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Japan: Renewable Energy Special Measures Act Amended

(Aug. 16, 2016) On June 3, 2016, Japan promulgated an amendment to the Act on Special Measures Concerning Procurement of Electricity from Renewable Energy Sources by Electricity Utilities (Renewable Energy Special Measures Act). (Act No. 108 of 2011, JAPANESE LAW TRANSLATION; Act No. 59 of 2016, OFFICIAL GAZETTE (June 3, 2016), at 39 (in Japanese).)  The amendment was designed to achieve the government’s plan to make the ratio of electricity production derived from renewable sources 22% to 24% of all electricity production in Japan.  (Press Release, Cabinet Decision on “Renewable Energy Special Measures Act” (Feb. 9, 2016), Ministry of Economy, Trade and Industry (METI) website (in Japanese and English).) Most of the amended provisions will take effect on April 1, 2017. (Renewable Energy Special Measures Act, Supplementary Provisions (Supp.), art. 1.)  Major features of the amendment are as follows:

1. Concrete Business Plan

Under the current system, there is no time frame in which projects are required to start operations. Under the amended Act, suppliers of electricity must submit to the METI a Business Plan on Generation of Electricity from Renewable Sources.  The METI examines suppliers’ capabilities to provide electricity as described in their Plans.  (Press Release, supra.)  The Plans must include starting times for the proposed electricity generation; descriptions of systems of generation of electricity, locations, output power, and management methods of the facilities; and a connection agreement with a utility company.  (Renewable Energy Special Measures Act, art 9 ¶ 2.)  The METI Minister certifies each supplier whose Plan is satisfactory.  (Id. art. 9 ¶ 3.)

Suppliers that have obtained METI certification under the current system without a connection agreement with a utility, something that has not been required under the current system, will now be required to obtain a new certificate by the effective date of the amendment.  However, the amendment sets a grace period for recently certified suppliers.  (Id. Supp., art. 5.)  Certified suppliers under the current system must submit a Business Plan after the effective date of the amended Act.  (Id. Supp., art. 4 ¶ 2, art. 5 ¶ 4, & art. 6 ¶ 4.)

2. Enhanced Supervision

Under the amended Act, the METI will have the authority to supervise and give advice to renewable-source electricity suppliers. (Id. art. 12.)  When the METI Minister recognizes that a supplier is not doing business in accordance with the certified plan, the METI can order the supplier to follow the plan within a specified period.  (Id. art. 13.)  The Minister may revoke a certification if one of the certification requirements is not satisfied or the supplier does not follow ministerial orders.  (Id. art. 15.)

3. Reduction of Costs

Reducing the electricity purchase cost, the largest part of which is charged to users, is one of the goals of the government.  (Press Release, supra.)  The METI calculated that the annual surcharges collected from the average household that consumes 300 kWh per year would be ¥8,100 (about US$80) this year. (Agency for Natural Resources and Energy, Settlement of FY 2016 Purchase Prices and FY 2016 Surcharge Rates Under the Feed-In Tariff Scheme for Renewable Energy, METI website (Mar. 18, 2016).)

For determination of the electricity tariff, the amendment introduces a reverse auction system.  When the Minister expects that the tariff for electricity from a particular renewable source can be reduced by using an auction system, the Minister can conduct such an auction.  (Renewable Energy Special Measures Act, art. 4.)  The guidelines for that auction will be separately set by the METI.  (Id. art. 5.)  Suppliers will submit bids and compete for the right to supply a fixed amount of power to the utilities. The bids will be accepted from the lowest bid upwards, until the capacity available at the auction is fully allocated.  (Id. art. 7.)  The Ministry has planned that the auction system will be introduced first for large-scale solar projects.  (Agency for Natural Resources and Energy, Regarding Amendment of Feed-In-Tariff (FIT) System for Energy from Renewable Sources, § 1 (June 2016), METI website (in Japanese).)

In addition, eligibility for deduction of a surcharge for certain industrial users that consume large amounts of electricity was reviewed.  Under the amended Act, to be eligible, the user must implement measures to reduce use of electricity.  Also, the amendment made it possible for the Minister to give various deduction rates to those industrial users, depending on the extent of their efforts to save energy.  (Renewable Energy Special Measures Act, art 17.)

4. Predictability of Tariff

The amendment also aims to improve the foreseeability of the renewable energy tariff and, as a consequence, make it possible for participants to more easily predict the business market for suppliers. Under the current and the amended Act, the METI sets the tariff before the beginning of the upcoming fiscal year. (Id. art. 3 ¶ 1.)  Under the amended Act, the Minister may set the tariffs in advance for the following fiscal years as well.  (Id. art. 3 ¶ 2.)  In addition, the Minister must set a target price for the tariff over the long term (not specified in the amendment).  (Id. art. 3, ¶ 12.)