Introduction of a new generation side Wheeling Charge on the early certified solar projects is being discussed by METI

Purpose of the new charge

This measure has the purpose of sharing a portion of the grid cost between electricity end users and generators. Under the current system, the wheeking charge is generally born by retailers and then passed on to end customers.

Application and potential adjustment measures

The new generation side Wheeling Charge proposed by the Ministry of Economy, Trade and Industry ("METI") on an interim report on 20^th August 2019 and currently under discussion, would be applied to all types of generation projects (except for residential solar projects <10kW).

The charge proposes no adjustment measures for the early certified solar projects (FIT of 40, 36, 32 and 29 JPY/kWh), while potential adjustment measures are being considered by METI for projects with FIT under 27 JPY/kWh.

Expected impact

Although the charge is not yet fully defined, current information suggests that this cost will be applied as a fixed rate on a kW basis, with estimations placing it at 150 JPY/kW per month (or 1,800 JPY/kW per year). Based on average solar panel efficiency, an estimated 1.3 JPY/kWh on solar power projects, according to the Japan Photovoltaic Energy Association (“JPEA”).

The measure is considered to have a significant impact. On the one hand, retrospectively in operating projects since projects that supply electricity under the FIT scheme (fixed PPA structure) do not have the ability to pass this cost on to their utility customers. On the other hand, in future investments since the introduction of this cost will as well reduce certainty and expected profitability of renewable energy projects.

Timeline

METI expects to fully define this new generation side Wheeling Charge during the next years, while the practical and effective law enforcement would take place around 2023, given the time required to coordinate with other reforms and to develop systems to charge the costs.