Japan Begins to Design 'Feed-in Premium' System

2019/09/27 12:57
Kenji Kaneko, Nikkei BP Intelligence Group, CleanTech Labo

Japan's Ministry of Economy, Trade and Industry (METI) set up the "Subcommittee to Reform System for Using Renewable Energy as Main Power Source" as a panel of experts for fundamental review of the feed-in tariff (FIT) policy, etc and had the first meeting of the subcommittee Sept 19, 2019.

In the meeting, METI announced its plan to shift to a market-based system again. Thus far, METI has been considering the drastic review of the FIT policy at meetings of the Subcommittee for Introducing Large Amount of Renewable Energy and Next-generation Power Network and announced an interim report in August 2019.

In the report, METI mentioned (1) "competing power sources," which it promotes while encouraging further cost cuts, including mega (large-scale) solar power plants and wind power plants and (2) "locally-utilized power sources," which are utilized in local communities. As future measures to promote the use of renewable energy, METI will make the former shift to the new market-based system and keep the basic frame of the FIT policy for the latter.

In view of the report, the Subcommittee to Reform System for Using Renewable Energy as Main Power Source, which has been established this time, started to design a specific system. In METI's plan announced this time, in regard to the new market-based system, "FIP (feed-in premium)," which has been introduced as a "reference" in materials at experts' meetings, was officially defined as the base of the new system.

The FIP is a system that does not set a long-term purchasing price unlike the current FIT scheme and adds a premium to spot prices in the power wholesale market. It has already been employed in Europe, etc. However, there are various patterns depending on the method to decide a premium, and the design of a system is important.

According to METI's definitions, there are two types of the FIP: "completely variable premium FIP" and "whole-term fixed premium FIP." The former makes it easy to predict the amount of revenue and ensures an investment incentive but is not integrated with the market enough.

The latter makes it difficult to predict the amount of revenue and ensure an investment incentive but is enough integrated with the market. So, METI's plan is aimed at an intermediate system in consideration of the elements of the two types.

Specifically, as an example, METI showed a system that decides an FIP price by (1) setting a "market reference price," which changes in accordance with market prices to some extent, at certain time intervals and (2) adding a premium to the price. According to METI's plan, the market reference price is reviewed at an interval of one month to one year.

Also, in the interim report, METI proposes the employment of a bidding system for competing power sources. In the latest plan, METI said that a bidding system will also be actively used for the new system. Therefore, for large-scale competing power sources such as mega solar plants and offshore wind power plants, a system combining the FIP and bidding system will probably be employed.

There were no major objections to the direction of the FIP showed by METI. So, METI will probably move forward with designing a more detailed system.

Concerns expressed about evaluation elements of 'local power sources'

On the other hand, in regard to the concept of "locally-utilized power sources," which will continue to be the target of the FIT policy, METI proposed to "evaluate benefits to communities while focusing on the input to a power plant and the output from the power plant. As for the input, it proposed to judge whether resources and energy existing in a community are used. As for the output, it proposed to focus on three values for evaluation: "resilience," "self-consumption" and "local consumption."

In other words, four elements will probably be important for the evaluation of locally-utilized power sources. They are the (1) use of resources and energy existing in communities for power generation, (2) resilience at the time of use, (3) self-consumption and (4) local consumption.

In response to such proposals of METI, a number of committee members said that the definitions are unclear. For example, they said, "As for local power sources, there will possibly be projects that circumvent the system. Especially, the concept of local consumption is unclear, and, therefore, it should be limited to power sources equipped with stand-alone systems that give consideration to self-consumption and resilience because the concept of local consumption is vague" and "Projects that local governments are involved in by using the framework of the Act for the Promotion of Renewable Energy in Rural Areas should be included in locally-utilized power sources."

For the future, discussions over the definition of "locally-utilized power sources" will be activated in addition to discussions about the detailed designs of the systems concerning the FIP and the bidding system. As for solar power generation, how to deal with (1) commercial low-voltage projects with a grid capacity less than 50kW (there are a large number of such projects), (2) farming solar power plants (solar sharing) that temporarily change land category from farmland and (3) mega solar plants that work in cooperation with local governments and use the Act for the Promotion of Renewable Energy in Rural Areas will draw attention.