Japan Renewables Alert 69


6 minute read | February.04.2025

日本語日本の太陽光・風力・蓄電池、2025年の展望

Today's Topic

Outlook for Japan’s VREs and Storage in 2025

Japan's energy market is experiencing significant growth with the formation of many corporate PPA projects and the development of numerous battery storage projects.  Amidst this growth, many regulatory changes and discussions on potential changes are expected for 2025.  In this issue, we will provide an overview of some of the key issues and explore the landscape of the market for this coming year.

1. Offshore Wind – Revision of Offshore Wind Auction and Expansion to EEZ

In regard to offshore wind projects, new rules will be put in place for future offshore wind auctions under the Act on Promoting Utilization of Sea Areas in Development of Power Generation Facilities Using Maritime Renewable Energy Resources (Act No. 89 of 2018, as amended; the Maritime REA).  Considering the fact that multiple developers have been forced to suspend or withdraw offshore wind projects in other countries due to various development risks, the aim of the new rules is primarily to ensure that offshore wind projects in Japan can be fully implemented as planned.  The changes include (i) the introduction of a “price adjustment scheme,” where an applicable FIT/FIP price will be adjusted in accordance with the price index, (ii) the revision of the price evaluation system, including the evaluation method related to the “zero premium level” that may eventually force applicants to place bids at a price level for which no substantial public support can be expected under the current system, and (iii) the revision of the deposit system, including an increase in the amount of deposits required after the announcement of the auction winners.  The new rules are scheduled to be implemented for biddings in Round 4 or later rounds.

In addition, given the growing market interest in opportunities in Japan’s vast EEZ, the government is also planning to resubmit a bill to the Diet to amend the Maritime REA to enable offshore wind projects to be developed and operated in the EEZ.  The same bill was previously submitted in 2024 but was discarded due to dissolution of the House of Representatives (shūgiin).

2. Battery Storage – Revision of Rules to Ensure a Smoother Connection Process

To expedite the interconnection process for standalone battery storage projects, METI (Ministry of Economy, Trade and Industry) and OCCTO (Organization for Cross-regional Coordination of Transmission Operators) are planning to change the rules for interconnection. 

Under the current rules, if there exists a theoretical possibility that grid congestion could happen on the grid-to-load current (charging to the battery), storage projects are, in principle, not allowed to be connected without grid enhancement.  Considering that the number of applications for grid connection for storage projects has been increasing due to the Long-Term Decarbonization Auction and METI’s subsidies, among other factors, METI and OCCTO are contemplating expedited grid connection for storage projects, subject to their consents on potential constraints on charging during the time period when demand for energy on the grid is high.  The new rule may start as early as April 2025.

3. Solar and Wind – Decommissioning and Recycling Process Under Discussion

In regard to solar projects, the introduction of a new recycling system for solar power facilities is under discussion.  An expert panel established by METI and MOE (Ministry of the Environment) is considering the responsibility and costs for dismantling and recycling equipment for solar projects, including non-FIT/FIP projects.  METI and MOE released a draft report on December 16, 2024 summarizing the discussions of the expert panel (see here); the draft was open for public comments until January 16, 2025 (see here).

The draft report suggests that, while manufacturers should bear the recycling costs, facility owners should be responsible for the dismantling costs before recycling.  To such end, the draft report concludes that a new framework should be put into place to require owners to deposit dismantling costs with a third-party entity before starting to use a facility (p. 10).  The draft report clarifies that this new cost reserve framework would not be applied to FIT/FIP approved facilities that are already subject to the existing decommissioning cost reserve system under the Act on Special Measures Concerning Promotion of Utilization of Renewable Energy Electricity (Act No. 108 of 2011, as amended; the REA), while non-FIT/FIP projects could be required to make deposits under the new framework in the future.

Regarding FIT/FIP wind power facilities (excluding offshore wind projects under the Maritime REA), the draft report also states that “in principle, application of the decommissioning cost reserve system is appropriate” (p. 14).  This matter should be watched closely as wind power facilities may become subject to the decommissioning cost reserve system under the REA in the future.

4. FIP and Corporate PPAs – Proposed Revisions to Further Promote Expansion

METI aims to encourage existing FIT projects to transfer to FIP (FIP-conversion) and has set a goal of having FIP projects make up 25% of all FIT/FIP projects.  METI has announced its intention to implement measures to advance FIP-conversion.  One such measure is to change the rules for curtailments to balance region-wide supply and demand so that curtailment of FIT resources is conducted before non-FIT resources including FIP resources.  As the total amount of FIT subsidies would decrease as a result of this change, METI intends to temporarily increase to a certain extent the unit price of the “balancing cost equivalent” used in the calculation process for FIP subsidies so that projects that do convert early from FIT to FIP can receive more FIP subsidies.

In addition, 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, as amended; the REA Rule) is to be amended to promote the installation of co-located storage batteries on the project sites of FIP-converted projects.  While only FIP projects approved in FY2024 or later can charge from the grid to co-located batteries, as of April 1, 2025, FIP projects approved in or before FY2023 (including those FIT-approved in the past and then converted to FIP) will also be allowed to charge from the grid to the co-located batteries.

Furthermore, METI plans to expand the scope of FIP projects that can adopt a virtual PPA scheme by amending the rules for Non-Fossil Certificates (NFCs).  NFCs, which are environmental attribute certificates issued for electricity dispatched to the grid, can be directly transferred from generators (or licensed aggregators) to corporate end-users in certain cases, and such direct transfer scheme is utilized for virtual PPAs for non-FIT renewable projects.  Under the current rules, direct transfer of Non-FIT NFCs with renewable designation generated from FIP resources is only available for projects that commenced operation in or after April 2022; however, METI is considering amendments to allow the use of such direct transfer scheme by FIP projects (including those converted from FIT to FIP) that commenced operation prior to April 2022.

5. Local Ordinance Targeting Renewables – Aomori to Introduce Zoning and Tax on Renewable Projects

In 2024, Miyagi Prefecture commenced the enforcement of the “Ordinance on Renewable Energy Local Coexistence Promotion Tax,” a tax on owners of renewable energy facilities (solar, wind or biomass) installed through development activities in forest areas that has attracted market attention as the first local ordinance specifically targeting renewable projects.

Similar trends intended to achieve coexistence of renewable projects with local stakeholders can be observed in other parts of the country.  Aomori Prefecture is currently discussing the “Aomori Prefecture Nature, Community and Renewable Energy Coexistence Ordinance,” which will stipulate zoning and consensus-building processes for renewable projects (see here for the draft outline), and the “Aomori Prefecture Renewable Energy Coexistence Tax Ordinance,” which will impose a new tax (the renewable coexistence tax) on renewable projects (see here for the draft outline).

The target of the ordinances will be solar projects of 2,000 kW or more and onshore wind projects of 500 kW or more.  As to the zoning, the ordinance will categorize prefectural land into adjustment zones, conservation zones and protected zones, and the governor may designate “coexistence zones” for areas where coexistence with renewable projects is deemed feasible.  In principle, the implementation of projects in the protected zones is prohibited, and the implementation of projects in other zones is subject to certain consensus-building processes with local stakeholders.  The renewable coexistence tax will not be imposed on facilities installed in the coexistence zones or on rooftop solar facilities, but it will apply at a rate of 110 JPY/kW in adjustment zones and 410 JPY/kW in conservation zones and protected zones for ground-mount solar, and at a rate of 300 JPY/kW in adjustment zones and 1,990 JPY/kW in conservation zones and protected zones for wind.

Aomori Prefecture plans to submit the draft ordinance for proposal at a regular prefectural assembly this month.

6. Outlook for 2025

The renewable energy industry will see many opportunities in 2025 alongside numerous planned regulatory changes and discussions, and it is essential to accurately understand these changes.  Feel free to contact us to leverage our extensive experience both domestically and internationally and receive project support, as well as valuable insight into the latest industry trends through our bi-weekly regulatory updates.

We are also pleased to announce the recent promotions of Andrew Hughes to partner and Gohshun Kawamura to of counsel in our Tokyo Energy and Infrastructure team, and we look forward to continuing to serve every aspect of our clients’ needs in the year ahead.