Renewable Energy Procurement Options in Japan
In our previous post, we covered the overall trends in renewable energy procurement in Japan as well as the key concepts one needs to understand before embarking on the low- to no-carbon emissions path.
This article, on the other hand, looks at the practicalities of procuring renewable energy in Japan. It explores the main options for doing so as well as the things one needs to consider before choosing any of them.
Renewable Energy Procurement Options in Japan
If you are looking to procure renewable energy for your business in Japan, you have four basic options: purchasing renewable energy certificates, signing up for one of the renewable energy plans offered by power retailers, building your own generation capacity, or signing a corporate PPA with a power generator.
Each of these options comes with its own advantages and disadvantages.
Option #1: Purchase of Renewable Energy Certificates
Renewable energy certificates, as their name suggests, are used by corporate power consumers to offset their carbon emissions and prove that they consumed “green energy,” at least on paper.
The main advantage of using renewable energy certificates is the ease with which they can be procured and the flexibility of procured volume. On the other hand, the disadvantage is that the physical power that the certificate buyer consumes does not necessarily come from a renewable power plant. By extension, purchasing renewable energy certificates does not directly result in new renewable capacity being added to the grid.
In Japan, there are three categories of renewable energy certificates including non-fossil value certificates issued by METI; J-Credits issued by METI, MoE, and MAFF; and Green Power certificates issued by certified private companies. With all generation under the FIT scheme resulting in the creation of non-fossil value certificates, it should come as no surprise that this type of certificate is by far the most prevalent.
While non-fossil value certificates can only be purchased by retailers at this point, J-Credits and Green Power certificates can be purchased by end users. That said, certain types of non-fossil value certificates are expected to be made directly available to large end users during this fiscal year as well.
All three certificate types are valid for CDP (Carbon Disclosure Project) and SBT (Science Based Targets) schemes. Not all of them can be used for RE100.
Option #2: Retailers’ Renewable Power Plans
Another relatively easy way to procure renewable power in Japan is through retailers offering renewable power plans. With these plans, power is bundled with renewable energy certificates, making the logistics simpler as you will not have to procure the two separately.
While some retailers have self-imposed rules that the power they procure must result in new renewable capacity being installed, in general, using this method in Japan does not directly add new renewable capacity to the grid.
One retailer that offers renewable power plans is Shizen Energy. The company offers its customers the option to choose from plans with renewable certificates covering 3%, 30%, or 100% of consumption.
Option #3: Onsite Self-Generation and Self-Wheeling
The LCOE of solar in Japan dropped from about 40 yen/kWh a decade ago to as little as 13.1 yen/kWh in 2019. With the LCOE reaching the price levels of power procured through retailers, installing solar panels on factory rooftops and other similar surfaces became an economically viable option even for consumers not necessarily looking to utilize self-generation for resiliency purposes. With the LCOE of solar forecasted to go down to as little as 5.8 yen/kWh by 2030, the popularity of this option is expected to further increase.
Self-generation decreases a company’s dependence on the grid, results in new renewable capacity being added into the power generation mix, and requires minimum operating costs. At the same time, it requires a considerable investment up front.
As far as companies actually utilizing this method, as an example, Ikea installed a 1.3 MW solar power plant on the rooftop of one of its retail shops in Aichi Prefecture in 2017. It expects the investment to pay for itself within 10 years.
Companies that do not have enough space to build onsite power plants also have the option of self-wheeling: building a power plant offsite and then delivering the generated power through the public grid for their own or their group company’s consumption.
Two examples of companies that utilize this arrangement include Kyocera and Sony. The former self-wheels power from a 150 kW solar power plant to its Shiga factory located two kilometers away, and the latter self-wheels surplus power generated via its 1.7 MW Shizuoka product storage site rooftop solar power plant to one of its factories in Shizuoka.
Option #4: Corporate Power Purchase Agreement (PPA)
The fourth and final major option that companies looking to procure renewable power in Japan have are corporate PPAs. As part of these bilateral agreements, companies agree to offtake power from specific generators for a fixed period of time, typically up to 20 years.
Doing so helps companies minimize the risk associated with power price volatility (PPAs typically have fixed prices), avoid having to pay fixed upfront costs associated with self-generation, and – in cases where a PPA is signed before a certain power plant is developed – add new renewable capacity to the grid.
Corporate PPAs come in three forms: onsite physical, offsite physical, and virtual. While the first two of those result in physical power being supplied from a specific power plant directly to the consumer, virtual PPAs are derivative contracts involving the trade of renewable energy certificates and power via the wholesale market.
Examples of physical PPAs executed or planned to be executed in Japan include:
- Aeon – Plans to sign onsite PPA contracts for power 200 of its retail stores over the next couple of years
- Tokyo Gas – Signed a corporate PPA with 65 public elementary and junior high schools in March 2021; will install 0.06 MW PV panels and storage batteries at each of the schools; the schools will also use the power as an emergency power source during outages
- Seven-Eleven – Signed an offsite corporate PPA with NTT Anode Energy in April 2021; NTT will construct two solar power plants to supply power to 40 convenience stores and one shopping mall
Virtual PPAs have not been executed in Japan yet.
Choosing the Best Option for Your Company
Overall, using renewable energy certificates is by far the most common method of going green in Japan, with corporate PPAs also increasing in popularity. That does not, however, mean that either of those options is the right one for you.
If you are trying to decide what the best way to procure renewable energy for your company is, there are a number of factors you will need to consider before going for one of the four options described above including:
- Level of commitment to going green – Do you want to simply be able to say you use renewable energy or do you also want your actions to result in new renewable capacity being added into the system?
- Participation in sustainability initiatives – Will you need the option you choose to be valid from the point of view of initiatives like RE100?
- Flexibility of procured volume – Can you commit to a certain, relatively stable level of power consumption for the long term or do you need to maintain a degree of flexibility?
- Preferred financial structure – Are you willing to invest considerable resources up front to build your own generation capacity or do you prefer to pay as you go?
Shulman Advisory offers a full suite of services related to renewable power procurement in Japan ranging from providing the analysis aimed at finding out what the best option is for your specific case (including helping you answer the questions above and more) all the way to helping you negotiate power supply contracts with generators.
If you have any questions, reach out to us here.