Effective July 1, 2012, Japan implemented a new feed-in tariff
system pursuant to the Act on Special Measures Concerning the
Procurement of Renewable Energy by Operators of Electric Utilities,
also known as the "FIT Law," enacted on August 26, 2011.
Under this new system, power utilities in Japan are required to
purchase electricity from renewable energy sources generated by
certified facilities. The Ministry of Economy, Trade and Industry
sets the applicable purchase price and purchase period for each
type of renewable energy on an annual basis, taking into account
the cost of supply and appropriate return to the power
The initial purchase price for large-scale solar is 40 Yen (0.5
USD)/kWh and for large-scale wind is 22 Yen (0.275 USD)/kWh, in
each case for a 20-year purchase period. These prices are among the
highest in the world, reflecting both the initial high cost of
implementing a renewable energy project in Japan and the desire of
the Japanese gGovernment to provide incentives for renewable
project developers by ensuring an attractive return on such
investments. The implementing ordinance specifies the details of
the system, including the criteria for certification of a renewable
generating facility, the requirements for utilities to enter into
power supply agreements and power connection agreements with power
generators with certified renewable facilities, and the
circumstances under which renewable generators may be required to
restrain power output at the request of the utilities.
While the new feed-in tariff system reflects the Japanese
government's desire to expand the renewable energy sector,
especially in light of the current uncertainty over the future of
nuclear power in Japan, there are still a number of challenges to
be addressed. These include the need to liberalize or eliminate
legal and regulatory restrictions that hinder the development of
renewable energy projects (such as land use restrictions and
time-consuming filing obligations), as well as the limitations of
the power grids that make it difficult for extensive cross-regional
power transmission within Japan.
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This legislation will be the next stage of reform, aimed at providing operational flexibility for petroleum explorers.
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