New law aims to facilitate offshore renewable projects

Introduction
Legislative background
Identification and designation of promotion zones
Selection and appointment of operators
FIT programme application and occupation licence
Outstanding issues
Looking forward

Introduction

In April 2019 the Act on Promoting the Use of Marine Areas for the Development of Marine Renewable Energy Generation Facilities came into force.

Although Japan has significant offshore renewable energy output potential, a number of issues – both systemic and technological – have hindered efforts to develop its offshore renewable market. With the introduction of the act, the government aims to develop such offshore renewable energy capacity and encourage and facilitate the development of offshore renewable projects in Japan. In its Energy Plan 2015, the government announced a target energy mix that includes 22% to 24% of renewable energy sources by 2030, 1.7% of which will be comprised of wind power projects.(1) It is estimated that 10GW of wind capacity will be required to meet this target.

The act is significant because it addresses some of the key systemic issues affecting offshore renewable projects, such as:

• occupying general sea areas (so-called 'general waters');
• obtaining consensus among project stakeholders; and
• selecting project operators under the Japanese feed-in tariff (FIT) system.

This article discusses the key amendments to the offshore renewable project regime introduced by the act, as well as the various issues that remain outstanding.

Legislative background

Under Japanese law, the government owns the ocean floor of Japanese territorial waters. Japan's coastal waters which are governed by the Ports and Harbours Act are generally classified as 'port areas'. The Ports and Harbours Act was amended in May 2016 to establish a regulatory framework to develop offshore renewable projects in these port areas.

Prior to the introduction of the Act on Promoting the Use of Marine Areas for the Development of Marine Renewable Energy Generation Facilities, general waters – which comprise the vast majority of Japanese coastal waters – were not subject to any national property management-related laws, such as the Ports and Harbours Act.

The Act on Promoting the Use of Marine Areas for the Development of Marine Renewable Energy Generation Facilities addresses this issue by establishing a nationwide regime for the occupation of general waters for the development of offshore renewable projects, which includes:

• the designation of specific zones for the promotion of offshore renewable projects (so-called 'promotion zones'); and
• a public tender system to identify and nominate developers.

Identification and designation of promotion zones

Under the act, the Ministry of Economy, Trade and Industry (METI) and the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) will be responsible for the identification and designation of promotion zones. In assessing whether a particular area should be designated as a promotion zone, METI and the MLIT will consider the following criteria:(2)

• the site's environment and climate, as well as its power output potential;
• the potential negative impact on any sea routes or ports;
• the capacity to construct the project at the site, including transportation of supplies and personnel, and the ability to maintain the facility at the site;
• the ability to secure the facility to the electrical grid;
• any interference with, or impact on, fisheries; and
• whether the site extends into any port area or other area outside the general waters.

In addition, the act provides that prior to designating any promotion zone, METI and the MLIT will engage in a formal consultation process with local stakeholders via the establishment of what the act refers to as 'councils'. These councils will be comprised of:

• representatives from METI and the MLIT;
• the governors of the relevant prefectures;
• representatives of the Ministry of Agriculture, Forestry and Fisheries;
• the mayors of the relevant municipalities;
• representatives of the local fishery operators;
• academic experts; and
• other key stakeholders deemed necessary or appropriate by METI, the MLIT or the prefectural governors.

The purpose of the council is for METI and the MLIT to share opinions among stakeholders in order to achieve a consensus regarding the treatment of the proposed site. The act provides that all stakeholders represented must respect the determinations of the council. However, it is important to note that the act does not prescribe the format for these discussions or define a 'consensus' for these purposes.

Further, METI and the MLIT are expected to integrate the determinations of the council into the public tender offer guidelines to be issued for each contemplated offshore renewable project development within a promotion zone (referred to in the act as "occupancy guidelines").

Selection and appointment of operators

In accordance with the act, parties interested in developing offshore renewable projects within project zones (so-called 'developers') will be appointed via a public tender offer process. METI and the MLIT will prepare and issue occupancy guidelines for each offshore renewable project development within a promotion zone. The act provides that occupancy guidelines must stipulate, among other things:(3)

• the submission deadline;
• a project timeline (eg, the occupancy commencement date and FIT programme application timing);
• the area within the promotion zone to be occupied;
• the eligibility criteria;
• the maximum tariff amount (per kW);
• the purchase price calculation method and procurement term under the FIT programme;
• the removal of the facilities on the term's conclusion;
• the evaluation criteria to be used in assessing developer proposals; and
• other criteria relevant to the particular site (eg, the use of any local port and how the impact on local fisheries will be mitigated).

Developers that wish to develop and operate a renewable project in a promotion zone in response to any occupancy guidelines must submit an occupancy plan(4) to METI and the MLIT. Occupancy plans must describe:(5)

• the content and timing of the development of the proposed project;
• the structure of the proposed facilities;
• the proposed facility output capacity;
• the proposed maintenance and site management terms;
• the proposed supply price; and
• the project's financial plan.

METI and the MLIT are responsible for the evaluation of occupancy plans and the appointment of developers. They will first assess whether each occupancy plan satisfies the following requirements:

• The proposed supply price cannot exceed the maximum tariff set out in the occupancy guidelines.
• The proposed facility cannot violate the requirements set out in the occupancy guidelines (eg, materially affecting any local port or fishery).
• The proposed facility, and management thereof, must conform with applicable METI and MLIT standards.
• The developer must be reputable.

METI and the MLIT will then assess each occupancy plan against the criteria set out in the occupancy guidelines. The specific evaluation methodology has yet to be published; however, the process is expected to largely resemble a FIT bidding process, in that the pricing proposed by prospective developers will be a significant factor. In general, METI and the MLIT will look to appoint the developer most capable of delivering a long-term, stable and efficient power generation business at the site.

The appointed developer will be required to comply with its occupancy plan and any failure to do so will result in the appointment being revoked.(6)

FIT programme application and occupation licence

Once appointed, a developer will, in accordance with the procedures prescribed in the occupation guidelines and the developer's occupation plan:

• apply to METI for FIT certification; and
• apply to the MLIT for an occupation licence for the project zone.

The act permits the MLIT to offer developers occupation licences for up to 30 years.(7) The aim is that this 30-year period will be sufficient to cover the development stage, operations (ie, the 20-year FIT period) and the facility's ultimate decommissioning.

Outstanding issues

The act does not address all issues applicable to the development of offshore renewable projects, including as follows.

• The act does not set out detailed rules on how certain procedures outlined therein are to be implemented – for example, how a consensus among council members will be determined. It is anticipated that these details will be addressed through various cabinet and ministerial guidelines and ordinances in the near future.
• The act is silent with respect to the issue of connecting facilities to the grid. While this remains to be confirmed, it appears that each developer will be responsible for directly negotiating the connection of any offshore renewable facility with the applicable utility outside the framework of the act. Costs for the interconnection work will be shared by the developer and the applicable utility.
• The act does not establish a framework by which a developer may conduct the various required environmental assessments. As such, developers looking to prepare an occupation plan and develop an offshore renewable facility must conduct the required environmental assessments in parallel to the procedures set out under the act.

Looking forward

In December 2018 METI and the MLIT launched a joint committee to consider the implementation and operation of the act – in particular, the process by which promotional areas are to be identified and the specifics of the developer appointment process. It is anticipated that METI and the MLIT will prepare and publish guidelines on the operation of the act based on the conclusions of this joint committee.

In parallel with the foregoing discussions and the preparation of guidelines on the operation of the act, promotional area designation has already commenced. On 8 February 2019 METI and the MLIT began collecting information from prefectural governments regarding candidate general waters areas for designation as promotional areas. It is anticipated that the first promotional area will be determined during fiscal year 2019 and that the first public offering for the development of such promotional area in accordance with the new act will take place in 2020.

The offshore wind projects envisaged by the new act are considerably larger in scope than those contemplated under existing renewable energy project programmes. METI and the MLIT are hopeful that the new act will continue to encourage interest in the Japanese offshore wind market, having acknowledged that participation will require large upfront capital costs, as well as sophisticated technology and know-how on the part of candidate developers. It remains to be seen how the METI and MLIT guidelines on the act will be received by the market and whether they will achieve their objective of continuing to encourage interest and participation in the growing Japanese offshore wind market.

For further information on this topic please contact Maya Ito, Amane Kawamoto or Peter G Armstrong at Nishimura & Asahi by telephone (+81 3 6250 6200) or email (m_ito@jurists.co.jp, a_awamoto@jurists.co.jp or p_armstrong@jurists.co.jp). The Nishimura & Asahi website can be accessed at www.jurists.co.jp.

Endnotes

(1) Further information is available here.

(2) Article 8 of the act.

(3) Article 13, paragraph 2 of the act.

(4) Article 14 of the act.

(5) Article 14, paragraph 2 of the act.

(6) Article 21, paragraph 1 of the act.

(7) Article 10, paragraph 4 of the act.