Kunihiro Yokoi
Anderson Mori & Tomotsune, Tokyo
kunihiro.yokoi@amt-law.com
 

Hirofumi Wada
Anderson Mori & Tomotsune, Tokyo
hirofumi.wada@amt-law.com 

Background

In Japan, the government has declared that carbon neutrality (ie, balancing greenhouse gas emissions and absorption) will be achieved by 2050, and the Sixth Basic Energy Plan,^[1] approved by the Cabinet in October 2021, calls for renewable energy to account for 36-38 per cent of the total power source mix.

As part of the measures to achieve this target, the government has clearly stated that it will support initiatives to enable renewable energy systems to be introduced and expanded in harmony with local communities to the maximum extent possible. In this regard, Japan is promoting the introduction of regional self-supporting distributed energy systems which do not depend solely on the supply of electricity from large-scale power stations but instead supply each region with energy generated from resources that exist within the region.

In fact, the introduction of a Feed-in Tariff (FIT) system based on the Act on Special Measures concerning Promotion of Utilisation of Renewable Electric Energy (Renewable Energy Act) has resulted in a significant increase in the amount of renewable energy, particularly solar power, introduced as a source of distributed energy supply in various regions. The FIT is a system under which the government guarantees that regional transmission and distribution system operators (TDSOs) will purchase electricity generated from renewable energy sources for a certain period at a certain price.

In addition to the above, since 2022, a Feed in Premium (FIP) system has been implemented. Unlike the FIT system, this system allows for wholesale market trading and the sale of electricity relative to specific customers, and provides a certain premium to power generators for the amount of electricity sold. By linking the unit price of electricity sold to the market price, competition among operators and the diversification of business models is promoted. Consequently, the FIP system has become a basis for promoting distributed energy projects in a region.

Efforts to increase the capacity for distributed energy

In promoting the use of renewable energy as a main power source and using renewable energy as a standalone distributed energy source in a region, the challenge was where and how to incorporate and build technologies related to a region’s distributed energy systems.

As a first step to address these issues, the Act for Partial Amendment of the Electricity Business Act, etc. for the Purpose of Establishing a Robust and Sustainable Electricity Supply System was enacted on 5 June 2020, and came into effect on 1 April 2022. The provisions of this Act include revisions to the Electricity Business Act (Electricity Business Act), which establishes rules for electricity businesses.

In this amendment of the Electricity Business Act, the electric power distribution business was positioned as a business requiring a licence (Art 2, para 1, Item 11-2, Art 27-12-2 to Art 27-12-13 of the Electricity Business Act). This has allowed new operators to enter the electric power distribution business by borrowing or taking over power distribution networks that were previously operated exclusively by a region’s existing TDSOs. It is believed that the increased entry of new operators will not only promote the operation and management of the electric power distribution business by using advanced technologies such as IoT and AI, but also lead to cost reductions in facilities.^[2]

In addition, the role of aggregators has been newly specified in the Electricity Business Act (Art 2, para 1, Item 15-2, Arts 27-30 to 27-32 of the Electricity Business Act). An aggregator is an entity which bundles distributed power sources to secure a certain level of electricity supply, and acts as an intermediary between consumers and generators to control the balance between electricity supply and demand and to maximise the use of each consumer’s energy resources. Aggregators are expected to play a role in maximising the use of distributed energy resources, such as stabilising the supply of energy from renewable energy sources, which fluctuates with the weather, and supplying power in times of disaster.

Furthermore, grid constraints in each region have hindered the introduction of distributed energy systems across Japan. As a measure to address this issue, the Organisation for Cross-regional Coordination of Transmission Operators, JAPAN (OCCTO) was established in 2015 based on the Electricity Business Act to serve as a command post for wide-area electricity interconnection and grid maintenance across regions. The process for soliciting power connection projects sponsored by OCCTO is a procedure for inviting bids from multiple interconnection applicants who are developing power generation projects in neighbouring areas and allocating grid space according to the cost-sharing amount of their bids on the condition that they jointly bear the cost of grid enhancement work. This has resulted in efficient facility formation and reduced cost burdens for individual interconnection applicants. Moreover, while the dominant TDSOs in each region were previously responsible for the construction of grid interconnection lines, the OCCTO has been systematically promoting the construction of inter-regional interconnection lines to enable cross-regional power supply according to the supply/demand situation.^[3]

In addition to the above, the increasing role of grid storage batteries, which are directly connected to the grid and used to cope with supply/demand fluctuations in the entire power system, should also be noted. Since the financial year ended 2021, there have been 27 cases where the installation of grid storage batteries were supported by government subsidies.^[4] Moreover, with the amendment of the Electricity Business Act in May 2022, the discharge of large grid storage batteries was positioned as a business requiring the filing of notifications to the authorities (Art 2, para 1, Item 14 and Art 27-27 of the Electricity Business Act), and measures to improve the environment for connections to the grid are also being promoted.

Local concerns about renewable energy

While these system foundations have been established, the entry of new operators with diverse business sizes has raised local concerns about safety, disaster prevention, impact on the landscape and environment, and future disposal of facilities.^[5] In light of this movement toward renewable energy as the main source of power and discussions in the region to resolve such concerns, the Act for Partial Amendment of the Electricity Business Act, etc. for the Purpose of Establishing an Electricity Supply System for a Decarbonised Society (GX Decarbonised Power Supply Act), which includes revisions to the Renewable Energy Act, was enacted on 31 May 2023.

Among several new measures introduced under the GX Decarbonised Power Supply Act to strengthen the regulations of renewable energy projects, the one which is likely to have the greatest impact on power generation projects is a requirement for a project owner to hold explanatory meetings for local residents.^[6]

With exceptions applicable to certain projects, a project owner who intends to conduct a renewable energy project is required, in principle, to hold an explanatory meeting for local residents in accordance with the procedures under the Renewable Energy Act at least three months before applying for approval of a plan for applicable FIT/FIP (Art 9 of the Renewable Energy Act and Art 4-2-3 of the Enforcement Regulations of the Renewable Energy Act). Such meetings may also be required when a shareholder holding a majority of the voting rights of the project operator or an investor holding a majority of the equity interests in the project operator’s TK (tokumei kumiai) partnership transfers its shares or equity interests to a third party.^[7]

The purpose of these measures is to provide appropriate information and communication to residents of the surrounding area and to address their concerns about the impact of the project. On the other hand, there are concerns that the increased practical burdens on project owners and investors in power generation projects might hinder the further increase of distributed energy projects in areas anxious about issues relating to rapid increases of renewable projects.

Introduction of zoning plan systems for local decarbonisation

Prior to the enforcement of the GX Decarbonised Power Supply Act, the Act on Promotion of Global Warming Countermeasures (Global Warming Countermeasures Act) was also amended. The amendment, which came into effect in April 2022, has expanded the system for promoting local decarbonisation projects in order to facilitate smooth consensus building with local residents and to promote the introduction of renewable energy projects which are appropriately environmentally friendly and contribute to the local community.

Under such a system, a municipal authority designates an area for promoting renewable energy and formulates measures for environmental conservation and regional contribution after consulting with project owners, local residents, and other related parties (Art 21, Paragraph 5 of the Global Warming Countermeasures Act). In response, when implementing a renewable energy project in such an area, the project operator is required to draw up a project plan which conforms to the relevant initiatives and obtain certification from the municipal authority (Art 22-2 of the Global Warming Countermeasures Act).^[8] This system is expected to improve the predictability of the project and facilitate consensus building between all parties concerned, including local residents.

New regulations by local ordinances

Many local government authorities of the regions where power generation projects are located have established their own ordinances to ensure that the projects are carried out appropriately in accordance with the local communities. In 2016, there were only 26 ordinances regarding the installation of renewable energy facilities, but by 2021, 186 such ordinances had been established.^[9]

Some of these ordinances stipulate, however, restricted or prohibited zones for renewable energy projects, contrary to the concept and measures based on the Global Warming Countermeasures Act. In some cases, local government authorities have set their own rules which allow them to request project owners to hold explanatory meetings when it is necessary to promote communication further with the community in accordance with the actual conditions of the community, even though such explanatory meetings for residents are not required under the Renewable Energy Act.

Prospects for future regulations

As already stated, Japan has been developing legislation to make renewable energy its main source of power and to expand distributed energy systems, together with legislation to address local concerns to achieve a harmonious coexistence of distributed energy systems and local communities.

The Japanese government has announced a policy of accelerating these measures with a sense of urgency by strengthening cooperation among the relevant ministries and agencies having jurisdiction over the relevant regulations, as well as between the national and local government. This should hopefully facilitate the further development of distributed energy systems.^[10]