Japan: from April 2022 the FIP system complements FIT for renewable energy

Since April 2022 Japan has had, alongside the feed-in tariff (FIT) system, the FIP (feed-in premium) system, in which a renewable energy generator sells electricity on the market and, in addition to market revenue, receives a premium. The change results from an amendment to the Act on Special Measures concerning the Procurement of Renewable Energy, which from April 2022 introduces FIP as a further support instrument alongside FIT. According to the law firm Orrick, the FIP system is meant to "bridge" the market from the FIT phase to full market trading.

How FIP works

Under FIT the grid operator is obliged to buy all the energy generated at a fixed price for a set period, and the generator is exempt from the obligation to submit production plans and to settle imbalances. Under FIP the generator earns from normal market transactions (the JEPX exchange or bilateral contracts with buyers) and additionally receives a premium, paid monthly by the organisation OCCTO (the source being a charge ultimately borne by consumers). The unit premium is calculated by subtracting from the FIP price set by the minister a reference price based on the market price and other factors. Because the imbalance risk is borne by the generator, a "balancing cost equivalent" is added to the premium: 1.0 yen/kWh in fiscal year 2022 and 0.95 yen/kWh in 2023, which is meant to encourage an early switch. Generators who do not want to bear the price and imbalance risk themselves can transfer it to an aggregator or an energy supplier.

Who can benefit

According to the opinion of the committee on purchase prices, renewable sources — photovoltaics, wind, small and medium hydropower, geothermal and biomass — with a capacity of at least 50 kW can apply for approval under FIP. FIT/FIP prices for fiscal year 2022 (April 2022 – March 2023) and subsequent years were formally announced on 25 March 2022. For large photovoltaic installations (from 1000 kW) only FIP in the form of an auction has been available since 2022. Existing FIT projects can move to FIP: the FIP price will then equal the existing FIT price, and the support period the remaining FIT period. We did not verify specific prices for biogas under FIP; they should be checked in the ANRE/METI tables.

For Poland

The change shows a direction familiar from the EU: fixed tariffs give way to market premiums and contracts for difference, and generators are expected to be able to manage price risk and balancing. For biogas plants with gas storage, which can control production, this is an opportunity for higher revenue, but also a market risk.