Publication date: Sept 5, 2024
August 2024 Monthly Newsletter
Friends and Colleagues,
As we transition from one of the hottest summers on record into the slightly cooler days of September, Japan’s energy sector remains as dynamic as ever. In this month’s newsletter, we delve into the strategic developments as the country gears up for Round 4 of its offshore wind tenders, notably including Hokkaido in the mix for the first time. We’ll also explore recent amendments to Japan’s curtailment order, which now gives precedence to Feed-In-Premium (FIP) assets, and provide insights into the Green Transformation (GX) League’s newly published criteria that set the stage for projects seeking financial support from the GX fund.
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Japan Gears up for Round 4 Offshore Wind Power Auction, to Include Hokkaido for the First Time
The offshore wind auction process in Japan involves a competitive bidding system where companies submit proposals to develop designated offshore wind zones. The process is overseen by the Ministry of Economy, Trade and Industry (METI) and the Ministry of Land, Infrastructure, Transport, and Tourism (MLIT), ensuring that projects meet technical, environmental, and financial criteria before awarding the rights to develop wind farms.
Prefectures in Japan submit their interest to be considered as offshore wind auction locations by proposing specific offshore zones within their jurisdiction to government agencies. These proposals are typically based on local assessments of wind resources, environmental impact, and stakeholder support. The ministries then evaluate these proposals before designating certain areas “promotion zones” suitable for offshore wind development and opening them up for auction.
Japan is currently in the process of accepting proposals from prefectures, to decide on which areas will be promoted for Round 4 solicitation. It has come to light that Matsumae Town in Hokkaido prefecture held a statutory council composed of METI, MLIT, Hokkaido prefecture, Matsumae Town, and the local fisheries cooperative that agreed to designate the offshore area of Matsumae Town as a promotion zone. The official designation is expected in the fall, with the Round 4 auction opening within the fiscal year.
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Japan to Prioritize FIP Projects Over FIT in Curtailment Order From FY2026
Japan implemented the Feed-in Tariff (FIT) scheme in July 2012 as part of its efforts to boost renewable energy adoption following the Fukushima nuclear disaster in 2011. The transition to the Feed-in Premium (FIP) scheme began in April 2022, marking a shift towards a more market-driven approach to renewable energy support. While FIT guarantees a fixed price for electricity generated from renewable sources, FIP offers a premium on top of the market price, encouraging producers to be more market-oriented. The government has begun to facilitate the transition from FIT to FIP, aiming to foster self-sustainability and reduce reliance on fixed tariffs.
To further accelerate the transition from FIT to FIP, on August 8 the government announced a revision to the curtailment order set to take effect in FY2026. This revision introduces new rules for FIT and FIP biomass, solar, and wind assets. Under the new rules, FIT projects will be curtailed before FIP projects, effectively reducing the likelihood of curtailment for FIP sources, particularly in regions with lower curtailment rates. This change aims to make FIP-certified renewable energy sources more attractive by offering more stable revenue opportunities.
Additionally, the government will enhance support for power generation forecasting for FIP sources and for the installation of storage batteries, with these efforts continuing until roughly 25% of FIT/FIP-certified projects have transitioned to FIP.
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GX Promotion Organization Announces Criteria for GX Fund Support Projects
The GX Promotion Organization has outlined five essential criteria for selecting projects eligible for support from Japan’s JPY150 trillion Green Transformation (GX) fund, which will be allocated over the next decade. The GX fund is an initiative by the Japanese government to financially support projects that promote sustainability, innovation, and the transition to a low-carbon economy.
- The first criterion ensures that projects align with the government’s GX promotion strategy or are associated with the JPY20 trillion GX economic transition bonds.
- The second focuses on projects that contribute to the societal adoption of GX-related technologies, particularly those developed by domestic companies, or promote businesses leveraging these innovations.
- The third criterion addresses the need for financial support in projects with high-risk profiles—risks that private financial institutions may not be able to fully cover. The GX fund is designed to bridge this gap, enabling ambitious projects that might otherwise struggle to secure funding.
- Sustainability is the fourth criterion, requiring that supported projects demonstrate long-term viability and potential for broader benefits, such as the development of new financial instruments or the creation of high-quality jobs.
- Lastly, a strong commitment from management with a solid implementation framework, is required to ensure that supported projects are successfully executed and make a meaningful impact on Japan’s GX objectives.
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