JAPAN: An Introduction to Projects and Energy: Domestic

Introduction

Japan has made international commitments to reduce greenhouse gas emissions by 46% by 2030 (compared to 2013 levels), as well as achieving carbon neutrality by 2050. While fossil fuel-centric industries have historically been the primary means of power generation, these commitments mean Japan urgently needs to increase its renewable energy capacity. Policies to support this energy transition are now being rapidly enacted.

The foundation of Japan’s energy policy consists of the Basic Act on Energy Policy, which was enacted in June 2002, together with the Japanese government’s Strategic Energy Plan, which is published every three years. The most recent iteration of this was the Sixth Strategic Energy Plan, which was published in October 2021. At the time of writing in December 2024, the government is in the process of formulating the Seventh Strategic Energy Plan.

The Sixth Strategic Energy Plan aims for renewable energy to become Japan’s primary mode of power generation. (In 2019, renewable energy held an 18% share of the energy mix, and the government’s target is for the share to be 36–38% by 2030.)

Further to these commitments, the government announced in December 2022 a Draft Basic Policy for the Realisation of the Green Transformation (“GX”). This Policy was published by the government in February 2023, and the GX Promotion Law was passed by the government in May 2023. Both the Policy and the Law aim to achieve the dual goals of meeting Japan’s international commitments, together with creating a stable supply of more affordable energy through GX (requiring a shift from fossil fuel-centric industries towards clean energy-centric ones).

Against the backdrop of these targets, recent trends and developments in energy policy and practice are discussed below.

FIT/FIP Schemes

In order to expand renewable energy use domestically, Japan implemented the FIT Act in July 2012, which introduced a Feed-in Tariff scheme (the “FIT Scheme”). This scheme required electricity companies to purchase renewable energy at a fixed price. As a result of the introduction of this scheme, the share of renewable energy as a proportion of the energy mix grew from 10% in July 2012 (at the introduction of the scheme) to 21.7% in 2022. That 21.7% share in 2022 consisted of 9.2% solar, 0.9% wind, 0.3% geothermal, 7.6% water and 3.7% biomass power generation, according to the Energy Supply and Demand Report (Final Report) for FY2022 (published by the Agency for Natural Resources and Energy, General Affairs Division, Strategic Planning Office, April 2024).

The amended FIT Act came into force in April 2022 and amends included the establishment of a system to provide a certain Feed-in Premium (FIP) over the market price of electricity (the “FIP System”), as an alternative to the FIT Scheme. Consequently, large-scale renewable energy projects are now subject to the FIP System instead of the FIT Scheme.

A further FIT Act amendment came into force in April 2024, which provided that in order for a project to obtain FIT/FIP certification, the project company/its shareholders need to notify the surrounding community about the development in advance and also hold a briefing session for local residents.

Utilisation of auctions under the FIT/FIP systems has also progressed, resulting in overall reductions in the purchase price of electricity. At its inception in 2012, the terms of the FIT Scheme were extremely generous. However, in the second round of electricity purchase auctions held in 2024 (the most recent auctions for which there are data), the average purchase price of winning bids for solar projects was subject to the FIP System and went down to JPY8.08 per kWh from JPY42 per kWh in 2012. 

Despite these price reductions, the development of new renewable energy generation projects continues at a pace. There are no practical restrictions on foreign-owned companies participating in the bidding, and foreign companies and funds have been active investors in Japan in recent years.

Offshore Wind Power

As an island nation, Japan has huge potential for offshore wind development, and it is currently the country’s most active renewable sector. For offshore wind power projects, the government designates sea areas that are appropriate for development as “Promotion Areas” and appoints operators to develop these areas through a public tender process under the 2018 Marine Renewable Energy Facilities Act (the “Marine Act”). The appointed operator receives a permit to occupy the Promotion Area for a maximum of 30 years, pursuant to which it may develop a project in that area.

As of November 2024, operators were appointed for eight sea areas in accordance with the Marine Act. In addition, the selection procedures for operators are under way in the third round of public tenders (for two additional sea areas).

The government aims to designate Promotion Areas with a supported capacity of 1 GW each year. By continuing to conduct annual public tenders, it is seeking to achieve a total capacity of 10 GW by 2030, and 30–45 GW total overall capacity (including floating capacity) by 2040.

New Energy Sources and Schemes

Corporate PPAs

Corporate PPAs (where power producers conclude long-term purchase agreements with customers) have recently been gaining popularity, especially with solar power businesses.

Battery storage

There have been attempts to expand the use of grid-scale batteries (large storage batteries directly linked to the grid). The Electricity Business Act was amended in May 2022, establishing that from April 2023 grid-scale batteries (with capacity of 10 MW and above) would be classified as providing “electricity generation”. In order to introduce more renewable energy, the government has been providing subsidies to renewable energy project developments (including for battery storage).

Hydrogen/ammonia

In June 2023, the government revised the Basic Strategy for Hydrogen and included a target of investing JPY15 trillion in the public and private sectors over the next 15 years in order to develop a hydrogen supply chain and expand the supply of hydrogen to about 12 million tons by 2040 (six times the 2024 level). In addition, in May 2024, the government enacted the Hydrogen Society Promotion Law and began support for companies that produce and import hydrogen into Japan.

CCS (carbon dioxide capture and storage)

The government’s target is a CCS capacity of approximately 6–12 million tons annually by 2030. In addition, it passed the CCS Project Law in May 2024, which will come into force in three phases from 2024 onwards.

Nuclear Power

Following the incident at the TEPCO Fukushima Dai-ichi Nuclear Power Plant in March 2011, all nuclear power plants in Japan were immediately shut down, with more robust safety regulations subsequently implemented. Recently, facilities deemed to be compliant with the new regulations have re-commenced operations. According to the Agency for Natural Resources and Energy, as of November 2024, 13 nuclear reactors resumed operations, including KEPCO’s Ōi nuclear power plant unit no 3 and Takahama nuclear power plant unit no 4 (although operations at certain reactors were subsequently suspended to carry out routine inspections).

Conclusion

As can be seen from these developments, Japan is progressing rapidly on both the legal and infrastructure renewable energy fronts. New projects in offshore wind, solar, battery storage, hydrogen and other sectors are currently under development. These trends and developments are expected to continue to build momentum, undoubtedly generating additional business opportunities in the near future.