The Journal The Authority on Global Business in Japan

On October 15, the Significant Develop­ment of Renewable Energy and Next Generation Electric Grid Network Committee of the Ministry of Economy, Trade and Industry (METI) introduced strict new deadlines and other measures on solar project development, which, if not met, will result in the feed-in tariff (FIT) rate and duration of a project being significantly reduced.

According to METI, more than 20 giga­watts of solar power projects, which are entitled to FIT rates of ¥40, ¥36, and ¥32 per kilowatt hour, have not reached commercial operations. These projects are unreasonably taking up grid capacity and preventing new players from developing alternate renewable energy projects in the affected grid areas.

While some reasons behind this propo­sal may be well intentioned, the American Chamber of Commerce in Japan, Australian and New Zealand Chamber of Commerce in Japan, Canadian Chamber of Commerce in Japan, CCI France Japon, and European Business Council are concerned by its suddenness, radical nature, and the ambiguity around its implementation.

REALITY OVERLOOKED
For project developers and investors, the proposal does not give those demonstrating good-faith progress on remaining planning requirements the opportunity to address these concerns. Nor does it give enough time to alter project schedules—especially in cases where any hurdles to development lay beyond the control of project developers and investors themselves, including in relation to local government approvals and community input.

More generally, this proposal threatens to undermine market participants’ confidence in the security, stability, and predictability of Japanese market rules. This in turn harms investment and growth.

Our member companies and others have invested billions of dollars and years of effort in the Japanese renewable energy industry, often in rural regions or economically disadvan­taged areas, and their subsidiaries employ thousands of skilled renewable energy professionals within Japan. As the renewable power market has matured, larger, more experi­enced, and more diverse investors have participated—growth that is necessary for a stable, competitive industry.

Greater use of renewable power also supports Japan’s goal of a clean, diverse, safe, and secure power-generation mix, reduces Japan’s dependence on imports of fossil fuel, and is essential if Japan is to meet its commitments on reduction of CO2 emissions agreed to at the 2015 United Nations Climate Change Conference in Paris.

RISKS
With this new proposal, after years of commitment to renewable energy, Japan risks ceding its leadership in the industry and damaging its well-earned reputation for stability, transparency, and rule of law, for several reasons:

The proposal does not differentiate between assets that have achieved development or construction mile­stones and have credible sponsors, and assets that lack these attributes.

The proposed changes to program deadlines do not account for typical—or even accelerated—timelines relative to historical averages or industry norms. The deadlines, as proposed, are subject to local governmen­tal and newly intro­duced utility-driven processes that have not yet been defined.

Power plant development and construc­tion requirements vary by region; but the proposal treats all assets in the same way. Sponsors that follow industry best practices and build for durability and safety may find themselves penalized by the introduction of new deadlines set without regard for the need to comply with existing third-party stakeholder and relevant local agency review processes.

Investors deploy capital based on the expecta­tion of regulatory stability that accounts for these industry norms. Any modifi­cation to a regulatory frame­work that is backward-looking, or applies timelines that do not accommodate industry realities, will be regarded as de facto retroactive, and equivalent to regulatory expropriation of rights.

SOLUTIONS
We hope that METI and other govern­ment stakeholders, working in good faith with industry participants, will take the time required to adequately consider the impact that this measure would have on many local economies and on the perceived risks associated with foreign direct investment in Japan. At a minimum, additional consideration should be given to projects that have met demonstrable milestones and have made good-faith progress on remaining planning requirements. 

This proposal threatens to undermine market participants’ confidence