Energy & Infrastructure Alert
April.26.2017
Amendments to Japan's FIT Act went into force on April 1, 2017. Among the related systems and procedures being overhauled, this Alert Letter focuses on a number of points related to procedures for change of operator that only required submission of a minor change notice previously.
(1) Renewable energy projects are usually sold and acquired through 1) acquisition by a new operator of the equity interests in a project SPC from the current operator, or 2) succession of project related rights from a project SPC owned by the current operator to a new operator's SPC. Since there is no change in the FIT ID holder in the first method, just as under the old law, the project only needs to submit notice of minor changes (ex post facto notice) to representative, address or other matters as necessary. Since there is a change to the FIT ID holder in the second method, however, under the new regulations, a project must apply in advance for METI's approval of such change.
(2) It is important to note how the timing of such application for approval of change relates to the submission of a business plan and METI review procedures thereof under the new system. That is, in transitioning to the new system, a project that has obtained FIT approval by March 2017 is required to submit a business plan to METI within a certain period of time, and until METI has completed the confirmation process for such submitted business plan, it is procedurally impossible to make any changes to an existing FIT approval. Since METI currently expects business plan reviews to take one to two months from the date of submission, a project would not be able to apply for approval of change until at least the month following the month in which it submits its business plan.
(3) The application for approval of change, just as when submitting notice of minor change under the old law, requires attachment of a transfer agreement or transfer certificate in regard to the project. A certain amount of caution or planning in relation to the wording of such documents may be necessary given that the application must be submitted in advance to the actual transfer. Parties will also need to agree separately on measures for unexpected circumstances (e.g. agreement on allowances in the event that for some reason transfer does not take place).
(4) Once approval has been obtained for change of FIT ID holder, the new operator must also succeed to the contractual statuses regarding interconnection rights in relation to the utility. According to METI, in general under the new system, such succession should occur after a project receives a notice of approval for change of FIT ID holder from METI. Since the utility normally requires a certain amount of time for administrative processing for executing a succession agreement, there may be a certain period of time during which the approved FIT ID holder under the FIT Act and the power producer under the interconnection rights do not exactly match. It would be therefore necessary to negotiate an arrangement with the utility that eliminates such period of discrepancy or keeps it as short as possible, and, if a such period of discrepancy is likely, parties to the transfer would need to enter into a number of agreements to address issues related to such period (e.g. agreement on method of electricity sales revenue adjustments, etc.).
Again, changes to an existing FIT approval cannot be made under the new system until after submission of a business plan and completion of METI review procedures. This caused a great deal of apprehension in regard to some transitional projects that had obtained FIT approval by March of this year but for which the deadline for obtaining interconnection approval from the utility has been postponed for a certain period of time ("Transitional Measure Projects"). That is, while METI assumes that projects that obtained FIT approval in July of last year or thereafter as well as projects that participated in the ongoing power source connection project offering process (dengen setsuzoku anken boshu process) will obtain interconnection approval from the utilities within the designated postponement period, and while the operators of such projects are therefore deemed approved by METI, no changes to FIT ID information may be made until after a project has submitted a business plan within six months from the date of interconnection approval and METI has confirmed such plan. There was a significant concern among developers that they might not be able to apply to a utility for interconnection approval if information for such application was not consistent with information under their existing FIT approval, or that if they could, their existing FIT approval might be invalidated due to discrepancy between the content of interconnection application and that of their existing FIT approval.
We have consulted METI on numerous occasions regarding this issue, and METI recently released a document titled "Interconnection Approval for Transitional Measure Projects" under which METI clarified that "the utility can practically grant its interconnection approval based on the content of the interconnection application even in cases where FIT information and interconnection application information do not match exactly" for Transitional Measure Projects. Consequently, in cases where a project participates in the power source connection project offering process with a power output that differs from the existing FIT approved power output, its existing FIT approval would remain valid and simultaneous application for interconnection would be possible.
If the utility grants interconnection approval in the case of this kind of conflicting application, the project will need to submit a business plan to METI within six months of such approval and, upon completion of METI review thereof, undertake procedures to change the content of the deemed FIT approval and PPA so that it matches the content serving as the basis for interconnection approval. Further, since the deemed FIT approval must be based on the content of the obtained interconnection approval, if the output for which interconnection approval was obtained is less than the output under the existing FIT approval, the existing FIT approval will become partially invalid in proportion to such lessor output.