11 minute read | December.26.2023
When installing renewable energy facilities, renewable developers are expected to consider the local environment and the daily lives of local residents, and many developers have been meeting such expectation. Recently, “local coexistence” has been the focus of recent regulatory reforms. For example, due to the amendments to the Act on Special Measures Concerning Promotion of Utilization of Renewable Energy Electricity (Act No. 108 of 2011, the REA), beginning on April 1, 2024, information sessions for residents in areas surrounding a project site will be required in principle to obtain FIT/FIP approval for solar and onshore wind projects of 50 kW or more (see Japan Renewables Alert 63, section 1.(2)). This newly required information session will also apply to applications for FIT/FIP amendment approvals in the event of a project transfer, change in the location of the facilities and certain increases in capacity. At a local level, Miyagi Prefecture introduced a tax on owners of renewable energy facilities installed through development activities in forested areas in the interest of “local coexistence” under the newly enacted “Renewable Energy Local Coexistence Promotion Tax Ordinance” (Miyagi Prefecture Ordinance No. 34 of 2023; the Miyagi Ordinance) (see Japan Renewables Alert 63, section 4.). The Miyagi Ordinance is scheduled to take effect on April 1, 2024 now that the Minister for Internal Affairs and Communications (MIC Minister) has granted consent for such taxation.
On December 13, 2023, the results for three of the four sea areas subject to Round 2 of the general sea area offshore wind auction pursuant to the Act on Promoting Utilization of Sea Areas in Development of Power Generation Facilities Using Maritime Renewable Energy Resources (Act No.89 of 2018; the Maritime REA) (regarding Round 2, see Japan Renewables Alert 62, section 1) were announced. At this first offshore auction under the FIP scheme instead of FIT, the winning bid price for two sea zones was 3 yen/kWh, at which the projects can eventually expect almost no FIP premium.
In this Alert, we will discuss the trends related to local coexistence, as well as Round 2 offshore wind auction results.
Beginning on April 1, 2024, pursuant to the amendment of the REA by the “Act for Partial Amendment of the Electricity Business Act, etc. for the Establishment of Electricity Supply System toward the Realization of a Decarbonized Society” (Act No. 44 of 2023; the GX Decarbonization Electricity Act), promulgated in June 2023, applicants for FIT/FIP approval will be required to complete briefing measures for residents in areas surrounding the project site where renewable energy facilities are to be installed (Amended REA, art. 9, para. 4, item 6). Briefing measures will be required not only for new approvals, but also for approval of amendment in any “material items” (Amended REA, art. 10, para. 4).
Details regarding such briefing measures and “material amendments” are to be set forth in the Rule for the Enforcement of the Act on Special Measures Concerning Promotion of Utilization of Renewable Energy Electricity (METI Ministerial Order No. 46 of 2012; the REA Rule). A report by a METI expert panel summarizing its discussions was published on November 28, 2023 after going through public comment procedures (see here), and on the same day a draft outline of the METI ministerial order amending the REA Rule (the Draft Amendments) was released and submitted for public comment (see here; until 23:59 on December 27, 2023).
The Draft Amendments require information sessions to be held for adjacent residents with respect to renewable energy facilities of 50kW or more (excluding roof-mounted solar and offshore wind subject to the Maritime REA). The date, time, and place of such sessions need to be notified at least two weeks in advance through certain methods to (1) residents within a certain range (one kilometer in the case subject to Type 1 national-law EIA) of the site boundary for the project site, (2) owners of land or buildings neighboring the project site, and (3) other persons as deemed necessary by the municipality mayor. Information sessions must include an outline of the project and construction work, status of the acquisition of land title to the project site, information on major investors in the applicant operator, and information on potential impacts and preventative measures related to the safety, landscape, and the natural and living environment of the surrounding area. Information sessions must also provide the opportunity for a question-and-answer session for adjacent residents where the project operator must provide responses in good faith to the questions and opinions. Information sessions must be recorded and filmed and should be preserved until the end of the FIT/FIP period. Further, after the information session, a project must set a period of no less than two weeks during which it accepts questions and opinions from adjacent residents and must provide responses in writing in good faith.
Information sessions are to be held three months prior to FIT/FIP approval application. In addition, for projects that must obtain certain development permits such as a forest development permit (as of October 1, 2023, in principle such permits are required to have been secured prior to FIT/FIP approval application; see Japan Renewables Alert 63, Section 2.), information sessions are also required to be held prior to application for such permits. In the case of a project subject to national-law EIA, information sessions are also required to be held during the phase prior to the drafting of the document on primary environmental consideration statement, and during the phase prior to the commencement of construction work following the publication of the environmental impact statement.
Amendments to “material items” in a FIT/FIP business plan also require briefing sessions (in the case of 50kW), and such amendments to “material items” include (i) changes to the approved operator and (ii) changes to “parties that have a close relationship from the standpoint of capital relationship etc.” with the approved operator (“closely related parties”). Under the current law, the transfer of membership interest in the SPC holding a FIT/FIP approval does not necessarily require a FIT/FIP amendment approval application (the filing of an ex-post amendment notice is required for changes in the representative and business address), but from April 2024, such transfer may require a FIT/FIP amendment approval application and a prior information session as it can constitute a change in “closely related parties.” Information sessions are also required for (iii) capacity increases of 20% or 50kW or more, and for (iv) a change in the facility location. Considering that the deadline for FIT/FIP amendment approval applications is usually set around mid-December to be able to receive approval within the fiscal year (ending on March 31 of the following year), scheduling changes to your FIT/FIP business plan will require even more attention after April 2024.
The Miyagi Ordinance is to impose a tax on owners of renewable energy facilities (solar, wind or biomass) installed through the development of forest areas larger than 0.5 ha in proportion to their power output. While the applicable tax rate to FIT or non-FIT projects is, in principle, 620 yen/kW for solar, 2,470 yen/kW for wind and 1,050 yen/kW for biomass, for FIT-approved solar and wind projects, the applicable tax can be as high as 2,640 yen/kW for solar and 4,760 yen/kW for wind at a maximum depending on the applicable FIT price. Projects that have already commenced with construction before the effective date will be exempted.
The Miyagi Ordinance excludes projects that are (i) based on a local decarbonization project plan under the Act on Promotion of Global Warming Countermeasures, (ii) based on a facility installment plan under the Act on Promoting the Generation of Electricity from Renewable Energy Sources Harmonized with Sound Development of Agriculture, Forestry and Fisheries, or (iii) based on a plan approved by the prefecture governor after recognition by municipal mayor(s) as a project similar to the above (Equivalent Projects). On September 25, 2023, Miyagi Prefecture released “Guidelines on Approval for 'Promotion Zones' and 'Regional Decarbonization Promotion Projects' Pursuant to the Act on Promotion of Global Warming Countermeasures etc.” (see here) that explain the criteria and procedures to qualify as an “Equivalent Project” with exempt status.
The Miyagi Ordinance is a “non-statutory tax” whereby a tax category is created by a local government, and consent of the MIC Minister is necessary for the local government to actually impose such tax (Local Tax Act, art. 259, par. 1). As the consent of the MIC Minister was granted on November 17, 2023 (see here) following the discussion by a panel of experts after the promulgation in July 2023, the Miyagi Ordinance is scheduled to go into effect on April 1, 2024, as initially planned.
The operators selected for Round 2 of the Offshore Wind Auction pursuant to the Maritime REA were announced on December 13, 2023 for three of the four subject sea areas (see here). Round 2 was the first offshore wind auction to be conducted under the FIP scheme, under which monthly premiums are to be granted on the assumption that regular wholesale transactions are conducted (the premium being the difference between (a) the FIP price and (b) the reference price calculated based on the previous year's market price, etc.). All of the sea areas assume fixed-bottom projects, and the maximum FIP price was set at 29 yen/kWh for the offshore area of Enoshima, Saikai City (Nagasaki Prefecture) on the assumption of jacket structure, and at 19 yen/kWh for the other three sea areas on the assumption of monopile structure. Evaluation was conducted in terms of “price” (120 points) and “project feasibility” (120 points), with 120 price points to be awarded for the lowest price bid or bids below 3 yen/kWh, which is the price level at which FIP premium is not likely to be granted (“zero-premium level”).
According to the announcement, the winning bid price was the zero-premium level of 3 yen/kWh for the offshore areas of Oga City, Katagami City and Akita City (Akita Prefecture); Murakami City and Tainai City (Niigata Prefecture), and 22.18 yen/kWh for Eshima, Saikai City (Nagasaki Prefecture). All three applicants for the offshore areas of Oga City, Katagami City and Akita City (Akita Prefecture) and three out of the four bidders for the offshore areas of Murakami City and Tainai City (Niigata Prefecture) bid at 3 yen/kWh, indicating the need to secure revenue from sources other than premiums under the FIP scheme.
With respect to the offshore areas of Happo Town and Noshiro City (Akita Prefecture) Offshore Area, the highest scoring operator will need to resubmit their plan due to overlapping port usage. The final selection for Happo/Noshiro is scheduled to be announced in March 2024, which is when “non-selected operators” and more detailed breakdown of scoring and evaluation for “project feasibility points” for the other three areas above are to be provided as well.
The Japan Sea offshore Aomori Prefecture (south) (600 MW) and the offshore area of Yuza Town (Yamagata prefecture; 450 MW) have already been designated as promotion zones and are expected to be sites for Round 3 of the offshore wind auction pursuant to the Maritime REA (see Japan Renewables Alert 65, section 1.). The draft Auction Guidelines that set forth rules for Round 3 were open for public comment until December 17, 2023 (see here), and going forward, further attention needs to be paid to future announcements.
Given the urgent need to decarbonize energy in terms of both environmental and industrial policy, we observed many statutory and regulatory changes. It will undoubtedly continue to be important to keep abreast of regulatory changes and related discussions in the coming year.
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