Energy Law report

This part of the report shall focus on the laws that regulate the power industry in
Japan.

So We looked at the constitution and found that unlike the Philippines, the
Constitution of Japan did not have any provision on the ownership of public utilities.

Are there any restrictions concerning the foreign ownership of electricity

companies or assets?
Under the Foreign Exchange and Foreign Trade Act, foreign investors in Japanese
energy sector corporations must adhere to the prior filing requirement. These
investors must file their inward direct investment with METI Ministry of
Economy, Trade and Industry and the Ministry of Finance (through the Bank
of Japan) before making the investment.

For reasons of national security, foreign investments in nuclear and other key
power plants will be carefully reviewed, and it will be difficult to obtain permission
for these.

Since the Great East Japan Earthquake in 2011, Japan has been facing
issues such as

1 a decline in the energy self-sufficiency ratio

A low energy self-sufficiency ratio results in dependence on other

countries for resources. Because of this, it's easy to be affected by the
influence of international situations when securing resources.

Energy self-sufficiency ratio: primary energies required for life and

economic activity, the ratio that can be secured within one's own
country

19.9% IN 2010 – 6% IN 2014

2 an increase in electric power costs

3 an increase in the amount of CO2 emissions.
 Act on Special Measures concerning the Procurement of Renewable Energy Sources
by Electric Utilities (the Renewable Energy Act).
Under the Renewable Energy Act, renewable energy subject to the FIT Scheme is
currently limited to certain renewable energy sources: solar, wind, water (currently
statutorily limited to small and medium hydroelectric generators with an output of
less than 30,000kW), geothermal and biomass.

Renewable energy targets

The government expects renewable energy to exceed 20% of the country's
power sources in 2030, based on the Energy Mix. The target is not legally
binding, but the government has expressed its intention to take measures to
achieve the plan.

Under the national Environmental Impact Assessment Law, environmental

impact assessments are needed for the construction of:
 Nuclear power plants (no threshold).
 Hydro-electric power plants (22,500 kW and above).
 Thermal power plants (112,500 kW and above).
 Geothermal power plants (7,500 kW and above).
 Wind power plants (7,500 kW and above).
Local ordinances can separately require environmental impact assessment with
other thresholds.

Privileges in relation to the use of land are granted to electricity business

operators (other than retailers) under several laws, including:
 Electricity Business Act.
 Land Expropriation Act.
 Road Act.
 Special Measures Act concerning Acquisition of Land for Public Use.
 Special Measures Act for Construction and so on of Common Ducts for Utility
Pipes and Cables.
 Special Measures Act on Preparation and so on for Common-Use Cable
Tunnel.
 Special Measures Act for Public Use of the Deep Underground.

The Act on Promotion of Utilisation of Sea Areas for the Development of

Marine Renewable Energy Generation Facilities was passed by the Diet and
came into force on 1 April 2019. This Act allows the long-term use (up to 30
years) of certain general sea areas for offshore wind power projects under
permits issued by the governmental agency. It is expected that this Act will
promote offshore wind power projects, which are not so popular in Japan at
the moment.
Electricity Business Act
Under the Electricity Business Act, to construct certain power generation facilities
(i.e., geothermal power, hydroelectric power, solar power of 2,000kW or more, wind
power of 500kW or more, and biomass power of a certain size, depending on the
type), a notification of the construction plan for the power generation facilities must
be submitted to the METI in advance.
Before the commercial operation date, a Generator that has submitted a notification
of a construction plan must conduct a self-check of its power equipment and report
the results to the METI. In addition, to ensure the safety of the maintenance and
operation of the facilities, the Generator must (1) establish an internal safety regime
and submit details of this to the METI, and (2) appoint a chief engineer, who will be
in charge of supervising the safety of the maintenance and operation of the facilities,
and notify the METI of his or her appointment.
After the commercial operation date, the Generator shall maintain its felicities to
ensure that they conform to the technical standards established by the METI.
Environmental impact assessment and prior consultations

The Environmental Impact Assessment Act applies to projects of 7.5MW or more

for wind power projects, of 112.5MW or more for biomass power projects, and of
7.5MW or more for geothermal power projects, but the Act does not apply to solar
power projects. It should be noted, however, that the Act is expected to be amended
to cover solar power projects of 40MW or more (and solar power projects of 30MW
or more, depending on the case). If the Act applies, a survey, forecast and evaluation
of the possible environmental changes caused by implementation of the project
must be prepared; it will take a considerable time to complete this process and the
commercial operation will be affected accordingly.
In addition, some local governments maintain their own environmental impact
assessment rules and often require the securing of various permits and licences,
depending on the applicable circumstances.

Land-related laws and regulations

There are several laws, including local government rules, that restrict the use of
land in certain areas. Under the Crop Land Act, for example, permission from the
prefectural governor is required to use land designated for agricultural crops for
any purpose other than for crops. Therefore, careful due diligence should be
conducted before obtaining project sites.
IV RENEWABLE ENERGY PROJECT DEVELOPMENT
i Project finance transaction structures
TYPICAL PROJECT FINANCING STRUCTURE AND PRINCIPAL PARTICIPANTS IN
JAPAN
In typical renewable energy project financing transactions, a project owner is a
special purpose company (SPC). An SPC acquires ownership or leasehold of the
project site, builds and operates power generation facilities, and receives the
electricity sales proceeds from a utility company under the power purchase
agreement.
Regulation of the Electricity Sector

The electricity sector in Japan is governed by the Electricity Business Act (EBA). It is
regulated by the Ministry of Economy, Trade, and Industry (METI). The Electricity
and Gas Market Surveillance Commission is a specific body which is authorized to
issue a warning against electricity companies to comply with the EBA and
recommend that the Minister of ETI should issue orders against electricity
companies. For nuclear power reactors, the Nuclear Regulation Authority (NRA) is
the appropriate governing body.

The Organization for Cross-regional Coordination of Transmission Operators (OCCTO)

was established for the purpose of accomplishing three main goals namely (a) to secure stable

electricity supply; (b) suppress electricity rates to the maximum extent possible; and (c) to expand

choices for consumers and business opportunities. 1 It was created in 2015 by the Ministry of

Economy, Trade, and Industry of Japan which functions mainly to promote the development of

electricity transmission and distribution networks to be utilized for cross-regional electricity use.

The OCCTO seeks to create a coordinated network access and system to ensure that electricity is

available. This can be done by developing network codes and plan transmissions.

The OCCTO also aims to enhance the nationwide function of maintaining the supply-

demand balance of electricity by ensuring the electricity is evenly distributed according to the

needs and demands of the GEUs’ market even in emergency situations.2 The efforts in cases of

emergency situations has been shown by the conduct of training for disasters and dispute

resolutions in case of conflict between electricity companies. Currently, the OCCTO is

actualizing its goals through the full liberalization of entry to electricity retail business that began

in 2016.

1 Organization for Cross-regional Coordination of Transmission Operators, Role of OCCTO in the Electricity
System Reform, available at https://www.occto.or.jp/en/about_occto/about_occto.html (last accessed May 17,
2019).
2 Ministry of Economy, Trade, and Industry, supra note 43.