Corporate PPA
Latest Trends in Japan(2023 Edition)

1. Contract Structures⚫ On-site PPA⚫ Physical PPA⚫ Virtual PPA
2. Cost Comparisons
3. Latest Projects
4. Issues & Solutions
August 2023

■ Key Factors Expanding Corporate PPAs
１．Additional Renewables

２．Solar Cost Reduction

Building (adding) new renewable facilities
is effective for mitigating climate change
to replace electricity generated by fossil
fuels. Corporate energy users make PPAs,
power purchase agreements, with newfacilities to procure additional renewableelectricity to consume in offices, storesand factories for the long term.

Many of new renewable facilities in Japanare powered by solar. The generation costdeclined in the last 10 years but increased
in 2022 due to equipment shortages by theimpact of COVID-19. It is still competitive
against fossil fuels and nuclear power.
Corporate PPAs by solar, particularly onsite, provide electricity at lower prices.

３．Electricity Price Increase

４．Feed-in Premium

Prices of fossil fuels soared since late
2021 globally. Regular tariffs of electricity
significantly increased in Japan due to thedependence on imported fossil fuels. Fuelsurcharges increased nearly JPY10/kWh in
2022. Corporate energy users can reduce
both CO2 emissions and electricity costsby making corporate PPAs.

Feed-in Premium (FIP) program started inApril 2022 replacing Feed-in Tariff (FIT) tosupport new development of renewablefacilities. Under the FIP, developers needto sell electricity and environmental
attributes at their own risk. CorporatePPAs provide opportunities and benefits
for both developers and energy users.
1■1 Options for Corporate PPAs
On-sitePPACorporate
PPA
Long-term powerpurchase agreement
between consumersand suppliers(usually 15-20 years)

Facilities are locatedinside or near thedemand sites(electricity transmitted
through internal or
self-operated line)

1-1 (p3)
On-site＋Off-site PPA

PhysicalPPA

1-2 (p4)
Physical PPA

Consumers purchaseelectricity andenvironmental attributes(100％ supply)

Physical PPA(Self-wheeling)

Off-site
PPA

Physical PPA(FIP applied)

Facilities are located
far from the demandsites(electricity transmitted
through the grid)

Physical＋
Virtual PPA

VirtualPPA
Consumers purchase
only environmental
attributes

1-8 (p10)

1-3 (p5)1-4 (p6)

1-5 (p7)

1-9 (p11)

1-6 (p8)
Virtual PPA(FIP applied)

1-7 (p9)2

■1-1 Contract Structure of On-site PPA
On-site PPAs are made between consumers and developers. Consumers
provide spaces to install facilities and purchase generated electricity andenvironmental values at fixed prices.

Refer to 2-1(p12) on a costcomparison ofon-site PPAs
and regulartariffs.

FeaturesBenefits

Issues●Consumers provide developers withspaces on the roof-top of buildings orlands in the demand sites (or adjacentsites connected with self-operated
transmission lines)●The installation, operation andmaintenance of generation facilities
are outsourced to developers.

●Consumers are not responsible forthe installation and operation of the
facilities (not like self-generation).
●Wheeling fees and renewable
surcharges are not imposed.
●Consumers can take over thefacilities without extra costs when
the contract is completed.

●The scale of generation
facilities is usually small
due to limited spaces.
●It is usually difficult toutilize surplus electricity(necessary to installbatteries or connect withthe grid).
3■1-2 Contract Structure of Physical PPA
In physical PPAs, generation facilities are constructed at distant placesfrom the demand sites. Consumers purchase generated electricity andcertificates (environmental values) at fixed prices through retailers.

Refer to 2-2 and
2-3 (p13, p14) ona cost comparisonof physical PPAs
and regular tariffs.
FeaturesBenefits

Issues●Developers construct generation facilities
for consumers to provide electricity andcertificates through retailers.
●Direct contracts without involving retailers
are allowed in case consumers apply theself-wheeling program and are responsible
for balancing supply and demand.

●Consumers make contracts
with specific facilities and canconfirm environmental impactsof electricity generation.
●Consumers can fix costs ofpurchasing electricity andcertificates for the long term.

●Consumers need to makeanother contract for filling
the gap between the entire
demand of the sites andthe supply by PPAs.
●Consumers need to fix
the demand sites.

4

■1-3 Contract Structure of Physical PPA(100% supply)
In case the entire demand of the sites is not provided by physical PPAs,
retailers procure electricity and certificates from other sources to provide
100% renewable electricity to consumers.

Consumers may make contracts with retailers at fixed costs for the entire demand.
The fixed costs may be higher than the case of simple physical PPAs.

5

■1-4 Contract Structure of Physical PPA(Self-wheeling)
With applying the self-wheeling program, consumers can make physical
PPAs directly with developers. Consumers do not have to pay renewable
surcharges under the self-wheeling program but usually need to outsource
tasks of balancing supply and demand to energy service providers.

For applying the self-wheeling program for physical PPAs, consumers and developers
need to comply with the guidelines by Ministry of Economy, Trade and Industry,effective as of November 18, 2021.
6

■1-5 Contract Structure of Physical PPA(FIP applied)With applying the Feed-in Premium (FIP) program, developers can receive
premiums based on the difference between FIP-certified fixed prices andthe average wholesale market prices. Physical PPAs with generation
facilities other than solar can be made at the same level of market prices.

In the FIP program, a fixed price is certified for each generation facility. Premiums are paid todevelopers based on the difference between the fixed price and the average wholesale market price.
Developers can get market-based premiums in addition to the fixed revenue from Physical PPAs.

7

■1-6 Contract Structure of Virtual PPA
In virtual PPAs, consumers purchase certificates from developers,
and electricity from retailers through another contract. Developers
sell generated electricity to the wholesale market and receive or pay
the difference of the fixed price and the market price.

FeaturesBenefits

Issues●Developers construct new generation
facilities and provide only certificates to
consumers while selling electricity to thewholesale market.
●The price including electricity andcertificates is fixed and the difference
from the wholesale market price is paid
between developers and consumers.

●Consumers do not have to change
the existing electricity contracts.
●Certificates can be applied to any
demand sites.
●Regardless of the demand every
hour, certificates can be used forelectricity consumed during themonth or the year.

●Consumers need to
manage with variable
costs including electricityand certificates.
●Mark-to-market
accounting may beapplied for every monthlytransactions.

8

■1-7 Contract Structure of Virtual PPA(FIP applied)
Developers can receive premiums based on the difference between FIPcertified fixed prices and the average wholesale market prices. Difference
for virtual PPAs becomes smaller. With the premiums, developers may
make virtual PPAs with consumers at fixed prices.

Direct virtual PPAs between developers and consumers are allowed only in casegeneration facilities applying the FIP program start the operation in April 2022 andbeyond. Facilities without the FIT program are also allowed for direct virtual PPAs.
In other cases, retailers should be involved between developers and consumers.

Refer to 2-4 and2-5 (p15, p16) ona cost comparisonof virtual PPAs
and regular tariffs.

9

■1-8 On-site + Off-site Hybrid PPA
Surplus electricity and certificates from on-site PPAs can be provided toother demand sites of consumers through off-site PPAs.

Both physical and virtual PPAs can be applied for surplus electricity and/or certificates.

10

■1-9 Physical + Virtual Hybrid PPA
Surplus certificates from physical PPAs can be provided to consumers
through virtual PPAs.

Surplus electricity is sold to other consumers by retailers without certificates.

11

■2-1 Costs of On-site PPAConsumers do not have to pay wheeling fees and renewable surcharges
for on-site PPAs and can use renewable electricity with less costs.

* All the costs include tax.
Costs for on-site PPA are estimated based on the FIT/FIP prices for 20-year contracts.
Regular tariffs are published by the government except for FY2022 estimated by REI(Renewable Energy Institute).

12

■2-2 Costs of Physical PPA
Consumer costs for physical PPAs were higher than regular tariffs in
FY2021 but became competitive in FY2022.

* Costs for physical PPA excluding tax are estimated by REI for 20-year contracts.
Regular tariffs including tax are published by the government except for FY2022 estimatedby REI.
13

■2-3 Costs of Physical PPA (with carbon price)
Consumer costs for physical PPAs can be considered reflecting carbon
price to be applied in Japan in the near future.

* All the costs include tax except carbon price.
Carbon price (JPY10k/ton) is based on the average level of internal carbon pricing bymajor Japanese companies as of 2023.
Price impact (JPY2.50/kWh) is calculated by the national target of carbon emissions
intensity of electricity for FY2030 at 0.250kg/kWh.
14

■2-4 Costs of Virtual PPA
Consumer costs for virtual PPAs depend on the wholesale market prices
which are relatively low in the daytime.

* All the costs include tax.
Generation cost is estimated by REI for 20-year contracts.
Regular tariffs including tax are published by the government except for FY2022 estimatedby REI.

15

■2-5 Costs of Virtual PPA (FIP applied)
Virtual PPAs may be made at fixed costs for certificates in case thegeneration facilities are certified by Feed-in Premium (FIP) and thedevelopers can receive premiums based on the wholesale market prices.

* All the costs include tax.
Costs for Certificates (JPY1.1/kWh) is based on the average level of the latest transactions.
15

■3 Latest Projects(Off-site PPAs, 1MW＋, Aug 2022 - Jul 2023）
Consumer

RetailerDeveloper

CapacitySupplyTermSony Group(Virtual PPA)OTS2MW

Nov 2022

20 years

Nippon Life Insurance

Kansai Electric PowerKPRE

2MW

Apr 2023

20 years

Tokyu

Tokyu Power Supply

GDsPJ

9MW

UDUDEbara

Ebara Environmental Plant

Hanwha Q Cells Japan etc.

8MW

Mar 2023

8 years

Shizuoka Bank

Chubu Electric Power Miraiz

Chubu Electric Power2MW

Sep 2023

UD

Hokuriku Bank

Hokuriku Electric Power

Hokuriku Electric Power Biz Energy Solution

3.1MW

Summer 2023

UD

Mizuho BankTEPCO Energy Partner

Advance

7.5MW

UDUD

Tokai RIka

Chubu Electric Power Miraiz

Chubu Electric Power Miraiz

2.2MW

Dec 2022

UDRicoh(Virtual PPA)

Kamisato Construction

1.3MW

Aug 2023

UDOSG

Chubu Electric Power Miraiz

Agri-Gascom

4.5MW

Spring 2023

20 years

Tokyu Construction(Virtual PPA)

Clean Energy Connect

4MW

Mar 2023

20 years

NTT Group

NTT Anode Energy

Clean Energy Connect

70MW

by April 2024

30 yearsClean Energy Connect

70MW

by Mar 2025

UDAmazonUD

Hakuhoukai Group

UpdaterSmart Blue etc.

7MW

Apr 2023

20 years

Mazda, Toyo Sheet

Chugoku Elecric Power

Choshu Industry

4.9MW

Apr 2023

UDTakashimaya

Digital Grid

Tokyu Land4MW

Apr 2023

2 years

Kao(Virtual PPA)

Mizuho Leasing

15.6MWJul 2023

UD

Murata Manufacturing(Virtual PPA)

Renova115MW

by Mar 2024

UDKR Energy #1

31MW

Apr 2023

UDAmazon

UDJR West

Kansai Electric Power

Kansai Electric Power

5.5MW

by Mar 2024

UDYasuda Real Estate

Renewable Japan

Renewable Japan

2.7MW

UDUD

Tokyo Gas

Tokyo Gas

Tokyo Gas Engineering Solutions

1.7MW

by Mar 2024

UD

Hokkaido Coca-Cola Bottling

Hokkaido Electric Power

HARE Hare

1MW

UD

UD

UD: Undisclosed* Information from the official announcement.

16

■4 Issues and Solutions
There are several typical issues for accelerating corporate PPAs in Japan.
Political support for promoting renewable energy nationwide is required.
Issue

Key Solutions

Construction
Sites● Construction sites for new generation
facilities are limited.

［Policy］Deregulations of land usage［Developer］Aggregation of small spaces［Consumer］Usage of owned spaces

GridConnection● Connecting new generation facilities
to the grid is difficult, and theconnecting costs may be very high.

［Policy］Enhancement of the grid
［Grid Operator］Improvement of operation［Developer］Construction of distributed lowvoltage generation facilities

Curtailment● Temporary shutdown are required incase of grid congestion or oversupply.

［Policy］Revision of the dispatching rule
［Grid Operator］Improvement of forecast［Consumer］Option of hydro and geothermal

Long-term
Contract● Risks of facility troubles and otherunpredictable events may occur during
the contract term.

［Developer］Purchase of damage insurance［Consumer］Addition of midterm cancellation［Financial Inst.］Insurance for corporate PPA

17

［Reference］
Renewable Electricity
Procurement Guidebook
January 2023

Corporate PPA
Latest Trends in Japan
August 2023
AuthorMasaya Ishida
Senior Manager, Renewable Energy InstituteDownload by clicking the image.

Renewable Energy Institute11F, KDX Toranomon 1-Chome Building,
1-10-5 Toranomon, Minato-ku, Tokyo
105-0001
http://www.renewable-ei.org/en
info@renewable-ei.org