Japan Renewable Alert 45:
Stricter Examination on the Transfer of FIT Projects and Solar Projects Including Detached Land Plots

Energy& Infrastructure Alert | April.22.2020

日本語:事業譲渡・飛び地案件のFIT審査いっそう厳格に

On April 1, the first day of the new fiscal year in Japan, many amendments to laws and regulations become effective and administrative interpretations and standards were revised; renewable energy laws and regulations are no exception. The Ministry of Economy, Trade and Industry (“METI”) revised three documents regarding applications for FIT approvals pursuant to the Act on Special Measures concerning Procurement of Renewable Energy Electricity by Electric Utilities (Act No.108 of 2011) (the “FIT Act”) and the Rule for Enforcement of the FIT Act (METI Ministerial Order No.46 of 2012) (the “FIT Rule”). These three documents are: (i) the “Table of Procedures to Amend Items on FIT Business Plan” (the “Amendment Procedures Table”); (ii) the “Table of Items the Amendment of which will Result in Change in Procurement Price”; and (iii) “Location of Renewable Power Generation Facilities under the Renewable Energy Power Generation Business Plan” (the “Facility Location Criteria”, together with the Amendment Procedures Table, the “METI Documents”).

Under the FIT Act and the FIT Rule, operators are required to attach to their applications for a new FIT approval, the document(s) regarding the title of the land on which the power generation facility is to be placed (Article 4-2 paragraph 2 item 3 of the FIT Rule) and other documents listed in the same paragraph. METI also has authority to demand that operators provide other documents that are necessary for judging whether to issue an approval (paragraph 4 of the same article). These provisions shall also be applied to applications for an amendment approval to an approved FIT business plan (Article 8 paragraph 2 of the FIT Rule).

The METI Documents show the standards that METI sees as appropriate regarding such attachments, and the new revisions to the METI Documents include important amendments that could have a significant impact on new and existing FIT projects.

1. “Documents Evidencing the Acquisition of the Land” in the Assignment of a Project

FIT projects are required to submit the amendment approval application to amend the name of the project operator when assigning a project. The above revision to the Amendment Procedures Table newly added “the documents evidencing the acquisition of the land” to the attachments that need to be provided in filing such amendment approval application. These documents were previously not required in such amendment approval applications, but, as one of the METI officials we contacted told us, the policy was changed considering the fact that there have been a certain number of disputes over the land in such situations. The METI officials noted that any amendment approval applications received on or after April 1, 2020, will be subject to the said revision. Developers, operators and investors are advised to pay attention to this revision as they buy or sell projects in the secondary market or as they transfer project rights to an SPC.

Based on conversations with METI officials, if the project site has been secured in the form of superficies or leases, copies of agreements or registries that show the acquisition of such rights to the land are required as the “documents evidencing the acquisition of the land.” However, the required documents could vary depending on the specific situation of each case as the Amendment Procedures Table does not show clear standards for the required documents. Developers and operators are advised to watch for the actual operational practices hereafter.

Other revisions in the Amendment Procedures Table are mainly related to the introduction of the “community utilization requirements” to solar projects of less than 50 kW.

2. Rights to Lands Used for Electrical Lines

The land used for electrical lines built at the project’s expense to secure access from the grid to the project site or to connect two detached land plots included in one power station is not per se the land used as the location on which the power generation facility is placed, and therefore projects are not explicitly required by law to provide the documents evidencing the rights to such land. The revised Facility Location Criteria, by adding statements that “it is necessary to have obtained the occupancy permit (sen’yo-kyoka) or the land owner’s consent” regarding such land and that METI “may look into whether such consent has been obtained if necessary,” suggest that projects could be requested to provide some documents regarding the right to use the land (e.g., road occupancy permit) for such electrical lines as they apply for a new FIT approval or an amendment approval allowing the addition of the land plots to the existing project’s site. Although the above revised part of the Facility Location Criteria does not explicitly say, according to the information from multiple METI officials, it is mainly intended to regulate so-called “detached-site” solar projects. Therefore, owners of such projects are especially advised to pay attention to this revision.

There have been opinions within METI critical of “detached-site” solar projects, where power generation facilities are placed on detached land plots included in one project, and the operational practices for the treatment of such projects have gradually become stricter. Even prior to this revision, some officials demanded that operators provide the documents evidencing the rights to the land used for the electrical line connecting detached land plots in such projects. The revision clarifies METI’s position in writing to establish such practices nationwide.

According to the responses to our inquiry to the METI’s main office and multiple Bureaus of Economy, Trade and Industry, this revision is understood as clarifying the existing practices rather than setting a new standard, and even the applications submitted prior to April 1, 2020, that are currently under examination will be treated in the same way as described in the revision. Developers and operators need to watch for the actual operational practices hereafter on this matter as well.

3. Future Outlook

As we reported in our Renewable Alert Letter 44, the Diet is currently discussing the bill to amend the FIT Act and other acts, including the introduction of a FIP system and the reserve system for dismantlement costs. The revisions to the METI Documents described above may not draw as much attention from the public as the tidal wave of change in the regulations on renewable energy, but their impact on a practical level are just as huge. Even amid the change in the business environment due to the worldwide pandemic of COVID-19, the changes in regulations are being executed as usual. In order to stably operate renewable projects in such rapidly changing circumstances, it is essential for developers and operators to precisely comprehend these various regulatory changes, whether relatively major or relatively minor, adequately evaluate their impact on the projects and make their voices heard by relevant authorities if necessary.