As discussed in our Japan Renewable Alert 49, the Ministry of Economy, Trade and Industry ("METI") announced the draft outline of the amendments to regulations regarding the arrangements for the Nullification Rule (effective on April 1, 2022 (the "Effective Date")) and several other points (the "Draft Outline"), which was opened to public comments from September 7 to October 6, 2020. Findings from these public comments were released on November 6, 2020 (the "Public Comments Summary") (see here, available only in Japanese). METI is currently preparing the related ministerial order and public notification to be promulgated within this year.
1. The Nullification Rule
The Nullification Rule, intended to invalidate a FIT/FIP approval if the project fails to commence operation within a certain period of time from the approval (the "Nullification Period"), is to be introduced by the Act to Partially Amend the Electricity Business Act and Other Acts in Order to Establish a Resilient and Sustainable Electricity Supply System (Act No. 49 of 2020) amending the Act on Special Measures Concerning Procurement of Electricity from Renewable Energy Sources by Electricity Utilities (Act No. 108 of 2011, as amended, also known as the FIT Act; the "REA") (see Japan Renewable Alert 44). The specific length of the Nullification Period is to be provided by the ministerial order amending the Rule for Enforcement of the REA (METI Ministerial Order No. 46 of 2012, as amended; the "REA Rule").
The fundamental concept the Draft Outline proposes is that the length of the Nullification Period will be determined based on the project's progress as of one year after the COD deadline date; specifically, in the case of solar projects, as follows:
- if, as of one year after the COD deadline (the day three years from FIT/FIP Approval (or five years if subject to an environmental impact assessment pursuant to the Environmental Impact Assessment Act (the "EIA Act"))), an interconnection construction commencement application (an "ICCA") has not been accepted by the relevant utility, the Nullification Period shall be four years (or six years if subject to the EIA Act); and
- if, as of one year after the COD deadline, an ICCA has been accepted by the relevant utility, the Nullification Period shall be six years (or eight years if subject to the EIA Act); and
- for large-scale projects, if, as of one year after the COD deadline, (i) an ICCA has been accepted by the relevant utility and (ii) the Minister of Economy, Trade and Industry (the "Minister") confirms that (A) a construction plan notice (the Electricity Business Act, Article 48.1; required for projects with a capacity of 2 MW or more; a "CPN") was duly received or (B) advice (or the notice of no need for advice or an extension of the period until advice) from the Minister has been given with respect to a draft environmental impact statement (EIS) pursuant to the EIA Act (the Electricity Business Act, Article 46.14; potentially required for projects with a capacity of 30 MW or more) etc., the Nullification Period shall be 23 years (or 25 years if subject to the EIA Act).
The above is applicable when the COD deadline date falls on or subsequent to the Effective Date. When the COD deadline date falls prior to such date, again as is the case of the solar projects, the Nullification Period shall be (1) one year, (2) three years or (3) twenty years after the Effective Date, with respect to categories (1) to (3) above, respectively.
According to the Draft Outline and Public Comments Summary, no particular documentation will be issued to developers by the government regarding acceptance of the ICCA, but, with respect to confirmation by the Minister in item (3)(ii) above, developers will receive notice upon such confirmation (Public Comments Summary No. 11, 60).
Although—under the rule for nonoperating solar projects METI announced on December 5, 2018 (the "Nonoperating Rule")—an ICCA needs to be re-submitted if the project files an amendment approval application after the initial submission of an ICCA and the time of such re-submission is to be the base for determining the applicable FIT price, the efficacy of an ICCA under the Nullification Rule, on the other hand, is not to be denied just because of the filing of an amendment approval application (Public Comments Summary No. 17, 33). However, like with the Nonoperating Rule, under the Nullification Rule a project must meet certain requirements including securing land rights for the installation location upon the submission of an ICCA, and extension of the Nullification Period can be invalidated if METI later finds out such requirements were not met at the time of submission (Public Comments Summary No. 33). Also, in the case that an amendment approval application to add land plots becomes necessary, the confirmation given to the project under (3)(ii) above can be revoked (Public Comments Summary No. 48, 61, 63). Please pay close attention to these points.
The Draft Outline and the Public Comments Summary also state that, in the case where a project's ICCA has been accepted within one year of the COD deadline, if the initially scheduled interconnection date is delayed due to grid-side causes, such delayed period is to be added in the calculation of the Nullification Period (Public Comments Summary No. 51, 75). The details on what "delay" entails and how the "delayed period" is to be determined need to be carefully monitored.
Finally, if a project obtains a single FIT/FIP approval but is subsequently instructed by the relevant Industrial Safety and Inspection Department to divide up the project and submit multiple CPNs, the project must submit all CPNs to be eligible for the measures to extend the Nullification Period by submission of CPNs under item (3)(ii)(A) above (Public Comments Summary, No. 61).
2. COD Deadlines for Non-Solar Projects
All FIT approvals for non-solar FIT projects issued on and after April 1, 2018, are subject to the COD deadline dates imposed by the FIT Rule and the Public Notification to Designate Procurement Prices, etc., based on the REA (METI Public Notification No. 35 of 2017; the "Public Notification"). For wind projects, for example, the COD deadline date is the day four years after the approval in principle, or eight years when subject to the Act EIA. Once a project fails to commence operation by the COD deadline date, the procurement period will be shortened by the corresponding amount of delay, and, as noted above, COD deadlines will also serve as a reference for determining the Nullification Period once the Nullification Rule is adopted.
The Draft Outline indicates that COD deadlines will be established for non-solar projects that obtained FIT approval prior to April 1, 2018, as well, commencing on the date that the relevant Ministerial Order and Public Notification are promulgated. If such are promulgated on December 1, 2020, for example, the COD deadline for a wind project subject to Act EIA would be November 30, 2028—that is, eight years from such date of promulgation.
Although the COD deadline is not extended for projects subject to environmental impact assessment pursuant to local ordinances ("Local Ordinance EIA") (for wind projects, four years as opposed to eight years), the Public Comments Summary indicates that, considering opinions urging the government to take into account the impact by the Local Ordinance EIA on the development of projects, the COD deadline for projects subject to Local Ordinance EIA will be introduced on the date nine months after the promulgation to allow a certain grace period for such projects.
3. Expansion of the Nonoperating Rule to FY2016 FIT Approvals
The Nonoperating Rule applies to nonoperating solar projects that obtained FIT approvals under the REA prior to the amendments effective as of April 1, 2017, and entered into interconnection agreements on or prior to July 31, 2016 ("Nonoperating Rule Projects"). The Nonoperating Rule was announced on December 5, 2018, to be implemented on Nonoperating Rule Projects approved in or prior to FY2014 (ending in March 2015) (formally introduced to the Public Notification by the METI Public Notification No. 73 of 2019 (Heisei 31), promulgated on March 29, 2019, and enacted on April 1, 2019), and it was subsequently expanded to include Nonoperating Rule Projects approved in FY2015 (April 2015 to March 2016), and METI has been suggesting that the Nonoperating Rule would be further expanded to include FY2016 (April 2016 to March 2017) Nonoperating Rule Projects.
With no major changes reflecting the result of the public comments, this expansion is expected to proceed as planned in the Draft Outline.
4. Future Outlook
METI indicates that it aims to have promulgated the ministerial order to amend the FIT Rule and the public notification to amend the Public Notification by roughly the end of this year, and developers and investors need to pay close attention. Plus, as the details of the Nullification Rule may depend on the actual practice, its application to a specific project, including whether conditions for an extension of the Nullification Period have been satisfied, requires a careful preparation and analysis especially before the practice is fully fixed. As we are in the middle of changes in renewable energy regulations including not only the Nullification Rule but also the introduction of the FIP (Feed-in-Premium) system and the discussions on the rules on managing the grid in the time of large-scale introduction of renewable power sources, it is vitally important that we understand the content and background of these various amendments and discussions.
Originally published November.19.2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.