A proposed transmission fee – known as a wheeling charge – imposed on energy producers in Japan will become a burden for renewable energy projects and deter investment in the sector if passed, two market sources told Infrastructure Investor.
“Retroactive change is always detrimental to investment, and we expect investment to dry up,” Naoaki Eguchi, partner and co-head of the renewable energy group at Baker McKenzie’s Tokyo office, said.
According to a report published by the law firm, the new charge, which is being proposed by the Ministry of Economy, Trade and Industry, is designed to fund grid construction, operation and maintenance in the country, and would be levied on all types of conventional and renewable power projects – with the exception of residential solar projects smaller than 10kW – as soon as 2020.
The study estimates that the charge could amount to ¥150 ($1.41; €1.28) per kW per month. The levy would be approximately ¥1.3 per kWh for solar projects, the report stated, citing estimates by the Japan Photovoltaic Energy Association.
In Japan, expenses related to the power grid have been traditionally assumed by utility companies, that had the capacity to pass down the cost to their customers, according to the report. “[Renewables projects] will have no similar ability to pass this cost on to their utility customers, due to the FiT PPA structure consisting of a fixed rate tariff, with no scope for increase”, it stated.
According to Eguchi, the renewables industry will ramp up pressure to protest “this draconian retroactive change”.
Eguchi pointed out that the policy change comes as the country is trying to promote its nascent offshore wind market. “[The charge] won’t stop the development of the market, but it will push investors to be more cautious,” he said.
Last month, the government announced several locations that would be opened up to offshore wind development. Auctions for offshore wind capacity could start next year.
This is not the first time that developers and the Japanese government have clashed over regulatory changes in the country. Over the last three years, Tokyo has been trying to remove from the market long-delayed projects and reduce the burden of its energy subsidies.
“At the end of last year, the government introduced a firm deadline to demonstrate that your project was moving towards construction,” said Ean MacPherson, partner and co-head of the renewable energy group at Baker McKenzie’s Tokyo office.
Among other measures, the government threatened to reduce the FiT period for projects failing to meet the established deadline, Baker McKenzie said in a December report.
“The industry really pushed back strongly to get the government to soften the measure, and there was a success, as the main deadline was moved to the end of August 2019,” MacPherson said.
A renewables developer based in Japan, who asked to remain anonymous, agreed that the change in policy would have a negative effect on the economics of renewables projects in the country. The source added that those investors who acquired projects in the secondary market, aiming for lower returns than initial developers, would be clearly impacted by the change.
Japan’s Agency of Natural Resources and Energy, which is part of METI, did not respond to a request for comment regarding the possible impact on the energy sector should the wheeling charge go into effect.