 26 in FY 2016 to 134 in FY 2020 Some municipalities
even limit or prohibit the installation of renewable power generation facilities in given areas. Lackof trust and cooperation from local communities can make the land acquisition process moredifficult and costly.
Sometimes, acquirable land, including land that has been unused for more than two years
and some industrial parks, cannot be utilized due to a lack of free grid connection capacity for new
projects.

13

Calculation Committee for Procurement Prices material, (2021) “Solar PV related issues” (73rd committee

meeting on December 22, 2021), https://www.meti.go.jp/shingikai/santeii/pdf/073_01_00.pdf (Japanese
only)

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According to FIGURE 3, the grid connection cost has increased for new solar PV projects overrecent years. Similar to the land constraint issue, most sites close to grid connection points are
already occupied by existing power generation plants.
In Japan, although grid operators take on the construction work for grid connection, theconstruction cost from power generation site to substation is assumed by the power generator. If
additional construction is necessary to accommodate the new generation in the local grid system,
the cost will be paid by the generator or local electricity end-users depending on who will benefit
from the new construction. When additional construction work is required in the high voltage
transmission system (backbone transmission system), the cost will be passed on to end-users.
The cap for grid construction costs that can be passed on to end-users is 41,000 JPY/kW. Costs
that exceed the upper limit will be assumed by the generator (FIGURE 4).

Connection line
RE power
generation
plant

Local grid

Backbone transmission line

Sub-station

Cost beard bygenerator

Cost partly beard
by generator(depends on who
will benefit)

Cost passed on to
end users

Cost passed on to
end users*Costs exceeding the cap (41,000 JPY/kW) are borne by the generator.

FIGURE 4 GRID CONNECTION COST ALLOCATION IN JAPANSource: compiled by authors based on METI14
Land and grid connection constraints can have indirect impact on renewable power generation
cost. Because of land and grid constraints, and sometimes logistic constraints for onshore wind, it
is difficult to develop large-scale renewable projects, especially solar PV and onshore wind projects,
in Japan. As a result, the benefit of economic of scale is limited in Japan.
The developers interviewed also mentioned the following reasons for the high CAPEX ofrenewable projects high: time-consuming inspection and Environmental Impact Assessment (EIA)
processes (especially for onshore wind projects), local community acceptance, etc. In terms of
OPEX, the requirements regarding Chief Electrical Engineers hinder renewable energy
development. Currently, power generation facilities exceeding capacities of 5MW and 50kV are
required to appoint high-level Chief Electrical Engineers. However, there is a serious shortage of

14

METI website (Grid Connection),

https://www.enecho.meti.go.jp/category/saving_and_new/saiene/grid/01_setsuzoku.html#setsuz
oku01 (Japanese only)

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eligible Chief Electrical Engineers. Furthermore, their payroll tends to be 2~3 times that of Class
III Chief Electrical Engineers. Rule revisions15 to solve this issue are ongoing.
High renewable power generation costs are passed on to electricity end users. Under the FIT
scheme, the expansion of renewable power generation results in an increase of the total cost ofpurchasing power sourced from renewables. In other words, the burden on consumers who are
obliged to pay the FIT surcharge increases in tandem with the promotion of the FIT scheme. The
government estimates that in FY 2022, the total cost of purchasing renewable electricity willamount to JPY 4.2 trillion (USD 33 billion16), of which the total amount of surcharge will be JPY 2.7
trillion (USD 21 billion) (FIGURE 5). The surcharge has continuously increased from 0.22 JPY/kWhin 2012 to 3.45 JPY/kWh in 2022. Accordingly, the monthly surcharge per household has risen
from 57 JPY/household in 2012 to 897 JPY/household in 2022 17 . On average, the share ofsurcharge against the total electricity tariff was 12% for household users and 16% for industrial
and commercial users in 2020.

FIGURE 5 TOTAL FIT PURCHASING COST
Source: compiled by authors based on METI 18

15

METI, (2022) “Rule Revision Regarding Chief Electrical Engineers ”(The 10th Meeting of Working Group on

Electricity Safety System on April 15, 2022),

https://www.meti.go.jp/shingikai/sankoshin/hoan_shohi/denryoku_anzen/hoan_seido/pdf/010_04_00.pdf (Japanese only)
16

1 JPY = USD 0.0078

17

Average electricity consumption per household is assumed at 260kWh per month.

18

METI, (2022) “Prospective Renewable Energy Policy” (40th Mass Renewable Energy Introduction and Next-

Generation Power Network Subcommittee on April 7, 2022),
https://www.meti.go.jp/shingikai/enecho/denryoku_gas/saisei_kano/pdf/040_01_00.pdf (Japanese only)

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2.1.2 GRID CONSTRAINTS
Grid constraints are not only a reason for the high cost of renewable power generation but arealso a major concern for the further deployment of renewable energy, especially variable
renewable technologies, such as solar PV and wind.
Japan’s grid network is regionally divided with limited capacity for interconnection between
regions. The different frequency between eastern and western Japan exacerbates the problem.
That is, the power grid runs on 50 Hz in the east, and 60 Hz in the west. Yet there are only four
frequency converter stations capable of transferring a total of 2.1 GW. Furthermore, many regions
endowed with renewable energy sources, such as Kyushu and Hokkaido, and some offshore windsites are found in distant locations from the electricity demand center, such as the Tokyo andOsaka areas.
The current rule for intraregional grid balancing allows renewable power generation output tobe curtailed after the output reduction of thermal power plants, the utilization of pumped hydro,
and inter-regional adjustment. The curtailment of variable renewable electricity had been limited
as it was previously observed only in the Kyushu region. However, in April 2022, renewable power
generation was curtailed for the first time in the Shikoku and Tohoku regions, and in May in
Hokkaido. The curtailment of variable renewable electricity is likely to occur in more regions.
Now that more regions are challenged with grid capacity constraints, it will be even morechallenging to further connect and accommodate new renewable projects. In Japan, renewable
power plants are not granted priority for grid connection. As shown in FIGURE 6, if there is freegrid capacity, new power generation plants will be connected by the “first come first serve” rule.

“First come, first serve” fornew grid connection
application

Reserved for emergency

New application for connection

Free capacity

If there is no free capacity
grid expansion construction
will be needed

Connection application

Operation
capacity

Connection application
Connection application

FIGURE 6. RULES FOR GRID LINE UTILIZATION
Source: depicted by authors based on METI19

19

METI website (Grid Connection),

https://www.enecho.meti.go.jp/category/saving_and_new/saiene/grid/01_setsuzoku.html#setsuzoku01(Japanese only)

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Grid connection constraints are a substantial issue in the further deployment of renewableenergy in Japan. Therefore, a new grid expansion master plan is under development. However,grid expansion, especially backbone transmission line construction, may take more than ten years.
Hence, utilizing the existing grid system is of significant importance in achieving the 2030
renewable energy target. One such measure is the “non-firm” connection rule. Under the “non-firm”
connection rule, a new power generation plant can be connected to the grid even if there is no freegrid capacity, on condition that its output will be first in line to be curtailed without compensationin the event of grid congestion. The “non-firm” connection mechanism was applied in January 2021
high voltage transmission lines across Japan with no free capacity. However, since April 2022, the“non-firm” connection rule is applied to all high-voltage transmission lines nationwide regardlessof the availability of free capacity for new connections. As of 2021, applications for “non-firm”
connection have reached a total of 3GW.20
Currently, the “non-firm” connection rule applies only to high-voltage transmission lines. The
application of this rule to the local grid systems with lower voltage is also under consideration.
TEPCO (Tokyo Electric Power Company Holdings) Power Grid is piloting the implementation of
the “non-firm” connection rule to the local grid i in its service area. ”Non-firm” connection is aneffective transitional solution for connecting more new renewable projects to the grid in the shortterm. Yet, renewable generators share the concern that it is difficult to predict how much
uncompensated curtailment will occur, and thus the impact it will have on the project cash flow.
In the long-term, the transmission capacity, especially the interconnection capacity between
different regions, needs to be expanded so that a higher share of renewables can be integrated
into the power grid. Taking into consideration the potential of renewable energy resources acrossJapan, the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) iscurrently formulating a cross-regional network development plan for grid enhancement.

2.2. O PTIONS FOR RENEWABLE ELECTRICITY PROCUREMENT
Almost all types of renewable electricity procurement options are possible in Japan in theory.
However, some options, such as, Environmental Attribute Certificates (EAC), physical corporate
PPAs, virtual corporate PPAs, still face challenges in practice.

2.2.1 E NVIRONMENTAL ATTRIBUTE CERTIFICATES (EAC) AND TRACKING RENEWABLE
ELECTRICITY

(i)

20

Ibid.

15

Current Status

IEEJ：September 2022© IEEJ2022©IEEJ 2022

Japan currently has three different types of EACs: Green Electricity Certificates (bundled
EAC), J-Credit (renewable electricity), and non-fossil fuel certificates (NFCs). They have beendeveloped in different contexts, and thus bear different characteristics, as provided in
TABLETable 1.
TABLE 1. COMPARISON OF EACS IN JAPANJ-Credit (fromrenewables)
2001

Green Electricity
Certificates
2013

FIT NFCs

Power generated atrenewable power
facilities for selfconsumption
Solar PV, wind, hydro,
geothermal, biomass

Power generated atrenewable power
facilities for selfconsumption
Solar PV, wind, hydro,
geothermal, biomass

Surplus grid power
generated at FIT power
generation facilities

Issuer

METI, MOE, MAFF

Certifier

METI, MOE, MAFF

SellerAuctions held by JCredit Scheme
Secretariat;
J-Credit holders or
brokers (directtransactions)
Consumers

Green Electricity
Certificate issuer
Japan Quality
Assurance Organization(JQA)
Green Electricity
Certificate issuer

Year started
Targetfacilities
Renewableenergysources

Buyer
Tracking
information

Amounts
issuedPrice level(2021)
Notes:

Non-FIT NFCs
(renewable)
2020

2018

Surplus grid power
generated at non-FIT
power generation
facilities
Solar PV, wind, hydro,
geothermal, biomass

Solar PV, wind, small
and medium-sizedhydro, geothermal,
biomass
Power generator
METI
Green Investment
Promotion
Organization (GIO)

Power generators

Consumers

Retailers, consumers

Retailers

Credit certification
number, project
number, project
implementer(corporate number),location (area) ofproject, outline ofproject, type of project,target period, certified
amount, amount of
renewable electricity
1.07 million t-CO2(amount certified in
2021)

Name of holder, serial
number, amount
generated, power type,generation period,
certifier, issuer, date ofissuance,

Facility ID, type of power generation facility, nameof facility, name of owner, generation capacity,
date of certification, date of commission, locationof facility, allocated amount

246 million kWharound 90 billion
kWh*1

1.38 JPY/kWh

2-7 JPY/kWh

0.3 JPY/kWharound 90 billion
kWh*1(including directtransactions)
0.6 JPY/kWh*1 Based on FY2020 results (METI21)

Source: Compiled by authors based on various government material

21

METI, (2021) “Tracking FIT non-fossil fuel certificates” (Document 1 from the 33rd meeting of the

Subcommittee on Mass Introduction of Renewable Energies and Next-Generation Electricity Networks, June 3,2021), https://www.meti.go.jp/shingikai/enecho/denryoku_gas/saisei_kano/pdf/033_01_00.pdf (Japanese only)

16

IEEJ：September 2022© IEEJ2022©IEEJ 2022(a) Green Power Certificates
The Green Power Certificate scheme was launched in FY2001 by Japan Natural Energy
Company as a voluntary initiative by private enterprises for the mass deployment of renewableenergy. The Japan Quality Assurance Organization (JQA) certifies renewable power facilities andthe power generated. Certificates are available for green power and green heat generated for selfconsumption. Certified Green Electricity Certificates are sold by certificate issuer organizations.22
Prices vary from 2-7 JPY/kWh, depending on the certificate issuer.23
FIGURE 7 shows the annual volume of Green Power Certificates issued by type of renewableenergy. Biomass accounts for the majority of certificates. An increase in solar PV certificates wasseen in 2020 with the addition of post-FIT residential solar power.

108 kWh

Biomass

Hydro

Solar PV

Geothermal

Wind

FIGURE 7. ANNUAL VOLUMES OF GREEN POWER CERTIFICATES ISSUED (20092021)
Source: JQA website(b) J-Credits
The J-Credit scheme certifies the amount of carbon dioxide emissions reduced or absorbed
through the self-consumption of renewable electricity, the introduction of energy efficientequipment, or forest management. The J-Credits issued for renewable electricity can be used asclean energy credits.

22

There are 37 issuers as of April 1, 2022.

23

MOE, (2020) “What public organizations can do in the climate era: the challenge of achieving 100%

renewables: Renewable energy procurement guidebook for public organizations”,
https://www.env.go.jp/earth/earth/re100_1/RE100guidebook.pdf (Japanese only)

17

IEEJ：September 2022© IEEJ2022©IEEJ 2022

The domestic credit system and the J-VER system were integrated in 2013 into the current JCredit scheme, which is jointly operated by the Ministry of Economy, Trade and Industry (METI),
the Ministry of the Environment (MoE), and the Ministry of Agriculture, Forestry and Fisheries(MAFF). J-Credits can be purchased 1) through intermediaries such as offset providers;2) bypurchasing credits listed for sale; or 3) through auctions conducted by the J-Credit Scheme
Secretariat. As shown in FIGURE 8, the average winning bid price of J-Credits has risen over the
recent years, due to an increase in demand.

Approx.
1.51JPY/kWh

JPY/t-CO2

Renewable
power

Energyefficiency

Average winning bid price (No.1-3)
Average winning bid price (No. 4- Renewable power)
Average winning bid price (No. 4- Energy efficiency)

No.1

No.2

No.3

No.4

No.5

No.6

No.7

No.8

No.9

No.10

No.11

No.12

No.13

FIGURE 8. AVERAGE WINNING BID PRICE OF J-CREDITS
Source: J-Credit Scheme website24(c) Non-fossil Fuel CertificatesNon-fossil Fuel Certificates (NFC) account for the majority of EACs currently issued in Japan25.
This scheme was originally launched in 2018 for FIT electricity with two aims. First, having the"environmental value" of FIT electricity purchased by retail electricity suppliers seeking to sell
products bearing that value was expected to reduce the costs shouldered by the general public(consumers) in the form of FIT surcharges. Second, NFCs could be used as a means for electricity
retailers to comply with the 2030 target of procuring at least 44% of their supply from non-fossil
fuel electricity including renewable energy under the Act on Sophisticated Methods of Energy
Supply Structures (hereafter “Sophisticated Act”; enacted in 2009).

24

https://japancredit.go.jp

25

It should be noted that as indicated in Table 1, only an estimate is available for direct transactions; andtherefore, a precise percentage of NFC in total traded clean energy credits cannot be given.

18

IEEJ：September 2022© IEEJ2022©IEEJ 2022

In 2020, the scheme was expanded to include non-FIT non-fossil fuel sources, including nuclear
power, thus dividing NFCs into FIT NFCs, non-FIT NFCs (with renewable attributes26) and nonFIT NFCs (with no renewable attributes27). In August 2021, further reform divided the NFC market
into the Renewable Value Trading Market covering FIT NFCs and the Sophisticated Act
Compliance Market for non-FIT NFCs, thus excluding FIT NFCs from means of complying with theSophisticated Act.
As of the November 2021 auctions, consumers and brokers are allowed to participate in the
FIT NFC market. This, along with the increased amount of trackable NFCs available, has led to asignificant increase in the amount of credits contracted. Direct transactions between power
generators and consumers have been permitted for non-FIT NFCs (for certain projects 28 ), on
condition that they will conclude a corporate PPA. Transaction costs, including the fees required
for membership in the Japan Electric Power Exchange (JEPX)29, can be a challenge.
The minimum price of NFCs was brought down by 1 JPY/kWh to 0.3 JPY/kWh with the launchof the Renewable Value Trading Market in November 2021 with an aim to make the price of
renewable power procurement closer to international levels. Yet, there remains an oversupply ofcredits in both markets (TABLE 2). It should also be noted that the May 2022 auctions ended with
a 98.8% decrease in transactions for non-FIT NFCs, perhaps due to the impact of soaring
wholesale electricity prices recently experienced by retailers, as well as an increase in directtransactions.30
TABLE 2. RECENT AUCTION RESULTS FOR NFCSFIT NFCs
Fiscal year
Contract
date
Price(JPY/kWh)Contract
amountSupply(Mil. kWh)
Bids

5/13

Non-FIT NFCs (renewables)
FY2020
FY2021
2/10
5/13
8/27
11/25
2/9

5/12

0.3

0.3

1.2

0.9

0.6

0.6

0.6

0.6

1,929

1,341

2,139

10,570

2,276

1,744

1,846

2,825

35

-

55,95483,551

108,175

11,273

3,518

3,771

11,48015,40816,604

-

1,929

1,341

2,139

15,890

6,666

3,935

1,846

2,825

35

FY2020
2/12
5/14

11/26

FY2021
2/10

1.30

1.30

0.33

446

350

-

26

Electricity from non-FIT renewable

27

Electricity from nuclear and other non-renewable non-fossil fuel electricity

28

According to an interim report on discussions on the NFC market at government committee meetings, directtransactions for eligible non-FIT NFCs can be made between renewable generators and consumers. Eligible nonFIT NFCs include:-Non-FIT renewable projects with COD after April 2022
-Post FIT renewable projects
FIP renewables are to be eligible.
29

Exemptions apply to members only participating in the NFC market.

30

For renewable non-FIT NFCs, direct transactions accounted for around fourfold of those purchased in themarket in FY2021.

19

IEEJ：September 2022© IEEJ2022©IEEJ 2022

(Mil. kWh)
Tracking(Mil. kWh)

226

271

1,837

1,341

2,139

-

-

890

990

-

-

Source: Compiled by authors based on METI31(d) Tracking renewable energy attributes
For Green Power Certificates and J-Credits, relevant attribute information can be found on
the relative websites. In response to calls for a system to track renewable attributes that can beused to claim the use of renewable energy under international initiatives, including RE100, CDP
and SBT, the Agency Natural Resources and Energy (ANRE) launched a pilot tracking scheme in
2019. As of November 2021, following a pilot period, all FIT NFCs auctioned require tracking
information.
For non-FIT NFCs, a pilot tracking scheme was launched in August 2021 (FIGURE 9). As aresult, in the August and November auctions, 0.89 billion kWh and 0.99 billion kWh, respectively,
out of the 1.74 billion kWh and 1.85 billion kWh contracted had tracking information.
Later in 2022, JEPX takes over the tracking scheme, which will covers all types of NFCs.
NFCs with renewable tracking information can be used for RE100 reporting. The tracking system
is expected to be further improved and though the system is free of charge at the moment in the
future fees are supposed to be charged for system usage.

Retailer

Electricity

Non-fossil
value

Wholesale
Apply formarketNon-FIT certificationofelectric output volume
Non-FIT Certification
Non-fossil fuelpower for given periodCertification results
energy value trading
Certification
generator
Secretariat
results
market(JEPX
Non-FiT NFC offer
member)
JEPX

Additional
certificationof tracking
information

Information
platform
system

FIGURE 9.

Non-FITNFC bid

Retailer

NFC

ConsumerTracking info isadded to NFC(NFC withtracking)

PILOT TRACKING SCHEME FOR NON-FIT NFCS
Source: Compiled by authors based on METI

31

ANRE, (2022) “NFC trading” (Document 6, 62nd meeting of the Working Group on System Design (Electricity

and Gas Basic Policy Subcommittee, February 17, 2022),
https://www.meti.go.jp/shingikai/enecho/denryoku_gas/denryoku_gas/seido_kento/pdf/062_05_00.pdf (Japaneseonly); ANRE (2021) “Pilot tracking scheme” (Document 3-2, 60th meeting of the Working Group on System
Design, Electricity and Gas Basic Policy Subcommittee, December 22, 2022),
https://www.meti.go.jp/shingikai/enecho/denryoku_gas/denryoku_gas/seido_kento/pdf/060_03_02.pdf (Japanese
only)

20

IEEJ：September 2022© IEEJ2022©IEEJ 2022(ii) Challenges to be overcome
While recent reforms have responded to the needs of many corporate renewable power
procurers, many challenges remain.
The market mechanism has not worked as effectively as expected in the current NFC markets,as seen in the oversupply of credits. This implies that unresolved issues including not only the
trackability of credits as aforementioned, but also the complexity of the market has undermined its
attractiveness. For example, post-FIT power generation facility owners can choose among theGreen Electricity Scheme, J-Credit Scheme or NFC scheme to acquire certification. In the longer
term these different markets should be integrated at some point to create a user-friendly market
for which rules for consumer participation are made clearer.
Given the approval of the 6th SEP and thus higher prospects of deployment of electricity fromnon-fossil fuels (including renewable energy), targets under the Sophistication Act may also be
revised. A higher mandatory target share of renewables may lead to increased demand for NFCs
in the future.
It should be noted that interviews with stakeholders revealed that despite dominant calls forlower credit prices, some stakeholders, including those from the real estate and manufacturingindustries, as well as experts, felt that current prices did not fairly reflect the high procurement costof renewable energy in Japan. And the tracking system that covers all NFCs is still not as
sophisticated and user-friendly as that of REC in the United or GO in Europe. Therefore, somebusinesses that are willing to pay a premium that reasonably reflected the current situation in
Japan were reluctant to purchase NFCs and felt more comfortable physically procuring renewableelectricity. Given that NFCs are the most traded EACs in Japan, it is important to improve thequality of NFCs and pricing NFCs so that they fully reflect the environmental value of renewableelectricity in Japan. Such improvements will make NFCs an attractive choice for both therenewable power generators seeking guaranteed revenue and for corporations seeking renewableelectricity to convert to 100% renewable electricity consumption.

2.2.2 C ORPORATE PPAS32 /VPPAS
Although there are various options for corporations to procure renewable electricity, different
methods have different impacts on renewable energy development. The “additionality” of new
renewable power facilities has become a critical quality criterion for renewable electricity
procurement around the world. Corporate PPAs can offer “additionality”. Although EACs continue
to be the dominant method for renewable electricity procurement among many RE100 companies,
corporate PPAs are becoming increasingly important (FIGURE 10).

32

This report focuses on offsite corporate PPAs.

21

IEEJ：September 2022© IEEJ2022©IEEJ 2022

100%
90%

3%
3%

80%
70%

41%

1%

2%

3%
4%

35%

31%

16%

19%

46%

2017

60%
50%
40%

13%

3%

5%
3%

30%

24%

26%

28%

43%

42%

40%

2018

2019

2020

30%
20%

40%

10%
0%
2016
Unbundled EAC

PPAs

Green electricity

Self generaCon

OthersFIGURE 10 BREAKDOWN OF RE100 COMPANIES’ RENEWABLE SOURCING OPTIONS
Source: RE10033

In a corporate PPA, a consumer company can conclude an electricity purchase agreement
directly with a renewable power generator. Depending on the location of the renewable power
generation site, corporate PPAs can be grouped into onsite PPAs and offsite PPAs. Globally most
corporate PPAs are offsite PPAs, which can be broken down into two types: physical corporate
PPAs and virtual corporate PPAs (VPPA).
In Japan, the electricity business rules were revised in 2021 so that consumer companies canconclude offsite PPAs directly with any non-FIT/FIP renewable power generator (direct offsite
corporate PPA) under the self-wheeling rule. Before the rule revision, the consumer company andrenewable generator had to have close business relations (for example, belonging to the same
corporate group) to be able to conclude a direct offsite corporate PPA. If not, they had to sign thecontract through an electricity retailer (indirect offsite corporate PPA) (FIGURE 11).
In Japan, non-FIT and non-FIP projects are eligible for direct offsite corporate PPAs.
Consumer companies who are parties to such agreements using the self-wheeling program are
exempted from FIT surcharges. Given the increasing financial burden of the FIT surcharge
imposed upon commercial electricity consumers, direct offsite corporate PPAs can help consumer
companies reduce their electricity bill. In a direct offsite corporate PPA that does not involve anelectricity retailer, the consumer company and power generator are challenged with the burden of

33

RE100, (2022) “RE100 annual disclosure report: Stepping up: RE100 gathers speed in challenging markets”,

https://www.there100.org/sites/re100/files/2022-01/RE100%202021%20Annual%20Disclosure%20Report.pdf

22

IEEJ：September 2022© IEEJ2022©IEEJ 2022

signing a wheeling contract, as well as the responsibility for supply-demand balancing and theimbalance penalty falls upon. However, consumer companies and power generators often do nothave enough expertise on such matters. Therefore, this type of offsite corporate PPA is still not
the major means of renewable electricity procurement for corporate renewable buyers at present.
On the other hand, in an indirect offsite corporate PPA, consumer companies are required to pay
the FIT surcharge and a premium to the retailer, but can avoid the complex grid operation-related
responsibilities and contract procedures.

EAC (Non-FIT RE based NFC)
Direct offsite physical
PPA

Renewable
electricity
generator

Grid

Wheeling fee

Consumercompany

Electricity supply

Payment for electricity and EAC
EAC (Non-FIT RE based NFC)
Indirect offsite physical
PPA

Renewable
electricity
generator

Retailer

Grid

Electricity supply

Grid

Consumercompany

Wheeling
fee
Payment forelectricity and EAC

FIGURE 11 TYPES OF PHYSICAL OFF-SITE PPA IN JAPANSource: Depicted by authors based on MOE34

Virtual PPAs (VPPA) are also becoming increasingly popular. VPPAs are rapidly growing
especially in the United States. The mechanism of VPPAs is shown in FIGURE 12. In a VPPA, therenewable power generator sells its electricity to the wholesale power market, whereas theconsumer company has an electricity purchase contract with the retailer. Although the electricity
is not physically delivered, the consumer company is able to purchase the total amount of
renewable electricity and a corresponding amount of EACs (e.g. NFCs in the case of Japan) for a
pre-negotiated price. The settlement follows the CfD (Contract for Difference) principle. When themarket price is lower than the pre-negotiated VPPA price, the consumer company will pay thedifference to the generator. In turn, when market price is higher, the generator is required to pay
the difference to the consumer company. In a VPPA contract the EACs for the renewable electricity(NFCs in Japan) are transferred from the generator to the consumer company. Because thephysical delivery of renewable electricity from the generator to the consumer company is not
required in a VPPA, consumer companies can avoid wheeling charges due to the grid operator
and the responsibility of supply-demand balancing. Therefore, this type of corporate PPA is mucheasier for consumer companies to engage in.

34

MOE and Mizuho Research & Technologies, (2021) “Off-site Corporate PPA” (revised in March 2022),

https://www.env.go.jp/earth/off-site%20corporate.pdf (Japanese only)

23

IEEJ：September 2022© IEEJ2022©IEEJ 2022

EAC transferred from renewable generator to consumer company

When market price is higher
than VPPA price: renewablegenerator pays the difference
to consumer company

Renewable
generator

VPPA price*

When market price is lower
than VPPA price: consumer
company pays the difference torenewable generator

Electricity wholesalemarket priceConsumercompany*EAC value included in the VPPA price

FIGURE 12. MECHANISM OF VIRTUAL PPA
Source: Depicted by authors based on MOE35

As with physical PPAs, there are direct and indirect VPPAs in Japan. To make the direct VPPA
scheme work, the consumer company needs to be able to directly conclude a contract with therenewable electricity generator for electricity purchase and the transfer of the EACs for the
renewable electricity. Electricity purchase agreements can be directly concluded between aconsumer company and renewable generator in Japan by using the self-wheeling program(applicable to non-FIT renewable projects).
Although direct VPPAs are more common overseas, indirect VPPAs through an electricity
retailer are also workable in Japan (FIGURE 13). Currently, the only type of credits that can serve
as EACs for non-FIT renewable projects is the non-FIT NFC. For consumer companies concluded
a VPPA contract the latest rule revision of the NFC market allows their direct non-FIT NFC
transactions with renewable power generators for certain renewable projects36.

Electricity
Renewable
electricity
generator

Wholesale
Revenue from market
marketElectricity supply contract
Retailer

Payment for electricity supply

Non-FIT RE based NFC

Non-FIT RE base NFC

Payment for RE credit (can be CfD)

Payment for RE credit with certain
premium

Consumercompany

FIGURE 13. VPPA STRUCTURE IN JAPAN WITH INVOLVEMENT OF A RETAILER
Source: depicted by authors based on MOE37 and Renewable Energy Institute38

35

Ibid.

36

Eligible power plants include non-FIT renewable projects starting operation after April 2022 and post-FIT

renewable power projects. FIP renewable project is also expected to be eligible.
37

Ibid.

38

Renewable Energy Institute, “RE Procurement Guidebook 5th Edition (2022 Edition)”, https://www.renewable-

ei.org/activities/reports/20220112.php

24

IEEJ：September 2022© IEEJ2022©IEEJ 2022

TABLE 3. OFFSITE CORPORATE PPA IN JAPANTypes of Corporate PPA s
PhysicalDirect• Consumer company and renewable power generator conclude direct electricity
purchase contracts (non-FIT renewable power project)• Workable in Japan under the self-wheeling program

Indirect• Consumer company purchase renewable electricity from certain renewable power
generator through an electricity retailer• Workable in Japan

Direct• Consumer company and renewable power generator sign virtual electricity purchase
contract directly (non-FIT renewable project)• NFCs (non-FIT NFCs) from the purchased renewable electricity are directly transferredfrom renewable power generator to consumer company• The latest rule revision of the NFC market enables consumer companies with a VPPA
contract to have direct transaction of non-FIT NFCs with renewable power generators
when the renewable projects meeting certain criteria

Indirect• Consumer company signs virtual electricity contract with renewable power generator
through an electricity retailer• NFCs (non-FIT NFCs) from the purchased renewable electricity are directly transferredfrom renewable power generator to consumer company through an electricity retailer• Workable in Japan

PPA

VPPA

Overview

Source: Compiled by authors based on METI39

Under the FIT scheme, the purchase price and period of renewable electricity ispredetermined by the government and this can guarantee a stable revenue for the renewable
power generator. However, in a corporate PPA or VPPA, the purchase price and period arenegotiated by the renewable power generator and buyer (off-taker).

Therefore, whether arenewable power generator can expect a stable revenue from the project is dependent on thebuyer’s credibility and capacity to guarantee a long-term electricity purchase agreement. This has
significant impact on the bankability of the renewable project. Many interviewees referred to buyers’
credibility to be their biggest concern regarding corporate PPA/VPPA in IEEJ’s interviews.
It should be noted that in Japan the renewable power generation is still subsidized under a
FIT or FIP scheme. Therefore, for corporate PPAs or VPPAs to be an attractive choice fro
renewable power generators, they need to promise a revenue level equivalent to that of FIT and
FIP projects. Current government measures such as determining the FIT/FIP price through bidding,

39

METI, (2022) “Regarding Trading of Non-fossil fuel Credits” (62th Working Group on Policy Revision Electricity

and Gas Basic Policy Subcommittee under the Electricity and Gas Industry Committee of the Advisory
Committee),https://www.meti.go.jp/shingikai/enecho/denryoku_gas/denryoku_gas/seido_kento/pdf/062_05_00.pdf (Japaneseonly);
METI, (2021) “Regarding Demonstration of Renewable Tracking” (60th Working Group on Policy Revision
Electricity and Gas Basic Policy Subcommittee under the Electricity and Gas Industry Committee of the Advisory
Committee),https://www.meti.go.jp/shingikai/enecho/denryoku_gas/denryoku_gas/seido_kento/pdf/060_03_02.pdf (Japanese
only)

25

IEEJ：September 2022© IEEJ2022©IEEJ 2022

which aim to encourage renewable projects to be independent from government subsidy, cancontribute to the further growth of corporate PPA/VPPA.
Retailers are expected to play an important role in both physical and virtual corporate PPAs
in Japan. Although consumer companies can directly conclude a corporate PPA with renewable
power retailers, the involvement of electricity retailers in corporates PPA can help facilitatecontracts, given the complexity of wheeling contracts and supply-demand balancing. However,concerns have been raised that only a limited number of retailers possess the expertise and knowhow (for example, on supply-demand balancing) needed for concluding a corporate PPA/VPPA
contract.

26

IEEJ：September 2022© IEEJ2022©IEEJ 2022

CHAPTER 3. POLICY RECOMMENDATIONS(1) Accelerate the implementation of local decarbonization initiatives and collectinformation on land ownership and required conditions for land acquirement approval
during the wide area zoning process.
Land constraints are one of the most significant problems pertaining to Japan’s renewableenergy development. The limited availability of optimal sites affects not only renewable power
generation costs but also the future potential of renewable power development. The governmentis well aware of this issue and several government ministries have already taken measures toaddress it. In a national land planning committee meeting40, The Ministry of Land, Infrastructure,
Transport and Tourism (MLIT) is leading discussions on new national land planning towards
achieving carbon neutrality. Securing enough land to facilitate renewable project development is
one of the most important discussion points of the committee meeting. Outcomes will be reflectedin the National Land Use Plan. This MLIT-led ongoing discussion on land use planning is also
linked to the local decarbonization promotion initiative led by the Ministry of the Environment (MOE).
In the amended Act on Promotion of Global Warming Countermeasures, MOE reinforced thepromotion of local government decarbonization initiatives. The local decarbonization initiative
comprises two important elements: 1) the local renewable development target; and 2) the local
decarbonization zone. MOE also established a committee41 to promote the implementation of thelocal decarbonization initiative. The summary report42 compiled by the committee outlined several
important issues to be considered when setting up local decarbonization zones and acquiring
permission for decarbonization projects (mostly renewable projects) in a decarbonization zone.
The committee’s suggestions clarify different responsibilities expected for different
stakeholders: central government, prefectural governments, municipalities, local communities, andprivate project developers (FIGURE 14). Furthermore, one of measures in local decarbonization
zone is wide area zoning. According to the MOE’s manual for wide area zoning, in the zoning
process for renewable energy development, not only environmental regulations at the national andprefecture levels will be considered, environmental and social concerns at the municipal level alsoneed to be taken into account. Therefore, the wide area zoning can be expected to help streamline

40

MILT, (2022) 6th Planning Committee meeting under the National Land Development Council,

https://www.mlit.go.jp/policy/shingikai/kokudoseisaku01_sg_000275.html
41

Council for Implementing the Amended Act on Promoting Global Warming Countermeasures toward Local

Decarbonization
42

MOE, (2021) “Summary Report of the Council for Implementing the Amended Act on Promoting Global

Warming Countermeasures toward Local Decarbonization”, https://www.env.go.jp/policy/council/51ontaisekou/ref_1-1-1.pdf (Japanese only)

27

IEEJ：September 2022© IEEJ2022©IEEJ 2022

the permission procedures such as the Environmental Impact Assessment (EIA) for renewableproject development.

Implementation item

Responsible entity

National-level environmental
protection rules to be
implemented nationwide

Central gov.

Prefectural environmental
protection rules based on local
circumstances
Environmental protection initiatives for
local decarbonization zones based on
local RE goals, determined with the local
stakeholder engagement

Prefecture gov.

Municipalities

Plans for local decarbonization
projects

Privatedevelopers

Permission of local decarbonizaiton
projects

Municipalities

Image of implementation
Considerations andrules forenvironmental
protection

Procedures fordetermination of local
decarbonization zone

Areas to be
determined bymunicipalities

Other areas

Other areas

Areas to be
determined bymunicipalities

Action plan by local public
entities

Areas
excludedAreas
excluded

Local discussion

Local decarbonization
projects

Permission
procedureso Local decarbonizationo Local environmental protectiono Local social and economy

o Local discussiono One-stop permissoin
o Streamlining EIA

FIGURE 14. PROCEDURES FOR LOCAL DECARBONIZATION ZONE
Source: compiled by authors based on MOE43

The long duration of the EIA process is often referred to as one of the factors leading to highgeneration costs, especially for wind power. A shortened EIA process can not only contribute tolowering renewable development costs but also accelerating renewable power development.
Japanese EIA procedures require the participation of the general public and approval from theprefectural government at various stages. (FIGURE 15). This time-consuming requirement can bestreamlined in the case of wide area zoning, where the local government and local communities
have already participated in the zone selection process.

43

Ibid.

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IEEJ：September 2022© IEEJ2022©IEEJ 2022

PublicLocal gov.

Screening: determin whether EIA is necessary

Developer

Central gov.

Project planning

Permission agency

Opinion from governor

Decision
EIA needed

EIA methodology (scoping)

Draft EIA methodology

OpinionOpinionFinal EIA methodology

Implementation of assessment
EIA result

Draft EIA result
Opinion from MOE minister

OpinionOpinion

Revised EIA result

Opinion from permission agency

Final EIA result

Reflect EIA results on projects

Evaluation by permission agency
Implementation of project
including environmental
protection measures

FIGURE 15. ENVIRONMENTAL IMPACT ASSESSMENT PROCEDURES IN JAPANSource: https://www.cas.go.jp/jp/seisaku/jouhouwg/hyoka/dai1/sankou6.pdf

The implementation of wide area zoning can help speed-up the development process ofrenewable energy projects. However, even though in the zoning process the environmental andsocial matters will be considered, there is little mention of land utilization issues in the zoning
manual. Unclear land ownership and complicated and time-consuming land use approval process
are sited to be one of the major issues hindering renewable development and resulting in highrenewable development cost. Therefore, during the wide area zoning process, informationcollection regarding land ownership and providing the information that can be disclosed torenewable developers can help addressing the land acquirement difficulties in the renewableproject development process.

(2) Improve grid integration condition for renewable projects
Grid connection and grid utilization need to be more predicable to encourage investment inrenewable projects. Measures for accommodating more renewable electricity in the grid, such as
grid expansion, and consumer-side renewable electricity solutions will also be needed in the future.

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Accelerate improvement of data disclosure and data management rules to enhance“predictability”: “Predictability” was the main concern among interviewees in terms of grid andelectricity market issues. For example, new renewable power plants connected to the grid underthe “non-firm” connection rule are subject to curtailment without compensation when gridcongestion occurs. Interviewees were concerned that unpredictable curtailment may affect arenewable project’s bankability.
From April 2022, most newly approved renewable projects will be covered by the FIP program,
under which the renewable electricity purchasing price is linked to the electricity wholesale market
price. Therefore, renewable power developers will face risks associated with market price volatility.
Furthermore, more energy storage facilities such as batteries will be needed to accommodate
more variable renewable power capacities. Market participants interviewed pointed out that thepredictability of the market price, especially the price difference between different hours of the day,is key to the economic viability of energy storage facilities.
To improve the predictability of grid operations and the market price, data regarding power
generation plants and the grid operation status need to be properly disclosed to electricity market
participants. It is important for the government to accelerate the process of establishing data
disclosure and data management rules for the electric power system. Data disclosure andmanagement are also key to the digitalization of the electric power system. A proper database
design can also simplify energy-related processes. For example, in Germany, all electricity andgas market participants (plant operators, network operators, and traders) are required to registerwith the Market Master Data Register (MaStR). Plant information, including the name, address,
location, technology, performance value, is registered with MaStR and made available to the
public.44 With such information, one can assess the total capacity of power connected to the gridin a certain area and make a rough evaluation of grid congestion conditions.
Formulate inter-regional grid expansion and new grid utilization rules: In the longer term, theincreased accommodation of renewable energy in the grid will indispensably require inter-regionaltransmission line expansion. An inter-regional grid expansion plan (Master Plan) is currently being
developed under the leadership of OCCTO. At the same time, new grid utilization rules thatincorporate the environment benefits of renewable electricity are also necessary.

Severalformulations of grid utilization and grid congestion management rules are currently underconsideration (FIGURE 16). To make sure that grid constraints do not delay future renewableenergy development, it is desirable to speed-up the future grid utilization rule making process.

44

There is also some other registered information that is confidential

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IEEJ：September 2022© IEEJ2022

simpleComplexity of the rules

complex©IEEJ 2022

U.S. (PJM, ERCOT,CAISO, etc.)

Italy, Norway

No price signal
Merit order rules
need to be decidedooCurrent gridcongestion
management rulelow

TSO focus rule(non-firm connection +merit order based
operation)oMarket based operation
rule(nodal type)Market based operation
rule(zone type)ooMarket price signal
Needs major change tocurrent system andother regulations

UK, Germany, Spain,
France, etc.

Curtailment of newly
connected plant

Price signal to developer

high

FIGURE 16 RULES UNDER CONSIDERATION FOR FUTURE GRID CONGESTIONMANAGEMENT
Source: OCCTO45(3) Develop a user-friendly NFC market and improve the renewable tracking system
Direct consumer access to renewable NFCs and tracking renewable electricity are key
elements of encouraging corporate renewable electricity procurement in Japan. In response tostrong calls for revision from consumer companies, the government is working on reforming NFC
market rules and further improving a renewable tracking scheme applicable to all renewableprojects. There are several factors that need to be carefully considered in the process:User friendliness: One of the drivers of NFC market rule revision is increasing consumer
companies’ needs for procuring renewable electricity. Hence, it is important to design rules thatare user-friendly for consumer companies. Under current NFC market rules, the effective periodof NFCs terminates at the end of June, regardless of the timing of NFC acquirement. Given thereporting timeframe for RE100 companies, for example, revising the current NFC effective period
to one year after the generation period of the NFC46, would allow more flexibility for reporting byconsumer companies. Furthermore, companies have different requirements for renewableelectricity sourcing. Some companies emphasize “additionality” in their renewable electricity
procurement, while others have special requirements for the location of renewable electricity

45

OCCTO, (2022) “Master Plan (Long-term Policy for Cross-regional Grid) Main Points” (17th Meeting of Councilof Cross-regional Grid Master Plan and Grid Utilization Rules),
https://www.occto.or.jp/iinkai/masutapuran/2022/files/masuta_17_01_01.pdf (Japanese only)46

The effective period rule for Guarantee of Origin in Germany

31

IEEJ：September 2022© IEEJ2022©IEEJ 2022

production. The renewable tracking system should be designed to provide renewable electricity
buyers with clear and sufficient information to check whether the electricity or NFC they purchasewill meet their corporate standards.
Compatibility with the latest international standards: It is important that the renewable NFCs
managed by the tracking scheme for renewable power meet RE100 criteria. It should be notedthat RE100 criteria are evolving and the latest international trends should be taken into accountwhen improving the domestic renewable tracking system.
Compatibility with other regulations: in the future to make the renewable certificate
management and trading system be as developed as REC (Renewable Energy Certificate) in the
United States or the GO (Guarantee of Origin) system in Europe, data from not only the renewable
developers but also other stakeholders such as grid operators and retailers will be necessary.
Therefore, further improvement of the renewable tracking system and NFC market is not only about
renewable energy system. The relevant rules regarding the renewable tracking system and NFC
market need to comply with the rules for data disclosure and management of the whole electricity
system.
(4) Scale up the corporate PPA/VPPA market. Rapidly disclose relevant market regulation
revision information companies and develop government guidance for corporate
PPA/VPPAs.
Japan’s corporate PPA and VPPA market is still at the nascent stage. To scale up the market,
information on regulation and rule revisions need to be rapidly disclosed to companies. For
example, as stated in Chapter 2, to be able to execute a direct VPPA, the consumer will need tohave direct access to non-FIT NFCs. In response to the needs of consumer companies, the latest
rule revision of the NFC market enables consumer companies with a VPPA contract to have directtransaction of non-FIT NFCs with renewable power generators when the renewable projects
meeting certain criteria. Detailed information of such market rule revision should be disclosed andreached to the companies rapidly.
Meanwhile, challenges pertaining to corporate procurement of renewable electricity can also
be attributed in part to the complexity and uncertainty of market rules. As aforementioned, theJapanese renewable electricity market is undergoing change in many dimensions: revisions arebeing considered for NFC market rules, a renewable tracking scheme is being developed, therenewable support mechanism is shifting from a FIT scheme to a FIP scheme, and new electricity
grid operation rules are under discussion. The current market situation can be overwhelming formany stakeholders, including developers, retailers, consumer companies, financial institutions,and local governments, involved in corporate renewable electricity procurement,

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In addition to the uncertainties of the market and regulations, the corporate PPA/VPPA
business model is still new to many stakeholders. Therefore, although corporate PPA/VPPA
schemes can be utilized in theory, the lack of proven successful cases and the confusion aroundmarket regulations make it difficult for companies to make business decisions to harness corporate
PPA/VPPA schemes. At the early stages of market development, access to government guidance
can help stakeholders to gain a better understanding of how corporate PPA/VPPA schemes workin Japan, as well as what roles and responsibilities are expected of them. Some effective measures
include identifying the relevant authorities from whom to seek guidance and providing clear public
guidance on the legal requirements that a VPPA needs to satisfy in order not to be treated as a
derivative.
Not only general guidance but also guidance on specific issues can also be useful. For
example, many interviewees mentioned that guaranteeing long-term electricity purchases as amajor obstacle in developing corporate PPA/VPPAs. Under the FIT scheme, a long-term electricity
purchase price is guaranteed by the government; and therefore, banks can be more confident infinancing the renewable project. In contrast, in a corporate PPA/VPPA, the off-taker is a privatecompany, whose credibility is an important factor in assessing the bankability of the renewableproject. The lack of expertise in evaluating emerging schemes can also make banks hesitant infinancing corporate PPAs/VPPAs for renewable electricity. Therefore, government guidance on
evaluating the bankability of corporate PPAs/VPPAs can facilitate the financing of such renewableprojects.
(5) Introduce consumer relief measures to reduce FIT surcharge burden.
As mentioned in Chapter 2, high renewable power generation costs are passed on toelectricity consumers in the form of the FIT surcharge. The increasing burden of the FIT surcharge
shouldered by end users is a critical issue in Japan’s renewable energy development. Given that
the FIT purchase period is 10 to 20 years (depending on the type of technology), the current FIT
surcharge is rooted in existing highly priced FIT projects that were approved in the initial years of
the FIT scheme. In the longer term, to reduce FIT surcharge further bringing down renewable
power generation cost is necessary. And to promote the cost reduction, Japan has introduced
auctions and has moved from FIT to market mechanism based FIP mechanism. However, evenunder the FIP mechanism, the premium paid to renewable developers is passed on to consumers,
and thus there are still surcharge to consumers (surcharge caused by FIP).
Corporate PPAs for non-subsidized (non-FIT/FIP) renewable projects (corporate PPA with
non-FIT/FIP renewable projects) can help encourage renewable energy development without
increasing the FIT surcharge. However, newly contracted corporate PPAs cannot contribute to the
reduction of the FIT surcharge caused by projects already approved.

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IEEJ：September 2022© IEEJ2022©IEEJ 2022

Other countries are also faced with the challenge of increasing burden of FIT/FIP surcharges
for consumers. One example of addressing the issue is to make the FIT/FIP surcharge beshouldered not only by electricity consumers but by all the energy consumers. In other words,
consumers from other sectors also shoulder the cost of supporting renewable electricity
development. Germany reduced its FIT surcharge (renewable energy levy) by 43%, from 6.5
eurocent/kWh to 3.72 eurocent/kWh as of January 2022. Alternately, the cost of supporting
renewable energy will be partly financed using revenue from the carbon price on heating andtransport fuels. The German government has also abolished consumer’s FIT surcharge as of July
1, 2022 and has instead set up a climate fund to support renewable energy. The fund will befinanced by revenue from carbon pricing and the government budget. The consumer relief
measures in Germany offer a good example for Japan to consider when addressing its growing
FIT surcharge issue.

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APPENDIX RENEWABLE ENERGY DEVELOPMENT IN JAPANThe current 6th SEP ensures the utilization of renewable energy as the major power source;
and therefore, renewable energy will be adopted to the maximum possible level.47 The SEP seeks
to reduce the financial burden shouldered by consumers and to facilitate the social acceptance of
renewable energy by local communities in the long term.
The 6th SEP sets an ambitious target for renewable energy with a share of 36-38% in power
generation mix by 2030 (TABLE A1). The 2030 renewable energy target consists of solar at 1416%, wind at 5%, geothermal at 1%, hydropower at 11%, and biomass at 5%. Among others, thesolar power is planned to increase the share by more than double compared to the previous SEP.
In terms of the capacity, the 6th SEP requires 147-161GW of renewables’ capacity to achieve thetarget.
TABLE A1. THE 2030 RENEWABLE ENERGY TARGET IN POWER GENERATIONThe 6th SEP

The 5th SEP

Share

Capacity

22-24%(237TWh – 251TWh)

36-38%(336TWh – 353TWh)

147-161GW

Solar

7.0%

14 – 16%

104 – 118GW

Wind

1.7%

5%

Onshore 17.9GW
Offshore 5.7GW

Hydro

8.8 – 9.2%

11%

50.7GW

Geothermal

1.0 – 1.1%

1%

1.5GW

Biomass

3.7 – 4.6%

5%

8.0GW

Renewables in power
generation mix

Source: compiled by authors based on METI (2022)48

A.1 C URRENT STATUS AND ISSUES OF RENEWABLE ENERGY DEVELOPMENT
IN JAPAN(i)

Current Status
One of the features of renewable energy development in Japan is that the solar PV has

increased significantly compared to wind power. Japan’s renewable power generation capacity
reached 134 GW in 2021 (FIGURE A1). Solar PV generation capacity accounts for 56%, followed

47

METI, (2021) “Outline of Strategic Energy Plan”

https://www.enecho.meti.go.jp/en/category/others/basic_plan/pdf/6th_outline.pdf (Japanese only)
48

METI, (2022) “Prospective Renewable Energy Policy” (40th Mass Renewable Energy Introduction and Next-

Generation Power Network Subcommittee on April 7, 2022),

https://www.meti.go.jp/shingikai/enecho/denryoku_gas/saisei_kano/pdf/040_01_00.pdf (Japanese
only)

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IEEJ：September 2022© IEEJ2022©IEEJ 2022

by hydro with a share of 37%. The feed-in tariff (FIT) scheme implemented in 2012 especiallycontributed to boosting solar power, which increased about elevenfold from 6.6GW in 2012 to 74.2
GW in 2021. The generation capacity of wind and biomass has expanded steadily, although eachaccount for a share of merely about 3% of the total renewable power generation capacity. Hydro
and geothermal power have not shown notable growth partly because they require a long time andhigh costs to realize a project.

FIGURE A1 RENEWABLE POWER GENERATION CAPACITY IN JAPANSource: compiled by authors based on IRENA (2022)49

FIGURE A2 shows the current renewable power generation capacity and the 2030 target
specified in the 6th SEP. The current capacity includes facilities in operation before and after the
FIT scheme, and the non-operating facilities approved under the FIT scheme as of September
2021. The overall achievement rate of 55% indicates that Japan needs to ramp up the renewableenergy development towards the 2030 target. In specific, an additional operating capacity of 4054GW for solar and 13GW for onshore wind will be necessary to achieve the target.

49

International Renewable Energy Agency (IRENA) (2022). Renewable Capacity Statistics 2022. International

Renewable Energy Agency: Abu Dhabi.

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IEEJ：September 2022© IEEJ2022©IEEJ 2022

FIGURE A2. CURRENT RENEWABLE POWER GENERATION CAPACITY AND 2030
TARGET
Source: compiled by authors based on METI50(ii)

Issues by renewable energy source
Nevertheless, these renewable energy developments will be challenging for Japan due toseveral obstacles. The foremost serious issue is lack of adequate or flat land, which is found incommon among the renewables. Given the fact that forestry covers 67% of Japan’s total land area,
the appropriate areas to be developed are getting limited as the renewable energy development
is pursued further. For instance, the number of large-scale solar power projects with no less than2MW capacity have reduced significantly in recent years. As to onshore wind power, almost halfof the projects are planned in mountainous areas, which entails additional costs for extra landdevelopment and specific technology or equipment required.
An equally important subject for renewable energy development is the environmental aspect.
Conflicts with local communities are often seen in the solar and onshore wind power projects.
There are concerns about negative impacts on the environment and wildlife caused by the projects.
It is fundamentally important to take appropriate measures to protect the environment or prevent
incidents such as land sliding to help the local communities to understand and support the projects.
In addition, geothermal and biomass energy development projects need to deal with otherissues, respectively. For the geothermal development, it is crucial to coordinate related regulations
in place such as the Hot Springs Act and the Natural Parks Act which have restricted the progressin this field so far. The geothermal development also necessitates substantial expenses even in
the initial phase to carry out geological survey and drilling tests, which imply high development
risks.
In Japan, a substantial part of biomass fuel for power generation is imported woodpellets/chips and palm kernel shell (PKS). Prior to FIT approval, the sustainability of imported

50

METI, https://www.fit-portal.go.jp/PublicInfoSummary

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biomass fuels is evaluated based on a third-party certification scheme that certifies fulfillment ofsustainability requirements. 51 However, some companies have their own criteria to define thesustainability of electricity from biomass. Therefore, some corporate renewable electricity buyer
will choose not to purchase biomass power, even if it meets FIT sustainability requirements.
On the other hand, domestic wood biomass can be a source of sustainable biomass that canbe further explored. Utilizing forest thinnings in biomass power generation can contribute toencouraging sustainable forest management and developing local employment, as well as theutilization of local resources. A system to ensure that the wood biomass supply is from sustainable
forestry practices will be indispensable.

A.2 MAJOR SUPPORTING POLICIESA major policy to support the renewable energy development is the feed-in tariff (FIT) scheme
adopted in 2012. TABLE A2 presents the tariff rates under the FIT scheme in Japan and they are
acknowledged relatively higher at global level as illustrated in FIGURE A3. For instance, the tariff
rates of commercial solar PV and onshore wind are set at JPY 11/kWh and JPY 16/kWh in 2022,
respectively. The tariff rates for solar and onshore wind projects have gradually declined while
those of geothermal, hydro, and biomass projects remained almost the same since the FIT scheme
started.
The FIT Act was revised in 2017 to tackle issues such as the accumulation of non-operating
facilities with FIT approval and increasing surcharge. Under the revised FIT Act, the auction system
was introduced as a measure to reduce costs, which was expected to consequently relieve
financial burden on consumers. In FY 2022, large-scale solar PV (250kW or above and less than
1,000kW), biomass (general wood with capacity of 10MW or above and liquid biomass), andonshore wind (50kW or above) are subject to the auction system. Organization for Cross-regional
Coordination of Transmission Operators, Japan (OCCTO) is designated to oversee the auction.

51

In Japan, the Renewable on Sustainable Palm Oil (RSPO) for palm oil, and the Roundtable on Sustainable

Biomaterials (RSB), the Green Gold Label (GGL), and the ISCC Japan Fit for PKS and palm trunk arerecognized as the certification scheme as of FY 2022.

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TABLE A2. FIT RATES

Note: The tariff rates for geothermal and hydro are those of new projects.

Source: compiled by authors based on METI52

52

METI, https://www.enecho.meti.go.jp/category/saving_and_new/saiene/kaitori/fit_kakaku.html

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IEEJ：September 2022© IEEJ2022©IEEJ 2022

Solar (2MW)

Onshore wind (20MW)

FIGURE A3. PURCHASING TARIFF RATES
Note: 1€=JPY120, 1￡=JPY150

Source: compiled by authors based on METI53

As a part of the Act for Establishing Energy Supply Resilience which took effect in April 2022,
the FIT scheme was reviewed and redesigned to make the renewable energy the major powersource. A new scheme, the feed-in premium (FIP), is applied to the renewable energy that is likely
to become competitive and for which a market-based support system is considered rather
appropriate. Commercial solar PV, hydro, and geothermal with capacity of 1MW or above, biomass(general wood) with capacity of 10MW or above and liquid biomass with capacity of 50kW or above
will comply with the FIP scheme from FY2022. The feed-in premium (FIP) scheme started in April
2022 along with the FIT scheme.
Under the FIP scheme, renewable power generators sell electricity directly at the market orover-the-counter transactions and receive a premium in addition to the market price. The premiumis calculated as a difference between “the designated FIP price” and “the reference price.”
Premium (JPY/kWh) = the designated FIP price – the reference priceThe designated FIP price for FY 2022 will be set through the auction for commercial solar withcapacity of 1MW or above, biomass with capacity of 10MW or above and liquid biomass withcapacity of 50kW or above, and at the equivalent level of the FIT rates for other renewables. The
reference price is determined monthly based on the average wholesale price of the previous year

53

METI, (2022) “Opinions on Renewable Energy Purchase Prices from FY2022 Onward” (The Procurement

Price Calculation Committee (February 4, 2022)),https://www.meti.go.jp/shingikai/santeii/pdf/20220204_1.pdf (Japanese only)

40

IEEJ：September 2022© IEEJ2022©IEEJ 2022with monthly adjustments. The non-fossil values and the balancing costs are also factored into theequationOn the other hand, the basic framework of the FIT scheme is to be maintained for the otherrenewable energy sources if they are utilized locally and expected to improve disaster resilienceof the area. The locally utilized power sources need to meet the certain requirements to benefit
from the FIT scheme. The requirements to be eligible for the FIT approval have been applied tocommercial solar PV since FY 2020 and geothermal, hydro, and biomass since FY 2022 (TABLE
A3). Furthermore, onshore wind with less than 50kW capacity will be included and the targeted
capacity of biomass power will be changed to that of less than 2MW from FY 2023. The commercial
solar PV is obliged to satisfy both conditions while the other renewables need to meet one of therequirements.
TABLE A3. REQUIREMENTS FOR LOCAL UTILIZATION
Renewable energy

Requirements to be eligible for the FIT approval

Commercial solar PV (10-ü Self-consumption at least 30%

50kw)

ü Black start capability and power outlet function for emergency use

Geothermal (<1MW)
Hydro (<1MW)[Self-consumption type][Community-based type]ü Self-consumption at least 30%

ü Agreement on utilization of generated power/heatü Power supply at least 50% of its retailwith a municipality

electricity provided by a retailer orü Operated or financed by a municipalitytransmission and distribution operator to ü Power supply to a retailer operated or financed by

Biomass (<10MW)*
Onshore wind (<50kW)**a local community where a powera municipality

generation facility is located.
ü Self-consumption of power at least 10%
and heat for CHP

Note: * The targeted capacity of biomass power will be changed to that of less than 2MW from FY 2023.
** Onshore wind with capacity less than 50kW will be covered from FY 2023.

Source: compiled by authors based on METI54

From FY 2022, the renewable energy projects are supported by either FIT or FIP, dependingon the energy source and capacity (FIGURE A4). New projects and FIT approved projects with noless than 50kW capacity are allowed to apply for the FIP scheme if it is preferred over the FIT
scheme. The classification will be adjusted to reflect the renewable energy market anddevelopment situations.55

54

METI, (2022) “Renewable Energy FIT/FIP Scheme Guidebook”,

https://www.enecho.meti.go.jp/category/saving_and_new/saiene/data/kaitori/2022_fit_fip_guidebook.pdf(Japanese only)
55

The commercial solar PV registered under the FIP scheme will be expand to projects with capacity of 500kW

or above from FY2023 and those of 250kW or above from FY 2024. Similarly, the targeted biomass (general

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IEEJ：September 2022© IEEJ2022©IEEJ 2022

FIT (residential solar PV)
FIT (requirements for local utilization)
FIT

Solar
Onshorewind

FIT (auction)

FIP (auction)

FIP*
FIT (auction)

FIT

FIP*

Offshorewind (fixedbottom)
Hydro

Geothermal

FIT
FIP*
FIT (requirements for local utilization)

FIP

FIP*
FIT (requirements for local utilization)

FIP

FIP*

Biomass(generalwood)

FIT (requirements for local utilization)
FIP*

Biomass(liquid
biomass)

FIP (auction)
FIT (requirements for local utilization)

Biomass(the others)
capacity

FIP (auction)

FIP

FIP*
10kW 50kW

250kW

1,000kW

10,000kW

Note: * New projects and FIT approved projects no less than 50kW are allowed to apply for the FIP scheme if it ispreferred over the FIT scheme.

FIGURE A4. RENEWABLE ENERGY SUPPORT SCHEME (FY 2022)
Source: compiled by authors based on METI56

wood and the others) capacity will cover those of no less than 2MW from FY 2023. Fixed-bottom offshore windprojects to which Marine Renewable Energy Act of 2019 do not apply are not subject to the auction in FY 2022
but they will be required to participate in the auction from FY 2023.
56

METI (March25, 2022) “Renewable Energy Purchase Prices, Surcharge Rate, and Other Details related to FIT

and FIP Schemes from FY2022 Onward to Be Determined”,

https://www.meti.go.jp/english/press/2022/0325_004.html (Japanese only)

42
Contact: report@tky.ieej.or.jp