Corporate PPA in Japan- Digest Edition November 2021

Renewable Energy Institute1Table of Contents⚫ Executive Summary
1. Introduction: contract types, new policies

2. Onsite PPA: cost estimations, case studies
3. Physical PPA: cost estimations, case studies
4. Virtual PPA: cost estimations⚫ Policy Recommendations

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Executive Summary
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Corporate PPA is becoming an effective procurement option ofrenewable electricity in Japan. Scores of corporations madeonsite and offsite PPAs in 2021 for expanding renewableelectricity with additionality.
Cost of solar generation has been declining to JPY10/kWh(approx. USD100/MWh) or below and making corporate PPAs,
particularly onsite, competitive with regular tariffs.
In Japan, offsite PPAs, physical and virtual, should be madewith registered retailers between developers and consumers.
It reduces tasks and risks of consumers by paying fees.
The Japanese government is implementing new policies toaccelerate corporate PPAs, such as Feed-in Premium.
Virtual PPAs have not been made so far mainly because of thecurrent rule involving retailers in between. The government isconsidering changing the rule so that consumers will be able tomake virtual PPAs directly with developers.
31-1. Contract Type: Onsite PPA
Onsite PPAs can be made directly between developers andconsumers in Japan same as in other countries.

41-2. Contract Type: Physical PPA
Physical PPAs should be made with registered retailers between
developers and consumers by Electricity Business Act.

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1-3. Contract Type: Physical PPA (RE100%)
Physical PPAs may not be able to provide 100% electricity for theconsumers’ demand.
Consumers can make comprehensive
contracts with retailers including physical PPAs ant other sources.

61-4. Contract Type: Virtual PPA
Virtual PPAs should be made with registered retailers between
developers and consumers by the rules of Non-Fossil Certificates.
Consumers need to procure certificates of virtual PPAs through thesame retailer they purchase electricity. RE100% contracts areapplicable same as physical PPAs (refer to 1-3).

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1-5. Contract Type: Virtual PPA (direct)
Virtual PPAs can be made directly between developers andconsumers in case the rules of Non-Fossil Certificates are
deregulated (expected in 2022). Consumers will be able to procure
certificates of virtual PPAs from the developers.

81-6: Regular Tariffs vs. PPA Prices⚫

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Average regular tariffs are around JPY14/kWh for offices andstores (high-voltage, 50kW-2MW) and around JPY10/kWh forlarge factories (extra-high-voltage, 2MW-).
Consumers need to pay surcharges additionally, JPY3.36/kWhfrom May 2021 to April 2022, for electricity supplied through grid
network. Surcharges will be higher in the upcoming years.
Onsite PPA prices for consumers are around JPY10/kWh in2021. Consumers do not have to pay surcharges for onsite
PPAs. It is cost competitive compared with regular tariffs.
Physical PPA prices are around JPY16/kWh for high-voltage
consumers in 2021 and higher than regular tariffs by averagely
JPY2/kWh. Several customers receive subsidies for physical
PPAs from the government and cover the additional costs.
Cost issues for physical PPAs will be solved by new policies
implemented in 2022.

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1-7: New Policy: Feed-in Premium⚫

The government is going to support renewable energy
development projects by Feed-in Premium from April 2022.
Developers will receive premiums based on wholesale market
prices and retain environmental attributes of renewables.

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The new program covers 50kW or larger projects by solar, wind,medium-small hydro (up to 30MW), geothermal and biomass.

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Developers need to sell electricity to the wholesale market or toretailers by bilateral contract. Environmental attributes will beprovided to retailers or consumers from developers in the formof Non-Fossil Certificates.

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By selling electricity to the wholesale market, developers canmake virtual PPAs and receive differences of fixed PPA prices
and wholesale market prices by premiums. By bilateral contract
with retailers, developers can make physical PPAs at lower
prices than usual by receiving premiums from the government.
101-8: New Policy: Self-wheeling⚫

Self-wheeling is a program for corporate consumers to transfer
self-generated electricity to other locations through grid network.
In case of self-wheeling, consumers need to pay wheeling fees
but no surcharges.

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The program was applicable only in case both the generationsite and the recipient sites owned by the same company orgroup companies.

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The government changed the rule in November 2021 so that
consumers can apply the self-wheeling program in case thegeneration site is newly built, owned by other companies andconsumers procure the electricity by long-term contract(physical PPA). Consumers do not need to pay surcharges andcan reduce the total costs of physical PPAs.

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Projects certified by Feed-in Premium or Feed-in Tariff are notapplicable for the self-wheeling program.
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2-1: Cost Estimation for Onsite PPA
Onsite PPA prices for solar are around JPY10/kWh in 2021.
Installation costs of onsite solar are usually lower than offsite
because it does not require land forming and complex mounts.

122-2: Case Study on Onsite PPA
Aeon (retail)Aeon is Japan’s largest retail company and consumes 7.1TWh ofelectricity globally in 2020. Aeon made 8 onsite PPAs by rooftop
solar as of October 2021 including a shopping center in Shiga(below). Contract terms are usually 15-20 years and PPA prices
are lower than regular tariffs. Aeon is planning to make more than
300 onsite PPAs for stores nationwide and offsite PPAs later.

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2-3: Case Study on Onsite PPA
Kaihara (textile)
Kaihara is globally recognized as a quality denim manufacturer andoperates 4 factories in Japan. Kaihara made the first onsite PPA byrooftop solar at one of the factories (below). It is the largest onsite
PPA in Japan to date and will provide 12% of electricity consumed
in the factory. PPA prices are approximately 25% lower than thecurrent regular tariffs.

143-1: Cost Estimation for Physical PPA⚫ Estimated from the leading cases of physical PPAs in Japan,
developers sell electricity and environmental attributes toretailers at JPY11-12/kWh for solar projects commencing in 2022.
⚫ Retailers need to pay wheeling fees to grid operator at around
JPY4/kWh for supplying high-voltage electricity. In addition,retailers are responsible for balancing demand and supply.
⚫ In total, physical PPA prices will be JPY16-18/kWh for highvoltage, and JPY14-16/kWh for extra-high-voltage with a lower
wheeling fees around JPY2/kWh.

* in case of high-voltage15

3-2: Cost Estimation for Physical PPA
with Feed-in Premium (FIP)⚫ The government set the FIP base price for large-scale solar
plants certified in FY2022 (Apr 2022 – Mar 2023) at JPY10/kWh.
Wholesale market reference prices are estimated at around
JPY8/kWh on annual average. The differences will be coveredby premiums and paid to developers.
⚫ Physical PPA prices can be lowered considering the premium.

* in case of high-voltage16

3-3: Cost Estimation for Physical PPA
with Self-wheeling⚫ In case the self-wheeling program is applied to physical PPAs,
consumers can procure electricity and environmental attributes
directly from developers without paying surcharges.
⚫ Consumers should be responsible for balancing supply anddemand instead. The task is usually outsourced to energy
service providers.

* in case of high-voltage17

3-4: Cost Comparison of Physical PPAs
⚫ Physical PPAs by self-wheeling will provide the lowest prices asconsumers do not need to pay surcharges, JPY3.36/kWh for ayear from May 2021 and higher in the following years.

* Costs other than developer are for high-voltage supply.
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3-5: Case Study on Physical PPA
Hulic (real estate)
Hulic owns 250+ buildings and plans to operate with no carbon
emissions by 2030. For internal use, all the electricity (60GWhannually) will be procured through physical PPAs by 2024. Hulicinvests solar projects, owns the plants, supplies the generated
electricity through a retailer in the group (1st project below).

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3-6: Case Study on Physical PPA
Seven & i (retail)Seven & i operates 70,000+ stores globally and made the firstphysical PPA for 40 convenience stores and a shopping mall(below). The second physical PPA was made for 300 convenience
stores.

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3-7: Case Study on Physical PPA
Kao (healthcare)
Kao provides healthcare products globally and aims at procuring
100% renewable electricity by 2030. The first physical PPA (below)
was made by receiving a government subsidy for covering cost
increase. The headquarters will procure 100% renewable electricity
including other sources through the same retailer.

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3-8: Case Study on Physical PPA
Dai-ichi Life (insurance)
Dai-ichi Life aims at procuring 100% renewable electricity by 2023
and made the first physical PPA (below) by receiving a government
subsidy. Each solar site is small-scale so that developers can findavailable lands easily and construct facilities in a short period.

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3-9: Case Study on Physical PPA
Amazon (technology)
Amazon made the first corporate PPA in Japan (below) but did notdisclose the details. It is estimated to be physical and will provide
23 GWh of electricity annually. Amazon needs to make more PPAs
for data centers and distribution centers to procure 100% renewableelectricity by 2030 and looks for opportunities of physical and virtual.

233-10: Case Study on Self-wheelingSony (electronics)
Sony adopted the self-wheeling program for supplying electricity
from a solar plant to a factory. The plant is owned by a developer
and Sony should take responsibility of the generator to make it forinternal use. As the rules changed (refer to 1-8), physical PPAs by
self-wheeling can be made directly with developers.

244-1: Cost Estimation for Virtual PPA
with Feed-in Premium (FIP)⚫ Virtual PPAs in Japan will be more efficient and cost competitive
with adopting the Feed-in Premium program (refer to 1-7).
⚫ Developers can get premiums and cover volatility of wholesalemarket prices.
PPA prices can be fixed for transferringcertificates to consumers through retailers.

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4-2: Cost Estimation for Virtual PPA
by Direct Contract⚫ Virtual PPAs can be made directly between developers andconsumers after the rules of Non-Fossil Certificates changed(refer to 1-5). FIP is effective in this scheme.

264-3: Cost Estimation for Virtual PPA
by Project Investment⚫ Consumers may invest in developing power plants for virtual
PPAs and receive certificates instead of interests.
⚫ Developers are free from financing and can construct plants in ashorter period.

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4-4: Cost Comparison of Virtual PPAs
⚫ From consumer perspectives, virtual PPAs are less risky for
projects certified by Feed-in Premium to avoid contract fordifference (cfd).

* Retailer electricity costs are for high-voltage supply.
Direct contracts will be applicable by deregulation of Non-Fossil Certificates (refer to 1-5).
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4-5: Cost Comparison of Virtual and Physical⚫ Consumer costs of virtual PPAs mainly depend on electricity
costs by retailers independent of the PPAs while physical PPAs
depend on generation costs by developers.
⚫ Virtual is economically more flexible and volatile than Physical.

* Retailer electricity costs are for high-voltage supply.
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Policy Recommendations
1. Deregulation: Renewable energy sources are abundant inJapan. Corporate PPAs will expand by deregulating restrictionsof land use and others.
2. Liberalization: For increasing new renewables, the electricity
system must be reformed further, such as by changing thedispatching rule to prioritize solar and wind over nuclear.
3. Certificates: Non-Fossil Certificates are complicated andinflexible. The system should be restructured covering only
renewables and make it easier for consumers to apply.
4. Project Matching: A nationwide online platform should beestablished for developers and consumers to find opportunities
of corporate PPAs.
5. Decarbonization: For accelerating energy transition in theindustries, new measures reducing fossil fuels such as Carbon
Pricing should be implemented to promote using renewables.
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Full Edition (Japanese)

https://www.renewable-ei.org/pdfdownload/activities/REI_JPcorpPPA2021.pdf
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