July 26, 2022
Japan Climate Leaders Partnership (JCLP)

Statement on Ensuring Diversity of Renewable Energy Options

JCLP calls for further reform of the electricity market so that consumers can procure renewableenergy economically and promptly.
The Japan Climate Leaders' Partnership (JCLP) is working in the field of renewable energy in order to overcome
the climate crisis, achieve a rapid transition to a decarbonized society, and ensure that the 1.5°C target is met.
For consumers to be able to accelerate renewable energy procurement, expansion of renewable energy isencouraged in a more economical and expeditious manner. Consumers procure renewable energy through therenewable energy menus offered by retail electricity suppliers and corporate PPAs 1 with power generators, etc. In
order to expand consumers’ procurement of renewable energy, we request that the overall health of the electricity
market is maintained, the market environment is improved to promote the expansion of renewable energy, andthe diversification of new renewable energy options are vigorously promoted, and would like to express ouropinion as follows.
Recognition of issues as consumers:1.

JCLP is concerned that the price competition that has been promoted by the full liberalization of electricity
retailing is stagnating and that the diverse options for renewable energy could be reduced.
The Japanese government has been promoting the full liberalization of retail and power generation and further

securing the neutrality of the transmission and distribution sectors through legal separation and other measuresin its power system reforms to expand the choices of consumers 2. Since full liberalization in 2016, it has been
observed that new retail electricity providers have entered the market 3, competition has been stimulated, andnew services, including renewable energy, have been enhanced 4. We recognize that promoting competition andenhancing new services are an important part of efforts to make renewable energy a main source of power assoon as possible.
On the other hand, the recent surge in international natural gas prices has caused wholesale electricity market
prices in Japan to soar, forcing many retail electricity providers to stop accepting new applications or to withdraw
from the business 5. This has caused some consumers who have taken the initiative to shift to renewable energy
procurement to face difficulties as electricity refugees who are unable to continue contracting with retail electricity
providers 6. Under these circumstances, there is concern that retail operators entering the market will be unable
to hedge risks and will be forced to withdraw due to market conditions that do not ensure fair trading, leading toa stagnant competitive environment and a reduction in the variety of renewable energy options available toconsumers.
2.

The new renewable energy option, virtual PPA, is difficult to implement due to regulatory and institutionalchallenges.
As a means of decarbonization, corporate PPAs with additionality are recognized as an important renewableenergy procurement method and are increasingly being introduced, especially in Europe and the United States 7.
In addition, the recent surge in wholesale electricity market prices has increased interest in corporate PPAs in Japan,

1which are unaffected by resource prices. In particular, consumers have high expectations for virtual PPAs8 thathave fewer geographical restrictions and greater freedom of choice in retail contracts 9.
There are some regulatory and institutional issues regarding this virtual PPA, such as the fact that it may besubject to regulation under the Commodity Derivatives Transaction Act10 and that direct consumer trading ofsome non-fossil certificates may not be allowed 11. In order to promote renewable energy more quickly, we hopethat the environment will be improved in Japan to enable a variety of corporate PPAs.
Opinions on ensuring diversity of renewable energy options:1.

In order to procure renewable energy economically and promptly, we seek to develop a market
environment that allows us to enjoy a variety of options.
We recognize that the mechanism for hedging transactions will be further improved through the developmentof an environment for risk hedging transactions that is currently under consideration within the government 12. On
the other hand, it will take time for the market for such hedging transactions to mature, and we hope thattransitional measures will be taken to ensure that electricity consumers will not have difficulty procuring
renewable energy, even at this time when the rapid spread of renewable energy is required.
Specifically, we call for the development of a market environment where a fair competitive environment among
electricity retailers is established and consumers can enjoy a variety of options to procure renewable energy
economically and promptly. This can be realized through measures such as de-coupling of the major Electric Power
Company’s retail business from the same group’s generation business 13 and ensuring its non-discriminatory
wholesale electricity trading both internally and externally 14.
2.

JCLP seeks to create an environment that facilitates the establishment of virtual PPA schemes.
In order to promote virtual PPAs in Japan, it is necessary to create an environment that encourages the effortsof renewable energy consumers. Specifically, we request that the following measures be taken.
Deregulation of the Commodity Derivatives Transaction Act:
Virtual PPAs may be subject to regulation under the Commodity Derivatives Transaction Act for generalcontracts. On the other hand, it is difficult for general consumers who do not specialize in derivatives
trading to meet the requirements as commodity derivatives business operators or specified OTC
commodity derivatives traders. Virtual PPAs can be an important tool for promoting renewable energy,
including for SMEs15. Considering that the promotion of renewable energy in Japan is the main intention
and that virtual PPAs are a means for consumers to stably procure renewable energy, we request
deregulation so that virtual PPAs are not subject to the Commodity Derivatives Transaction Act to reduce
the operational and financial burden on consumers and realize a wide range of utilization of virtual PPAs.

Further liberalization of non-fossil certificate trading:
The system is being revised to allow direct trading of non-FIT non-fossil certificates by consumers starting
this fiscal year, which is necessary for the spread of corporate PPAs 16. In revising the system, we requestthat direct trading of non-fossil certificates be made possible for a wide range of power sources. In
particular, we request that consumers directly trade non-fossil certificates of power sources utilizing theFIP system. We also call for further relaxation of the rules for the trading of non-fossil certificates so thatvarious corporate PPA schemes can be realized through the ingenuity of companies in the electricity market.

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Reference
1 Also called a power purchase agreement. A system whereby consumers directly conclude medium- to long-term contracts withpower generation companies to purchase electricity.
2 Agency for Natural Resources and Energy, "Electric Power System Reform" (November 2020)
3 According to the Agency for Natural Resources and Energy's "List of Registered Retail Electricity Providers" (June 24, 2022), there
are 738 registered companies.
4 Agency for Natural Resources and Energy, "The Sixth Basic Energy Plan" (October 22, 2021)
5 According to Teikoku Databank's "Survey of New Electric Power Companies' Business Withdrawal Trends (June 2022)," 104companies, or more than 10% of new electric power companies, went bankrupt, closed their businesses, or suspended orwithdrew from power business contracts.
6 Some JCLP member companies and RE100 participating companies have actually become "electricity refugees" and their business
operations have been affected. The number of final guaranteed supply cases reported by the Subcommittee on Electricity andGas Basic Policy of the Agency for Natural Resources and Energy (June 30, 2022) was 14,000.
7 Bloomberg NEF, "Corporate Clean Energy Buying Tops 30 GW Mark in Record Year" (January 31, 2022).
8 Japan Climate Leaders Partnership, "Opinion on Diversification of Non-FIT Renewable Energy Options in Japan" (May 2021)
9 Murata Manufacturing Company, Ltd. "Agreement on a Framework for Collaboration to Achieve a Carbon Neutral Society" (June24, 2022), Sumitomo Mitsui Banking Corporation "Introduction of Renewable Energy through Off-site Corporate PPA" (June 1,2022), Green × Digital Consortium, "Opinion for Expanding the Renewable Energy Procurement Market in Japan" (March 2022),
and other initiatives and requests from consumers for the implementation of virtual PPAs are becoming more active.
10 According to the Ministry of the Environment's "About Off-Site Corporate PPAs" (March 2022), virtual PPAs are equivalent tocommodity futures trading and may fall under derivative (financial derivative) contracts, as organized. If it falls under theCommodity Derivatives Transaction Act, an application for Commodity Derivatives Business OperatorsBusiness License or anotification regarding Specified OTC CoSpecified OTC Commodity Derivatives Traders is required.
11 Agency for Natural Resources and Energy, "Working Group to Study the System" (February 17, 2022).
12 The Agency for Natural Resources and Energy's "Study Group on Wholesale Electricity Market, Supply-Demand Adjustment
Market, and Supply-Demand Operation" (June 20, 2022) states that it is necessary to consider more concrete measures and ways
forward for long-term relative wholesale electricity contracts, forward transactions, and futures transactions. The study group'sfindings will be reported to the Electricity and Gas Basic Policy Subcommittee.
13 Cabinet Office, "Task Force for Comprehensive Review of Regulations, etc. Concerning Renewable Energy, etc." (June 20, 2022);
American Chamber of Commerce in Japan, "Proposals for Regulation of the Wholesale Electricity Market in Japan," March 2021.
14 Cabinet Office, "Task Force for Comprehensive Review of Regulations, etc. Concerning Renewable Energy, etc." (June 20, 2022).
15 RE-Source Platform, "Introduction to Corporate Sourcing of Renewable Electricity in Europe" (January 2020).
16 According to the Agency for Natural Resources and Energy's "Working Group to Study the System" (June 22, 2022), thesecretariat proposed a policy to permit direct consumer trading of non-fossil certificates for FIP power sources, which will be
discussed again at the next meeting.

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