Japan: Amendment of Renewable Energy Special Measures Act

In recent years, many loans and investments have been actively extended for large-scale photovoltaic power generation projects in Japan. The Renewable Energy Special Measures Act (Act No. 108 of 2011), which forms the foundation of such projects, was amended on June 12 2020, and it will, in large part, take effect on April 1 2022.

This article reports (i) measures in relation to certification expiration, and (ii) the disposal cost reserve system, both of which are included in the amendment, since these are likely to attract the keen interest of investors and banks considering funding for solar power projects that have already been officially certified.

Under the current feed-in-tariff (FIT) system, a business operator which has obtained certification of a power generation business plan for a large-scale photovoltaic project is eligible to sell the generated electricity for a certain procurement period (typically, 20 years) at a predetermined procurement price (which has been on a declining trend).

However, projects that have been granted certification with a relatively high procurement price and that have not started power generation, while at the same time reserving grid capacity and thus blocking a new project from efficiently utilising it, have been considered problematic, and several measures have in the past been implemented to cope with the practice.

Further to those measures, the amendment stipulates that, if the power generation is not commenced within a certain period from the date of the relevant certification of the power generation business plan, such certification shall expire and, as a result, the grid capacity reserved by the relevant project will be released.

The details of the system were left to a Cabinet Order or an Ordinance of the Ministry of Economy, Trade and Industry (METI). If the targeted project has not yet been started and there is a probability that the certification for such project will expire after implementation of the amendment, this will lead to a lack of fundamental conditions for funding. Therefore, banks have become hesitant to extend loans for such projects.

Under such circumstances, on July 22 2020, a committee established by METI revealed a policy stating:

"With regard to a photovoltaic power generation project with a capacity of 2MW or more that has already been granted the Certification of Power Generation Business Plan, if the Notification of Construction Plan has been received by the relevant authority without any deficiencies by April 1 2022 (which indicates that the power generation is expected to be commenced without fail), the risk of expiry of the certification before the commencement of power generation shall be substantially eliminated."

Strictly speaking, it is necessary to enact an order or ordinance in order for the above-mentioned policy to obtain legal effect; however, it seems likely that the relevant order or ordinance will be issued reflecting the policy. Therefore, financers who are considering providing funds for large-scale photovoltaic power generation projects which have already obtained certification and have not yet started operations are expected to experience a certain degree of relief.

The amendment stipulates that a certified operator supplying electricity from renewable energy power generation facilities in a certain category must reserve for a certain period a certain amount of money as expenses required for dismantling, removing, disposing, etc. of power generation facilities. According to the interim report presented in December 2019 by a working group established by METI, all solar power generation facilities with a capacity of 10kW or more that have obtained certification under the FIT system are expected to be subject to the disposal cost reserve system.

In principle, such reserves are to be directed externally, by payment to the Organization for Cross-regional Coordination of Transmission Operators (OCCTO). Since it is necessary to wait for the enactment of the relevant orders or ordinances to ascertain the specific content of the system, financers are recommended to pay close attention to the future policymaking process in relation to certain topics, such as the mechanism for the refund of the disposal cost reserve from OCCTO, which may bear a relation to the method of creation and foreclosure of the security interest over the right to claim the refund.

Takuya Kogashiwa