Why have corporate PPAs been attracting attention in Japan?
Corporate PPAs involving electricity retailers
Corporate PPAs not involving electricity retailers
Virtual PPAs


In December 2020, after former Prime Minister Suga Yoshihide made a declaration on carbon neutrality in his policy speech in October 2020, the government established the Green Growth Strategy Through Achieving Carbon Neutrality in 2050. In addition, while 26% was the previous goal for 2030 as regards the reduction of greenhouse gas emissions since 2013, the target was increased to 46% in March 2021. For Japan to realise a decarbonised society, the widespread introduction of renewable energy is essential.

Against this background, and to promote renewable energy, unsurprisingly, corporate power purchase agreements (PPAs) have been attracting a great deal of attention in Japan. This article aims to briefly introduce the background, scheme and regulatory challenges of corporate PPAs in Japan.

Why have corporate PPAs been attracting attention in Japan?

There are various factors behind the growing interest in corporate PPAs in Japan, including incentives for business entities such as purchasers and power plant owners. For example, in 2021 the Ministry of Economy, Trade and Industry (METI) selected a number of projects for which subsidies will be granted for the construction of renewable energy power generation facilities, using corporate PPAs. Recent examples include the announcements by Clean Energy Connect that it will supply renewable energy through corporate PPAs to Shimizu Corporation, Dai-ichi Life Insurance and Sinanen Holdings. While not yet officially approved, there is some expectation in the energy market that METI will continue to provide such subsidies going forward.

In addition, a recent amendment to The Act on Special Measures concerning the Procurement of Renewable Electric Energy by Operators of Electric Utilities (the Act)(1) has also provided an incentive for the use of corporate PPAs.

Business entities as purchasers
Many business entities are strategising how to tackle climate change and reduce greenhouse gas emissions, and face a number of issues, including how to align their use of electricity with effective environmental, social and governance policies and sustainable development goals. Some Japanese business entities have joined the RE100, committing to use only renewable energy, while others are looking not only to purchase renewable energy but also to help increase renewable energy production.

To satisfy such renewable energy production demands and meet such strategic goals, corporate PPAs have, unsurprisingly, been gaining a lot of attention from business entities.

Power plant owners
Power plants require enormous investment to develop and construct in the early stages of the project, with investors looking to recover their investments through the long-term revenues generated by the plant after the commercial operation start date. Therefore, project sponsors and lenders look to the long-term and reliable sale of electricity when making their investment and financing decisions.

Previously, feed-in tariff (FIT) certification played an essential role in securing such investments, with the government setting the high price of 40 yen per kilowatt, under the FIT certification system, to attract investors.

However, as this price has now been reduced to approximately 10 yen per kilowatt, power plant owners have been forced to reassess their project investment and financing schemes, with many looking to corporate PPAs to provide a viable alternative.

Effect of amendments to FIT certification
Under the current FIT certification system, power plant owners are eligible to sell all of their electricity at a fixed price through a PPA without any risk of a change of price or demand. However, the amended Act, which will come into effect on 1 April 2022, will introduce the feed-in premium (FIP) system. Under the FIP system, plant owners will need to sell their electricity through commercial transactions or through the market. Further, purchasers will have a chance to purchase electricity at a reasonable market price, which excludes the premium. Therefore, the FIP system is expected to accelerate the expansion of corporate PPAs.

Corporate PPAs involving electricity retailers

Under Japanese regulations, power plant owners are required to obtain a licence and register as an electricity retailer if they wish to sell electricity directly to general customers. Generally, it is difficult for power plant owners to obtain the required licence because such power plant owners are usually established as special purpose companies, engaging only in a specific power plant's business. To mitigate this, power plant owners can establish a business scheme using a contract to which all related parties, including the electricity wholesaler and ultimate customers, will be party.

In addition, under current legislation, electricity retailers must be involved in the sale of the environmental value of renewable energy. In Japan, the environmental value of electricity generated from renewable energy sources is embodied in non-fossil certificates. Non-fossil certificates are traded between power producers and electricity retailers through the Japan Electric Power Exchange or through bilateral transactions; ultimate consumers cannot purchase these non-fossil certificates. If a renewable power generation facility owner wants to transfer the environmental value of the renewable energy to an end user, the owner must sell the non-fossil certificates to the electricity retailers that supply power to the end user.

Corporate PPAs not involving electricity retailers

In contrast to the above, corporate PPAs that do not require the involvement of electricity retailers are scheduled to be introduced in the near future. METI is planning to introduce a new scheme whereby the power generation company and the end user will establish a partnership to sell and buy renewable energy directly to each other. To use this new scheme, the power generation facility will need to:

  • be newly constructed;
  • be built exclusively for that end user; and
  • use a decarbonised power source, such as renewable energy.

Once this new scheme is in place, power producers and end users will be able to execute a corporate PPA without involving an electricity retailer.

Virtual PPAs

Another scheme that will not require electricity retailers is the virtual PPA. Under this scheme, power plant owners and purchasers will buy and sell the environmental value of renewable energy, rather than electricity. The power plant owners and purchasers will agree a "strike price", with the purchasers paying the difference between the market price and the strike price to acquire the environmental value of the renewable energy.

Currently, end users cannot purchase non-fossil certificates directly from the power producer, and it is currently difficult to implement virtual PPAs in Japan. However, METI is aware of the demand by end users to be able to directly purchase non-fossil certificates; it is expected to soon start working to address this issue.

For further information on this topic please contact Adrian Joyce or Amane Kawamoto at Nishimura & Asahi by telephone (+81 3 6250 6200) or email ([email protected] or [email protected]). The Nishimura & Asahi website can be accessed at


(1) Act 108 of 2011.