Japan Renewable Alert 38: 32 40 yen Projects: The Risk of Lower Applicable Procurement Prices – Revised Outline From METI

日本語： 32円-40円案件: 適用調達価格引き下げの危機 - 経済産業省からの修正案

On December 5, 2018, METI announced its "New Measures for Non Operational PV Projects under the FIT Scheme (Outline of Revisions)" to revise proposals it presented in October 2018 regarding new rules to substantially cut applicable procurement prices for non-operational solar power projects (please see our October 23, 2018, Energy & Infrastructure Alert).  The major changes are summarized below.

1. Exemption of Large-Scale Projects for Which Construction is Fully Underway

As of December 5, 2018, the new rules will not apply to PV projects of 2MW or more for which a construction plan notice (kouji keikaku todokede) pursuant to the Electricity Business Act has been accepted.  A certain grace will be granted as well for projects for which construction is already fully underway even if a construction plan notice has not yet been accepted.  Specifically, the new rules will not apply to a project that has already obtained a forest land development permit (rinchi kaihatsu kyoka) for which a forest land development activity commencement notice (rinchi kaihatsu koui chakushu todokede) has been accepted as of December 5, 2018 (or if such permit is not required for a project, then objective proof demonstrated through public procedures pursuant to law that development construction is already fully underway as of December 5, 2018) and for which construction plan notice is accepted by September 30, 2019, and for which the commencement of installation work for electrical equipment under such construction plan can be confirmed by October 31 of the same year.

2. Revision of the New Rules

1. Grace Period for Large-Scale Projects
    
   
   Considering that large-scale projects as well as projects subject to environmental assessment under ordinance will require a certain amount of time to complete the permitting process after submission of an application, the enforcement dates, etc. have been revised for the new rules to allow for an accommodating grace period (changes from the original draft are shown in red).
      
   

   	Project Scale	(Submission Deadline)	Deadline for Receipt of rid-Connection Work Application	Deadline for Commencement of Operations in the Event of On-Time Receipt*1
   Standard	Less than 2MW	(2019/2/1)	2019/3/31	2020/3/31
   Grace Measures	2MW or more	(around end of 2019/8)	2019/9/30	2020/9/30
   	Subject to assessment under ordinance	(around end of 2020/2)	2020/3/31	2020/12/31

   
   ※1 The deadline for commencement of operations in the event that the deadline for receipt is not met is the same as in the original draft: 1 year from the day of initial receipt.
    
2. Conditions for Grid-Connection Work Application
    
   The conditions to be fulfilled for the Grid-Connection Work Application are as follows.
   1. As of when the construction application is submitted, the title has actually been obtained for use of the land on which renewable energy facilities are to be installed.
   2. As of when the construction application is submitted, the following has actually been achieved (limited to when required):
      1. Obtained permit for agricultural land promotion exemption and agricultural land conversion (or acceptance of notice);
      2. Completed public notice and review of environmental assessment report (hyouka sho) pursuant to ordinance; and
      3. Obtained forest land development permit.
   3. After submission of the construction application and until commencement of operations, no application has been made for an amendment approval for a renewable energy project.
3. Measures in Case of Delay in Commencement of Grid-Connection
    
   Once the Grid-Connection Work Application has been received, even if for some reason (construction delay, etc.) grid connection does not commence on the scheduled date designated by the transmission and distribution operator, there is no need to re-submit a construction application.  That is, as long as the Grid-Connection Work Application is received on time and without fault, there will be no change to the procurement price even if grid-connection does not commence as scheduled.
    
4. Changes to Solar Panels (effective as of December 10, 2018) 
   
   Like projects that already have operation commencement deadlines, projects that are newly required to meet commencement deadlines will not be subject to a change in procurement price due to a solar panel change so long as such change is made prior to submitting the Grid-Connection Work Application.  Note, however, that a project that is exempt from the new rules under item 1 above will lose such status if a change is made to the solar panels.

METI is expected to release additional details soon with respect to operation and procedural methods, and Grid-connection Work Applications are to be accepted starting at the beginning of the new year.

This revised draft is the product of many criticisms and comments from home and abroad in response to the new rules announced by METI in October 2018; however, the fundamental fact remains that this is an unfair, retroactive law change under which our renewable energy market as a whole will suffer. Furthermore, there are too many uncertainties left with respect to practical matters such as the qualifications for exemption and the difficulty of determining fulfillment of conditions for a Grid-Connection Work Application.