Publication date: May 6, 2024
April 2024 Monthly Newsletter
Welcome to the April edition of our newsletter! As the cherry blossoms fade and golden week approaches, we delve into the latest policy changes shaping Japan’s energy landscape. We offer insights into the evolving dynamics of the Japanese power market, covering generator-side wheeling charges, Japan’s inaugural Long-term Decarbonization Auction, and the cessation of gas and electricity subsidies for consumers. Stay tuned for in-depth analysis and updates on key developments driving the nation’s energy transition journey.
Generator-Side Wheeling Charges
In Japan, grid usage fees pay for the maintenance of the system and to expand transmission and distribution facilities for renewable energy introduction. Traditionally, these fees have been borne entirely by electricity retailers. However, from April 2024, 10% of the fees will be charged to power generators as “generator-side wheeling charges” to achieve a more equitable distribution of the financial burden. Generator-side wheeling charges will also be applied to already certified Feed-in Tariff (FIT) and Feed-in Premium (FIP) projects following their procurement period.
Long-Term Decarbonization Power Source Auction
The Organization for Cross-Regional Coordination of Transmission Operators (OCCTO) held its first long-term decarbonization power source auction in January 2024. This auction is part of a strategic effort to boost investment in new, environmentally friendly power generation methods that produce minimal or no carbon emissions.
The auction offers eligible power sources a 20-year fixed revenue, providing stability and certainty for investors and project developers. It includes a provision that requires the successful bidder to return 90% of their total profit generated from any other transactions, which creates an incentive to focus on the long-term stability of projects.
Capacity Contribution Payments
In April 2024, we introduced capacity contribution payments to ensure a stable power supply amidst the growth of intermittent renewable energy sources. We charge electricity retailers and general transmission and distribution operators based on the amount of secured capacity under contract. We will use the funds to maintain a stable power supply through the construction and maintenance of power plants, ensuring steady long-term revenue for these generators.
We designed the system to ensure Japan has sufficient capacity to meet demand in the long term, with electricity retailers, transmission and distribution operators, and ultimately power consumers bearing the costs.
Ending of Electricity and Gas Subsidies
Japan has decided to end electricity and gas subsidies at the end of May 2024, citing the recent stability of fuel prices. The subsidies began in January 2023 following a sharp rise in fuel (mostly LNG) prices in the wake of Russia’s invasion of Ukraine. They capped prices at JPY3.5/kWh for electricity use in households and JPY1.8/kWh for businesses.