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| Author | Jessie Cai |
| Updated | September 07, 2023 |
The Japanese electricity market became liberalized in 2016, allowing all electricity consumers to freely select and subscribe to service plans offered by any registered electric power supplier, which is divided into three sectors: power generation, transmission and distribution, and retail. As a result, Japan's renewable energy procurement methods are more diversified and complex than those of other Asian countries. Taking renewable energy certificates (RECs) as an example, while there are T-RECs in Taiwan and K-RECs in Korea, Japan offers three different certificate options, which deters many multinational companies from purchasing renewable energy in the country. This article will summarize the renewable energy procurement options available in Japan to provide a deeper understanding to readers.
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There are numerous self-consumption sites in Japan, which are not subject to government-imposed limits on grid-connected capacity and do not require transmission and distribution charges. However, the instability of self-consumption can lead to failure to meet the renewable energy targets, prompting an increasing number of Japanese companies to switch to on-site PPAs. On the other hand, with advances in solar technology, module prices have fallen dramatically, resulting in a reduction of the cost of self-consumption. The cost of self-consumption in Japan averaged USD 0.061-0.075/kWh (JPY 9-11/kWh) in 2022, which is much lower than the cost of electricity from traditional sources[2].
Green products are green electricity and certificates offered as a package by retailers, categorized into feed-in tariff (FIT)[3] and non-FIT power. The mechanism determines how electricity is delivered to consumers. Currently, nearly 90% of electricity from solar and wind are traded under the FIT scheme.
Under the FIT system, green electricity, despite zero emissions during the production process, is not carbon-free when distributed to consumers because it is connected to the grid and merged with electricity from fossil fuels. To provide consumers with 100% clean electricity, the Japanese government has introduced Non-Fossil Certificates (NFCs) designed primarily for solar and wind power to realize the environmental value of FIT power. It is worth noting that NFCs have yet to be recognized by RE100 due to incomplete data for tracking purposes, which prevents buyers from claiming their renewable energy use through NFCs. In 2019, the Japanese government launched a demonstration project to align NFCs with international standards by improving the identification of generator attributes on the certificates. According to official statements, the optimized information was updated in the NFC auction in November 2021. However, as of today, RE100 has yet to recognize NFC as proof of renewable energy use.
On the other hand, non-FIT power supply is provided by sites that have withdrawn from the FIT scheme or are in the post-FIT phase (10 years after contracting), which also generates the so-called Non-FIT NFCs. The price of Non-FIT NFCs is slightly higher than that of FIT NFCs because Non-FIT power is sold at a price close to the wholesale level rather than the more favorable FIT rates. An application example of green products of this kind is the renewable energy contract services[4] offered by some power companies, such as Tokyo Electric Power Company's (TEPCO) "Sunlight Premium" introduced in April 2021. This service combines 100% non-FIT power with NFCs, allowing buyers to obtain green electricity directly by paying additional fees. In terms of international credibility, RE100 recognizes the certificate value of some of the Non-FIT NFCs, primarily the post-FIT residential rooftop solar projects, as they involve clear bilateral trading.
In addition to NFCs, Japan has two other renewable energy certificate systems: Green Electricity Certificate (GEC) and J-Credit. Power generators are allowed to choose only one of these certificate systems to avoid double-counting of environmental benefits of renewable energy.
Japan Natural Energy Company introduced the GEC in 2000, and has issued GECS worth a total of 585 GWh in 2020, more than double the 283 GWh issued in 2019. As of now, around 70% of its issuance going to biomass-sourced electricity.
J-Credit is a certificate system based on the concept of carbon reduction and is calculated in terms of carbon emissions. It can be divided into two types according to the method of carbon reduction: J-Credit for renewables and J-Credit for energy-saving measures. J-Credit for renewables calculates the amount of electricity consumed by oneself through the difference between electricity supply from self-consumption and purchased electricity, which is converted into carbon reductions._en_2.jpg)
Due to the liberalization of Japan's electricity market and its transition to new energy, many types of schemes and plans are undergoing testing. InfoLink believes that based on the existing market mechanisms, risk control will replace cost as the key to decision-making when purchasing renewable energy. The next part will discuss Japan's PPA, international recognition of Japan's renewable energy procurement measures, and suggestions for renewable energy procurement strategies for companies in Japan.
Renewable energy market status in Japan
In 2021, Japan's electricity generation totaled 1,033 TWh, with 20.3% coming from renewable energy, primarily solar and hydro power. The proportion of renewable energy in Japan's energy mix has been growing year on year in recent years, from 16.0% in 2017 to more than 20% today. The country expects to achieve a 40% share of renewable energy by 2030, making it a major source of electricity supply and reducing total carbon emissions by 46%[1].Figure 1. Japan’s energy mix in 2021
Renewable energy procurement methods in Japan
There are four options for obtaining renewable energy in Japan: self-consumption, green products, RECs, and Power Purchase Agreement (PPA). The following will cover the first three procurement methods, while the PPA section and the overall procurement advice will be discussed in Part 2.
Self-consumption
There are numerous self-consumption sites in Japan, which are not subject to government-imposed limits on grid-connected capacity and do not require transmission and distribution charges. However, the instability of self-consumption can lead to failure to meet the renewable energy targets, prompting an increasing number of Japanese companies to switch to on-site PPAs. On the other hand, with advances in solar technology, module prices have fallen dramatically, resulting in a reduction of the cost of self-consumption. The cost of self-consumption in Japan averaged USD 0.061-0.075/kWh (JPY 9-11/kWh) in 2022, which is much lower than the cost of electricity from traditional sources[2].
Green products
Green products are green electricity and certificates offered as a package by retailers, categorized into feed-in tariff (FIT)[3] and non-FIT power. The mechanism determines how electricity is delivered to consumers. Currently, nearly 90% of electricity from solar and wind are traded under the FIT scheme.Under the FIT system, green electricity, despite zero emissions during the production process, is not carbon-free when distributed to consumers because it is connected to the grid and merged with electricity from fossil fuels. To provide consumers with 100% clean electricity, the Japanese government has introduced Non-Fossil Certificates (NFCs) designed primarily for solar and wind power to realize the environmental value of FIT power. It is worth noting that NFCs have yet to be recognized by RE100 due to incomplete data for tracking purposes, which prevents buyers from claiming their renewable energy use through NFCs. In 2019, the Japanese government launched a demonstration project to align NFCs with international standards by improving the identification of generator attributes on the certificates. According to official statements, the optimized information was updated in the NFC auction in November 2021. However, as of today, RE100 has yet to recognize NFC as proof of renewable energy use.
On the other hand, non-FIT power supply is provided by sites that have withdrawn from the FIT scheme or are in the post-FIT phase (10 years after contracting), which also generates the so-called Non-FIT NFCs. The price of Non-FIT NFCs is slightly higher than that of FIT NFCs because Non-FIT power is sold at a price close to the wholesale level rather than the more favorable FIT rates. An application example of green products of this kind is the renewable energy contract services[4] offered by some power companies, such as Tokyo Electric Power Company's (TEPCO) "Sunlight Premium" introduced in April 2021. This service combines 100% non-FIT power with NFCs, allowing buyers to obtain green electricity directly by paying additional fees. In terms of international credibility, RE100 recognizes the certificate value of some of the Non-FIT NFCs, primarily the post-FIT residential rooftop solar projects, as they involve clear bilateral trading.
Renewable Energy Certificates
In addition to NFCs, Japan has two other renewable energy certificate systems: Green Electricity Certificate (GEC) and J-Credit. Power generators are allowed to choose only one of these certificate systems to avoid double-counting of environmental benefits of renewable energy.Japan Natural Energy Company introduced the GEC in 2000, and has issued GECS worth a total of 585 GWh in 2020, more than double the 283 GWh issued in 2019. As of now, around 70% of its issuance going to biomass-sourced electricity.
J-Credit is a certificate system based on the concept of carbon reduction and is calculated in terms of carbon emissions. It can be divided into two types according to the method of carbon reduction: J-Credit for renewables and J-Credit for energy-saving measures. J-Credit for renewables calculates the amount of electricity consumed by oneself through the difference between electricity supply from self-consumption and purchased electricity, which is converted into carbon reductions.
Table 1. Renewable energy certification systems in Japan
Due to the liberalization of Japan's electricity market and its transition to new energy, many types of schemes and plans are undergoing testing. InfoLink believes that based on the existing market mechanisms, risk control will replace cost as the key to decision-making when purchasing renewable energy. The next part will discuss Japan's PPA, international recognition of Japan's renewable energy procurement measures, and suggestions for renewable energy procurement strategies for companies in Japan.
[1] Compared to 2013 data.
[2] The high voltage electricity price was USD 0.12/kWh (JPY 17/kWh); the average ultra-high-voltage (UHV) electricity price was USD 0.09/kWh (JPY 13/kWh).
[3] Nearly 90% of Japan's solar and wind power generation enters the FIT system.
[4] This service comes with capacity limits. In the case of TEPCO, the contract capacity must be at least 1,000 kW.
[4] This service comes with capacity limits. In the case of TEPCO, the contract capacity must be at least 1,000 kW.