Market framework

Definition of ‘renewable energy’

Is there any legal definition of what constitutes ‘renewable energy’ or ‘clean power’ (or their equivalents) in your jurisdiction?

Under the Act on Special Measures Concerning the Procurement of Renewable Electric Energy by Operators of Electric Utilities (the Renewable Energy Act), which is in charge of the implementation of the FIT programme in Japan, renewable energy is defined as solar power, wind power, hydraulic power, geothermal heat and biomass.

There are statutes that have a broader definition. For example, under the Act on the Promotion of Use of Non-Fossil Energy Sources and Effective Utilization of Fossil Energy Materials by Energy Suppliers, renewable energy includes solar heat and other sources of natural heat, such as the heat in the air, in addition to solar power, wind power, hydraulic power, geothermal heat and biomass.

Framework

What is the legal and regulatory framework applicable to developing, financing, operating and selling power and ‘environmental attributes’ from renewable energy projects?

The legal framework generally applicable to selling power from renewable energy projects is the FIT programme under the Renewable Energy Act. Under the FIT programme, the owner of a renewable energy project with a certification from METI has the right to request a transmission utility to enter into a power purchase agreement with it and purchase all available electric power at a fixed price (ie, a price set by METI depending on the type of renewable energy source and the output capacity of the project) over a long term (ie, 10, 15 or 20 years depending on the type of renewable energy source). A transmission utility is required to accept such requests unless there is a legitimate reason not to. Legitimate reasons are strictly limited by and defined under the Renewable Energy Act. The utilities that are required to purchase electric power from renewable energy projects have the right to receive a renewable energy subsidy, the cost of which is ultimately borne by the end users who are required to pay renewable energy surcharges under the FIT programme.

The development, financing and operation of renewable energy projects are subject to other general laws and regulations governing each area. Regarding permission for development, some local governments impose specific regulations on the development of renewable energy power plants.

Regarding environmental attributes from renewable energy projects, the following programmes represent the main legal and regulatory framework.

J-Credit

If an entity reduces its emissions of greenhouse gas or increases its absorption of greenhouse gas by introducing energy-saving equipment, providing forest management or the like, along with fulfilling certain criteria, such reduction of emissions or increase in absorption of greenhouse gas can be certified as J-Credit. A holder of J-Credit can sell it to a third party.

Green power certificate

If an entity introduces a renewable energy power project, along with fulfilling certain criteria, the increase in environmental value from the power generation from such renewable energy project can be certificated into a green power certificate. The initial holder of a green power certificate can sell it to a third party, but the purchaser from the initial holder cannot resell the certificate.

Certificate of non-fossil fuel value

A Non-Fossil Fuel Certificate was introduced in 2018. The Certificate, which embodies the zero-emission value created by a renewable project under the FIT programme, is issued by a governmental agency and sold to electricity retailers at auction. The scope of electricity generators eligible to receive the Non-Fossil Fuel Certificate is expected to be expanded in November 2019 to cover the ‘post-FIT’ non-fossil fuel power generation, and is also expected to be expanded in April 2020 to cover non-fossil fuel power generation outside of the FIT programme. As such, the industry landscape surrounding the Non-Fossil Fuel Certificate may change in the future.

Local cap and trade programme

The cap and trade programme was established in Tokyo metropolitan and Saitama prefectures. Entities in the Tokyo metropolitan area and Saitama prefectures that reduce greenhouse gas emissions can sell the volume of emissions reduced in accordance with the system established by the Tokyo Metropolitan government or Saitama Prefecture.

Nationwide cap and trade programme

There is no cap and trade programme at the national level in Japan.

Government incentives

Does the government offer incentives to promote the development of renewable energy projects? In addition, has the government established policies that also promote renewable energy?

After adopting the Kyoto Protocol, the Japanese government has been promoting the use of renewable energy to reduce greenhouse gas emissions. At one time Japan had an RPS (renewable portfolio standard) programme. Since 2012, however, the FIT programme has replaced the RPS programme and has been bolstering the development of renewable energy projects.

As stated above, the FIT programme, J-Credit, green power certificate, certificate of non-fossil fuel value and the cap and trade programme at the local government level have been established. In addition, the Japanese government also provides tax benefits (such as special depreciation and tax deduction when certain requirements are satisfied) for the introduction of certain energy-saving equipment.

Are renewable energy policies and incentives generally established at the national level, or are they established by states or other political subdivisions?

METI and its affiliated agency, the Agency for Natural Resources and Energy, establish renewable energy policies and incentives, including the FIT programme, at the national level.

While there is no cap and trade programme at the national level, some local governments have introduced cap and trade programmes.

Legislative proposals

Describe any notable pending or anticipated legislative proposals regarding renewable energy in your jurisdiction.

The current FIT programme is a temporary system intended to encourage introduction of renewable energy resources in Japan, and a revision to the fundamentals of the Renewable Energy Act is expected by 31 March 2021. Although the details of the revision have not yet been determined, the government seems to expect that the solar PV and wind power will be power sources competitive enough to survive in the market without the financial support from the government. The Japanese government is positioning renewable energy as the main source of electricity in Japan, and we need to pay special attention to the upcoming amendment to the FIT programme.

Disputes framework

Describe the legal framework applicable to disputes between renewable power market participants, related to pricing or otherwise.

With respect to disputes regarding utilities’ wheeling services and their transmission and distribution lines, the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) was designated as the dispute resolution business operator under the Act on Promotion of Use of Alternative Dispute Resolution. Pursuant to this designation, OCCTO conducts conciliation and mediation proceedings. There is no specific legal framework for resolution for other types of disputes that may arise between or among renewable energy market participants. These disputes are resolved through normal civil judicial proceedings, civil conciliation proceedings or arbitration proceedings.