In response to the recent suspensions by multiple electricity utilities in Japan responding to grid connection applications for renewable energy projects, the Agency for Natural Resources and Energy has published two reviews titled “Review of Operation of the Feed-in Tariff Scheme for Full Introduction of Renewable Energy (再生可能エネルギーの最大限導入に向けた固定価格買取制度の運用見直し等について)”[1] issued on December 18, 2014 and “FY2014 Facility Approval under the Feed-in Tariff Scheme and Review of Operation Thereof (平成26年度の固定価格買取制度に係る設備認定及び設備認定の運用見直しについて)”[2] issued on December 19, 2014 (collectively, the “Proposed Amendments”). The Proposed Amendments take into account the examinations by the New and Renewable Energy Subcommittee (and related working group) of the Committee on Energy Efficiency and Renewable Energy of the Advisory Committee for Natural Resources and Energy into certain issues and concerns regarding the feed-in tariff scheme (the “FIT Scheme”) under the Act on Special Measures Concerning Procurement of Electricity from Renewable Energy Sources by Electricity Utilities (Law No. 108 of August 30, 2011) (the "Renewable Energy Act"). Public comments are currently being solicited regarding the Proposed Amendments and their impact upon the current FIT Scheme.[3] These potential amendments should be carefully considered by developers of, and investors in, solar projects in Japan.

I. Review of the Operation of the FIT Regime

A. Output Capacity Change Before Commissioning

Under the current FIT Scheme, the feed-in tariff rate for a solar project is fixed based on the date that both a certificate for the project is granted by the Japanese Ministry of Economy, Trade and Industry (“METI”) and a connection application for the project is submitted to the applicable utility. An adjustment to the output capacity for a project of less than 20% will be treated as a “minor change” to the project and may be made by notice to METI without any further review. However, an adjustment to the output capacity for the project of 20% or more requires approval by METI and may result in an adjustment of the the feed-in tariff rate for the project to the rate that is effective on the date on which the output change is approved.

Under the Proposed Amendments, an approval from METI will be required for any increase to the output capacity of a solar project prior to its commissioning from the level stated in the initial METI certificate. Further, the feed-in tariff rate will be adjusted to the rate that is effective on the date on which the approval of the change in output is granted.[4] For a solar project with a capacity equal to or greater than 50kW, panels will need to be secured within 180 days following the approval of the change to the plant’s power capacity or such approval will become null and void.

This amendment is proposed to apply to any application for a change in power output submitted on or after February 1, 2015.

Developers currently planning any change to the output capacity for a solar project are advised to submit a change notification or application for approval for change, as applicable, to the relevant Bureau of Economy, Trade and Industry on or before January 30, 2015 for the pre-amendment rules to apply to such modification.

B. Specifications Change Before Commissioning

Under the current FIT Scheme, a change to the module manufacturer, module type, conversion efficiency or model number of the solar panels for a solar plant for which a METI certificate has been issued, but before the plant is commissioned, will typically be treated as a “minor change” to the project and may be made only by notice to METI.[5]

Under the Proposed Amendments, any change to the module manufacturer, module type, conversion efficiency or model number of the solar plant panels before commissioning will require approval from METI and may also trigger an adjustment of the feed-in tariff rate to the rate that is effective on the date on which the approval is granted regarding the change of the module specifications.[6] For a solar project with a capacity equal to or greater than 50kW, panels will need to be secured within 180 days following the approval of the change to the applicable panel specifications or such approval will become null and void.

This new rule will apply to any application for change to panel specifications submitted on or after February 1, 2015.

Developers currently planning any change to design specifications of the panels for a solar project are advised to submit a change notification or applicable, as applicable, to the relevant Bureau of Economy, Trade and Industry on or before January 30, 2015 for the pre-amendment rules to apply to such modification.

C. Output Capacity Increase After Commissioning

Under the current FIT Scheme, the feed-in tariff rate remains unchanged for any output capacity increase after commissioning of a solar plant. However, under the Proposed Amendments, a new certificate will need to be issued by METI for any increase to the output capacity of a plant as a separate project. The feed-in tariff rate for the expanded portion of the plant will be the rate that is effective on the date on which the additional certificate is issued by METI.[7]

Further, if an application to increase the output capacity is submitted for an existing project, inclusive of the expansion, instead of applying for a METI certificate for only the increased portion, the feed-in tariff rate effective on the date that the approval is granted will apply to the entire project.

The feed-in tariff rate will not be adjusted for any output capacity reduction after commissioning.

This amendment will apply to any application to increase solar plant capacity submitted on or after April 1, 2015.

Any owner of a solar plant that is planning to expand the output capacity of a commissioned plant is advised to submit a change notification or an application for approval for change, as applicable, to the relevant Bureau of Economy, Trade and Industry on or before March 31, 2015 for the pre-amendment rules to apply to such expansion.

D. Fee Determination Date

As noted above, under the current FIT Scheme, the feed-in tariff rate for a solar project is determined based on the date that both:

  1. The interconnection application for the project is submitted to the relevant utility; and
  2. A facility authorization for the project is granted by METI.

Under the Proposed Amendments, the feed-in tariff rate for a solar project will be fixed at the rate that is effective on the date that the interconnection agreement for the project is executed between the project owner and the relevant utility. The amended rules will apply to any project that has not satisfied the conditions to fix the feed-in tariff rate by March 31, 2015. For solar projects that have satisfied the relevant conditions (i.e., a METI certificate has been issued and an interconnection application has been submitted to the utility) during the period beginning on April 1, 2014 and ending on March 31, 2015, the feed-in tariff rate of 32 Yen/kWh should apply even if the applicable interconnection agreement is signed on or after April 1, 2015.

II. Dealing with Stalled Projects

Under the current FIT Scheme, the right to connect a solar plant to an electric utility’s transmission grid can be secured by the owner of the project without executing any interconnection agreement or paying any interconnection construction costs. In certain cases, after a project developer has secured such right, limited or no progress has been made in the development of the project. Under the Proposed Amendments, an owner of a solar project may only secure the right to connect a solar plant to a transmission grid when an interconnection agreement is executed between the applicable utility and the project owner. Further, a utility may refuse the interconnection with a solar plant if the project owner does not agree to permit the utility to terminate the interconnection agreement if the project owner either fails to pay construction costs within one month after the execution of the interconnection agreement or fails to commence commercial operation of the solar plant by a specified commissioning date.

It should be noted that a utility will not be permitted to refuse to connect a solar plant to its transmission grid if the interconnection for application such project is submitted before the proposed rules become effective (which is scheduled for mid-January of 2015).

III. New Output Curtailment Rules and Designation of Designated Electricity Utilities

The current output curtailment rules applicable to solar and wind projects with output capacities of 500 kW or more are to be expanded to also apply to solar and wind projects of less than 500 kW.

Under the current FIT Scheme, utilities may request suspension of power output from solar plants without compensation for up to 30 days per year. Under the Proposed Amendments, utilities will be permitted to curtial purchases of power output from solar plants for up to 360 hours per year without compensation. This is intended to provide utilities with better flexibility to finely adjust grid capacity on an hourly basis.

In addition to Hokkaido Electric Power Co., Inc., which had been assigned as a "Designated Electricity Utility", Tohoku Electric Power Co., Inc., Hokuriku Electric Power Co., Chugoku Electric Power Co., Inc., Shikoku Electric Power Co., Inc., Kyushu Electric Power Co., Inc., and Okinawa Electric Power Co., Inc. were also assigned as Designated Electric Utilities under the Ordinance for Enforcement of the Renewable Energy Act issued on December 22, 2014. Each Designated Electricity Utility is permitted to impose curtailment of solar power output to without compensation in excess of the normally applicable limit if the volume of applications for solar power output to a transmission grid of a Designated Electricity exceeds the acceptable volume of solar power output for the transmission grid.[8]