February 2024

Generation wheeling charge system
The Japanese Government has decided to introduce a Generating Side Wheeling Charge system(hatsudengawa kakin) and is aiming for its official introduction in April, 2024. Although some elements
remain under discussion, the following provides an overview of the key points of the system based on
information available as of November 23, 2023.

Overview of the Generating Side Wheeling Charge System
1.

Background and timing of introduction of the generation charge systemThe term “Generation Side Wheeling Charge System” (hatsudengawa kakin seido)” refers to asystem that will require power producers, who are grid users, to bear, together with power
consumers, a portion of the costs necessary for the maintenance and expansion of transmission
and distribution facilities. Prior to the change, these costs have been borne entirely byelectricity retailers.

<Current wheeling charge system> 100% charge to electricity retailers (demand side) 1

Electricity
transmission
anddistribution

Generation

Retailer

Wheeling
chargeElectricity
chargeConsumer

Generation cost

<After introduction of the Generating Side Wheeling Charge system>
A portion of the wheeling charge will be borne by the power producer (as a generation charge). The total
amount of the wheeling charge is unchanged. 2

Generation

Generation
charge(10)

Electricity
transmission
anddistribution

Wheeling
chargeRetailer(90)

Electricity
chargePower
Consumer

Total amount of wheeling charge (100)Generation cost (to be reviewed in consideration of the introduction of Generating Side Wheeling Charge system)

1

Excerpt from METI publications

2

Excerpt from METI publications

1©Atsumi & Sakai 2024

February 2024

While the discussion within Government included the possibility that so-called existing FIT/FIPapproved power sources 3, etc., would also be subject to generation charges . However, it has
recently been pointed out that the Generating Side Wheeling Charge System will place anadditional burden on power producers. Therefore, in order to ensure a smooth introduction of
the System, it is necessary to carefully consider the treatment of existing FIT/FIP-approved
power sources, etc. so as not to hinder the maximum possible introduction of renewable energy(see also Q1).
The system is set to be introduced in April, 2024.

2. Basic concept of the charge method

The Charge method, in principle, consists of two elements: a fixed kW charge, and a metered
kWh charge.

In addition to the fact that the power grid is capable of allowing electricity to flow in both
directions, the newly introduced Generating Side Wheeling Charge system will require the power
producer to bear some of the costs related to power transmission and distribution that have until
now been borne solely by the demand side.

Based on this point of view, and on the assumption that transmission and distribution facilities
equivalent to the forward power flow kW on the demand side can typically handle the reverse
power flow kW on the power producer side, if the demand side and producer (reverse powerflow) are located at the same point, the power producer will be required to bear the portion ofreverse power flow kW on the producer side that exceeds the forward power flow kW on the
demand side (the kW charge).

Therefore, the kW amount subject to the kW charge is equivalent to the amount of reverse power
flow kW on the producer side that is in excess of the kW amount of the demand side underconsignment contract.



In the future, the formation of facilities in the core grid will be based on a cost-benefit assessmentthat takes into account not only the contracted kW but also the usage of the facilities (kWh), andthe kWh portion will be borne by the power producer (kWh charge). Since the meter thatmeasures the amount of generated electricity subject to charge is installed in such a way that even
if there is on-site consumption, the meter will display an amount which is the value excluding theamount of on-site consumption, such meter measurement value is deemed to be the electricity
amount subject to kWh charge.

In consideration of the burden of charges on the power producer when pumped storage power
generation or storage batteries are used, out of fairness with other power sources 4, the Council of
the Agency for Natural Resources and Energy has decided to exempt pumped storage power
generation and storage batteries from kWh charges (see Q5 of the Q&A below for treatment ofcharge for storage batteries installed alongside power generation facilities).

Q&A
This article provides an explanation of frequently asked questions (FAQ) regarding thegeneration charge, which could cause a new burden to the renewable energy system, including
existing installed generation facilities (generally based on METI's publications). (Please note that
the Questions & Answers may not always apply to individual specific cases.)

3 Existing FIT/FIP-approved projects include those awarded through bidding in years prior to 2024 (the year in which the
Generating Side Wheeling Charge system will be introduced)

This is to avoid being at a disadvantage compared to other sources in terms of kWh charges because of pumped storage
losses and storage losses in pumped storage and power generation and storage batteries.
4

2©Atsumi & Sakai 2024

February 2024

Q1 My company is currently operating a power generation facility that is subject to the
procurement price under the FIT system. Will the Generating Side Wheeling Charge
System) apply to existing FIT (and FIP) power sources and will the generation facility becharged immediately?
A1No, the generation facility will not be charged for the existing FIT (or FIP) procurement period.
In principle (to ensure equal benefit and fairness), all power sources that are connected to thegrid and are reverted back to the grid should be subject to the Generating Side Wheeling Charge
System. However, existing FIT (and FIP) power sources will only become subject to generation
charge after the end of the respective procurement period.

Q2 What is the charge method for FIT-approved biomass power generation facilities?
A2





In the case of biomass co-firing facilities 5 which include approved FIT facilities within the
procurement period, only the non-FIT portion will be charged a generation charge (based on theactual biomass ratio and other factors).
To explain in some more detail based on METI publications: with respect to the FIT-approved
biomass power generation facilities, the amount of electricity sold under the FIT scheme
represents a portion equivalent to total amount of electricity sold each month x the input ratio of
biomass fuel (biomass ratio) for that month.
In other words, for biomass co-firing, only the biomass combustion portion is eligible forpurchase under the FIT scheme. For biomass co-firing that includes FIT-approved power sources
within the procurement period, the non-FIT-approved portion will be charged based on theactual biomass ratio and other factors.

Q3 How will it be billed when there are multiple contracts at one demand location(generation location)?
A3




5

According to METI publications, if there are multiple demand-side contracts, the sum of thedemand-side contracts kW is calculated. If there are multiple generation contracts, the kW
portion to be billed for generation will be calculated after pro-rating the contracted kW under thedemand-side contracts based on the contracted kW under the generation contracts.
Specifically, please refer to the following chart 7.

Co-firing of biomass and non-biomass.
3©Atsumi & Sakai 2024

February 2024

[Chart 7] Image of kW charge calculation when there are multiple contracts at one demand point(generation location) 6■ In case of partial supply(Multiple demand-side contracts exist)■When electricity is sold to multiple parties(Multiple contracts exist on the power generation side)
Maximum power flow
Reverse power flow 100kW

MaximumMeter

power flow
Meter

Generation

Demand

100kW

50kW

Generation
Contract A: 40kW
Contract B: 10kW

Wheeling charge on the demand side: 40kW,10kW
Generating Side Wheeling Charge: 50kW(=100(40+10))(Note) The above describes a case in which thetotal contracted kW on the demand side isequal to the maximum forward power flow
kW (maximum consumed power kW) (crosssplit type partial supply). If the total
contracted kW on the demand side exceeds
the maximum consumed power
kW(notification-type partial supply or
vertical cut-off partial supply), the kWamount to be charged will be calculatedusing the maximum consumed power kW.

the contracted kW
on the demand side
Totaling

100kW

DemandContract A: 80kW

50kW

Contract B: 20kW

Contracted kW on the demandside is prorated by contracted

Wheeling charge on the demand side: 50kW
Generating Side Wheeling Charge:(Contract A) 40kW (=80-50×(80/(80+20)))(Contract B) 10kW (=20-50×(20/(80+20)))

kW on the producer side

(Note) The above describes a case in which thetotal contracted kW on the power producer sideis equal to the maximum reverse power flow kW(maximum received power kW). If the total
contracted kW on the producer side exceeds the
maximum kW received, the kW to be charged
will be calculated using the value obtained byprorating the maximum received power by eachcontracted kW.

Q4 Please explain the concept of the charge method when there is a combination of
FIT/FIP approved power sources within the procurement period and other power sources.
A4






According to METI publications, where the reverse power flow to the grid is less than 10 kW, it
will not be subject to the Generating Side Wheeling Charge System for the time being. In
addition, there will be no charge for existing FIT/FIP-approved power sources during therelevant procurement period, etc.
Based on the above arrangement, the Generating Side Wheeling Charge (kW charge) for powersources whose reverse power flow to the grid side is 10 kW or more, and with a part of such
power sources being existing FIT/FIP-approved power sources within the procurement periodetc., a portion/part to be charged (i.e. a portion other than the portion of FIT/FIP-approved
power sources within the procurement period etc.,) is calculated and charged.
In such cases, the maximum power received is prorated between the proportion of generation
facility capacity in the uncharged portion and the proportion of generation facility capacity in the
charged portion, and the amount charged will be for the charged portion of the generation facility
capacity.

Q5 How are generation charges handled for Battery energy storage with on-site power
generation (facilities)?
A5

6

Excerpt from METI publications
4©Atsumi & Sakai 2024

February 2024













The "Interim report on generation charges" released in April, 2023 stated that wheeling charges
for battery energy storage with on-site power generation facilities would be considered in the
future.
According to METI publications, generally speaking, with regard to battery energy storage withon-site power generation (facilities), the kW charge (fixed charge) on the Generating Side
Wheeling Charge will in principle be applied.
However, since the existing FIT/FIP approved facilities/power sources within the procurement
period, etc., will be subject to the Generating Side Wheeling Charge after the end of the
procurement period, etc., the kW charge when storage batteries are installed alongside theexisting FIT/FIP-approved facilities/ power source within the procurement period, etc., will beconsidered to be for the discharge portion based on charging by drawing the power from the gridof the battery energy storage with on-site power generation (facilities).
In addition, it has been proposed through discussions that the portion subject to charge should
be calculated by prorating the generation capacity of the existing FIT/FIP-approved powersources and storage batteries, and the storage batteries should be calculated as the portion
subject to charge. Details for further developments still need to be confirmed.
According to METI publications, out of fairness to other power sources, since it has been decided
that kWh charges for storage batteries are exempted, kWh charges in the case of battery energy
storage with on-site power generation (facilities) in general applies to the portion other than the
discharges based on recharges with the power drawn from the grid of the storage batteries (i.e.,
power generated by the power generation facilities).
However, it should be noted that when a storage battery is installed alongside an existing
FIT/FIP approved power source within the procurement period, etc., the existing FIT/FIPapproved power source will become subject to the Generating Side Wheeling Charge after the endof the procurement period, etc.
In addition, when calculating the amount of discharge based on the recharging of battery energy
storage with on-site power generation (facilities) with the power drawn from the grid, if it isdifficult to calculate an accurate figure or a figure close to the actual amount of electricity, it may
be possible to use methods such as calculating the amount of electricity that storage batteries
draw from the grid and discharge based on the amount of electricity drawn from the grid at thesame location. Details of further developments still need to be confirmed.
Image of the subject of kWhchargeImage of the subject of kW
chargeGeneration of electricity
by power generation
facilities: Billable
subject

Discharge based on charging by drawing powerfrom the grid: Billable subject(Even existing FIT/FIP-approved power sources
are subject to charge)
Generation ofelectricity by power
Storagegeneration facilities:
battery
Billable subject
Discharge based on charging by drawing powerfrom the power generation facility: Billable
subject

Discharge based on charging by drawing powerfrom the grid: Unbillable subject

Storage battery
Discharge based on charging by drawing powerfrom the power generation facility: Billable
subject

Generation
facilities

Generation
facilities(Excluding existing FIT/FIPapproved power sources)(Excluding existing FIT/FIPapproved power sources)

7

Other
The design of a discount system for the Generating Side Wheeling Charge that reflects the impact of thepower sources on the cost of maintenance of transmission and distribution facilities in the amount to be
charged is currently under discussion. In addition, the establishment of a shifting guideline for shifting
the Generating Side Wheeling Charge in bilateral transactions is also under discussion and consideration.
We will provide another update in April once the scheme is operational.
7

Excerpt from METI publications
5©Atsumi & Sakai 2024

February 2024---------------------------------------------------------------------------------------------------------------------------THIS NEWSLETTER IS PROVIDED FOR INFORMATION PURPOSES ONLY; IT DOES NOTCONSTITUTE AND SHOULD NOT BE RELIED UPON AS LEGAL ADVICE.
----------------------------------------------------------------------------------------------------------------------------

Authors/Contacts
Miho Niunoya
Senior Partner
E: miho.niunoya@aplaw.jp

Tomoko WatanabePartner
E: tomoko.watanabe@aplaw.jp
Daniel Jarrett
Partner
Registered Foreign Lawyer (The Laws ofEngland & Wales*)E: daniel.jarrett@aplaw.jp

Kimiharu Masaki
Partner
E: kimiharu.masaki@aplaw.jp* Atsumi & Sakai is not regulated by the Solicitors Regulation Authority for England and Wales.

Please see here for our Energy practice.
Please see the links below for the back issues of our Projects & Energy Practice Team newsletters.
“Latest CCS Commercialization Trends in Japan” (November, 2023)"Revisions to the Basic Hydrogen Strategy" (October, 2023)"Battery Storage Subsidies in Japan" (February, 2023)"Trends in Offshore Wind Power Generation in Japan" (February, 2023)
Inquiries:
Atsumi & Sakai Projects & Energy Practice Team
Email: cpg_pe_managers@aplaw.jp
If you would like to sign up for A&S Newsletters, please fill out the sign-up form.
Back issues of our newsletters are available here.

6©Atsumi & Sakai 2024

February 2024--------------------------------------------

Atsumi & Sakai is a multi-award-winning, independent Tokyo law firm with a dynamic and innovative approach to legal
practice; it has been responsible for a number of ground-breaking financial deal structures and was the first Japanese law
firm to create a foreign law joint venture and to admit foreign lawyers as full partners. Expanding from its highly regarded
finance practice, the Firm now acts for a wide range of international and domestic companies, banks, financial institutions
and other businesses, offering a comprehensive range of legal expertise.
Atsumi & Sakai has an outward-looking approach to its international practice, and has several foreign lawyers with extensive
experience from leading international law firms, providing its clients with the benefit of both Japanese law expertise andreal international experience.
We are the only independent Japanese law firm with affiliated offices located in New York, London and Frankfurt which,
together with our Tokyo office and Fukuoka affiliated office, enables us to provide real-time advice on Japanese law to ourclients globally.

Atsumi & Sakai
www.aplawjapan.com/en/
Tokyo Office: Fukoku Seimei Bldg., 2-2-2 Uchisaiwaicho, Chiyoda-ku, Tokyo 100-0011, Japan
Fukuoka Affiliate Office: Tenjin Bldg. 10F, 2-12-1 Tenjin, Chuo-ku, Fukuoka-shi, Fukuoka 810-0001 JapanNew York Affiliate Office: 1120 Avenue of the Americas, 4th Floor, New York, New York 10036
London Office: 85 Gresham Street, London EC2V 7NQ, United Kingdom
Frankfurt Affiliate Office: OpernTurm (13F) Bockenheimer Landstraße 2-4, 60306 Frankfurt am Main, Germany

NOTICES
1. ABOUT ATSUMI & SAKAI
Atsumi & Sakai is a partnership consisting of Atsumi & Sakai Legal Professional Corporation, a Japanese professional corporation, a foreign law joint venture underthe Act on Special Measures Concerning the Handling of Legal Services by Foreign Lawyers with certain Registered Foreign Lawyers of our firm, a Japanese Civil Codepartnership among Japanese lawyers, represented by Yutaka Sakai, a lawyer admitted in Japan, and a foreign law joint venture with Janssen Foreign Law Office,represented by Markus Janssen, a foreign lawyer registered in Japan to advise on the laws of the Federal Republic of Germany. In addition to lawyers admitted inJapan, our firm includes foreign lawyers registered in Japan to advise on the laws of the US States of New York and California, the Republic of Korea, India, Englandand Wales*, and the State of Queensland, Australia. Foreign lawyers registered in Japan to advise on state laws also are qualified to provide advice in Japan on thefederal laws of their respective jurisdictions.
Atsumi & Sakai has established an office in London operating as Atsumi & Sakai Europe Limited (a company incorporated in England and Wales (No: 09389892); sole
director Naoki Kanehisa, a lawyer admitted in Japan), and has established an affiliate office in New York operating as Atsumi & Sakai New York LLP (a limited liability
partnership established in New York; managing partner Bonnie L. Dixon, a lawyer admitted in New York and a Registered Foreign Lawyer in Japan). We also havea partnership with A&S Fukuoka LPC in Japan (partner: Yasuhiro Usui, a lawyer admitted in Japan) and an affiliate office in Frankfurt operating as Atsumi & Sakai
Europa GmbH - Rechtsanwälte und Steuerberater, a corporation registered in Germany providing legal and tax advisory services (local managing director: Frank
Becker, a lawyer admitted in the Federal Republic of Germany).
*

Atsumi & Sakai is not regulated by the Solicitors Regulation Authority for England and Wales.

2. LEGAL ADVICEJapanese legal advice provided by Atsumi & Sakai and our global offices is provided by lawyers admitted in Japan. Advice provided in Tokyo in respect of any foreign
law on which one of our foreign lawyers is registered in Japan to advise, may be provided by such a Registered Foreign Lawyer. None of Atsumi & Sakai Legal
Professional Corporation, Atsumi & Sakai Europe Limited or Mr. Naoki Kanehisa is regulated by the Solicitors Regulation Authority for England and Wales, and none
will undertake any reserved legal activity as defined in the United Kingdom Legal Services Act 2007. Advice provided in Germany on the laws of Germany will be
provided by a lawyer admitted in Germany, and advice provided in New York on the laws of New York will be provided by a lawyer admitted in New York.

7©Atsumi & Sakai 2024