On October 15, 2018, METI’s Significant Development of Renewable Energy and Next Generation Electric Grid Network Committee (Saisei Kanou Enerugi Tairyou Dounyu /Jisedai Denryoku Network Sho Iinkai) introduced strict new deadlines and other measures on solar project development, which, if not met, will result in the project FIT rate and duration being reduced significantly. According to METI, more than 20 GW of solar power projects which are entitled to 40, 36 and 32 yen kW/h FIT rates have not reached commercial operations and are unreasonably taking up grid capacity, 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 (ACCJ), Australian-New Zealand Chamber of Commerce in Japan (ANZCCJ), Canadian Chamber of Commerce in Japan (CCCJ), CCI France Japon (CCIFJ), and European Business Council (EBC) are concerned by its suddenness, radical nature and the ambiguity around its implementation, which does not reflect the reality of actual project development processes.
For project developers and investors specifically, the proposal does not give those demonstrating good-faith progress on remaining planning requirements (including, for example, those that have already secured land and interconnection rights, and/or those that have already entered into binding agreements to purchase major components of equipment needed to build the project) the opportunity to address these concerns. Nor does it give enough time to alter project schedules, especially in cases in which any hurdles to development lay beyond the control of project developers/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 and gives reason to any stakeholder in the Japanese economy to view this proposal with concern.
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. Indeed, 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.
The renewable power industry is growing globally and offers opportunities for Japanese technology, construction, manufacturing, and financing organizations, as well as continued partnership with foreign companies and investors.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 for Japan to meet its COP21 commitments on reduction of CO2 emissions.
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:
- First, the proposal does not differentiate between assets that have achieved development or construction milestones and have credible sponsors, and assets that lack these attributes (which are presumably those causing concern).
- Second, 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.
- Further, 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. Some investors may even find that significant investments are put at risk by policies which would give rise to claims under investment protection insurance coverage that are usually only procured for projects in developing countries.
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 that have made good-faith progress on remaining planning requirements.
We are optimistic that the Japanese government and industry stakeholders can find a solution that supports the government’s priorities while protecting both Japanese and non-Japanese investors and reinforcing Japan’s reputation for stability.