Shulman Advisory

December Newsletter: The Latest News In The Japanese Power Market

Publication date: January 11, 2024

In 2023, Japan made significant strides toward its 2050 carbon-neutral goal. Achievements included:-

  1. Drafting the Basic Policy for the Realization of GX (a series of decarbonization policy measures across various sectors)
  2. Passing the GX Promotion Act
  3. Declaring floating offshore wind power and perovskite as key technologies to increase renewable energy

Japan also accelerated its efforts to align with global standards by revising the Basic Hydrogen Strategy for the first time in six years, starting emissions trading for voluntary members of the GX League, and listing carbon credits on the Tokyo Stock Exchange.

The new year starts under new leadership in the Ministry of Economy, Trade and Industry (METI), with Ken Saito appointed as Minister. We look forward to delivering valuable content and insights on the coming year’s developments in the Japanese power market.

In this month’s newsletter, we take a closer look at Japan’s move to add tracking information to all non-fossil certificates (NFCs). We also review the issuance of GX Transition Bonds, and the new price difference subsidy scheme for hydrogen.

METI to include tracking information in all non-FIT Non Fossil Certificates (NFC) with or without RE designation

METI has decided to enable tracking information on all types of NFCs, including non-FIT energy sources with or without renewable energy (RE) designation, following discussions within the Electricity and Gas Basic Policy Subcommittee. Tracking information on non-FIT NFCs contributes to evaluating decarbonization efforts and is considered meaningful from the perspective of buyers being able to purchase from a power source of their choice. Historically, non-FIT NFCs without RE designation did not include tracking information due to the limited demand from retail electricity providers. However, METI is now anticipating increased demand to track non-FIT NFCs derived from hydrogen and ammonia.

However, concerns have been raised about the power producers’ reputational risk. As power generators cannot choose the recipients of their tracking certificates, they could be allocated to retail electricity businesses or end-users that would publicize tracking information without their consent. To protect power producers, experts recommend that retail electricity providers obtain consent from power producers when disclosing the information, as is the current practice for FIT NFCs.

First GX Transition Bonds to be issued in February 2024

The Ministry of Finance (MoF) will issue up to JPY1.6trillion of GX (Green Transformation) Transition Bonds in February 2024 as part of Japan’s GX scheme. Both five and ten-year Japan Climate Transition Interest-Bearing Government Bonds are expected to be issued. The bond was approved by external evaluation agencies and complies with international standards.

GX Transition Bonds will be issued over the next ten years to support up-front investments for GX-related projects in 22 industrial sectors. The total public-private investment is expected to amount to JPY150trillion over that time frame. The effective use of these funds is being deliberated by the Cabinet Secretariat’s Council for Realizing GX.

While transition bonds are starting to take root in Japan, their share in global ESG bond issuance remains at less than 1% as investor preference has been on the more straightforward “green bonds.” However, Japan’s GX Transition Bonds, the world’s first sovereign transition bond, could set the stage for renewed interest from international investors.

METI to offer price difference subsidy system to promote hydrogen use and production

A price difference subsidy scheme for hydrogen is starting to take shape, according to METI’s draft interim report on hydrogen policies, published December 6th, 2023. The government plans to offer JPY3trillion over 15 years to narrow the cost gap between hydrogen and existing fuels. The subsidy amount will be based on the difference between the basic costs of producing clean fuel and the cost of existing fuel and carbon prices. To be eligible, businesses must be planning to distribute more than 1,000 tons/yr of hydrogen equivalent – including ammonia, synthetic methane, and synthetic fuel, as well as hydrogen – by FY2030.  Applications will start in the summer of 2024.

In addition to the price difference subsidy, the government is considering investing in developing hydrogen receiving bases and supply points. The scale of investment will be decided following a commercialization feasibility study. Further details on the subsidy and investment plans are expected to be published by METI at the end of January.

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