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Through this newsletter, we offer you a regular selection of legislative and judicial decision insights prepared by LPA lawyers from its 4 Asian offices as well as some recent news from our teams.

SMART ALERT
Outline of the renewable energy law and regulation and outlook for 2023 in Japan

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Hong Kong lures family offices with tax incentiv
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France takes the lead as the key jurisdiction for foreign investments in Europe
Highlights on amendments of the counterespionage law and compliance measures

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Proposed changes to companies act on digital meetings and minority protection
Upcoming changes to Employment Pass eligibility requirements in 2023

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What are the HR obligations applicable to your company ? 
What are the new restrictions applicable to consumer agreements? 

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SMART ALERT

Outline of the renewable energy law and regulation and outlook for 2023 in Japan 

Japanese energy policy was traditionally focused on nuclear power as a means of reducing carbon emissions and increasing domestic energy production. However, the Fukushima Daiichi nuclear accident in March 2011 led in aftermath of the accident to a general shutdown of nuclear reactors and the energy shortfall was completed with natural gas and coal.  

Conscious that the energy sector is a critical area and aware of the necessity to have rapid development of renewable generation energy, Japan has implemented in 2011, the Act on Special Measures for the Promotion of the Use of Renewable Electricity (Act No. 108 of 2011, the “Renewable Energy Business Act”) which has introduced in July 2012 the Feed-In-Tarif (the “FIT”) system through which renewable energy power producers are entitled to sell electricity to electricity utilities at a fixed price for a fixed term. Under the Renewable Energy Business Act, the definition of “renewable energy” includes solar power, wind power, hydraulic power, geothermal power, biomass, and any other resources other than crude oil, petroleum gas, combustible natural gas, coal, and products manufactured therefrom, which may be designated by a cabinet order in the future.  

In 2017, Japan ratified the Paris Agreement which targets to reduce carbon emissions in comparison with 2013 by 26.3% by 2030, and by 80% by 2050. In October 2020, the Japanese government announced plans for the country to become carbon neutral by 2050 and also announced in April 2021 a new ambitious target to reduce carbon emissions by 46% by 2030 in comparison with 2013.  

In June 2020, the Act to Amend the Renewable Energy Business Act has been adopted which provides various amendments to energy-related law. It entered into force on 1 April 2022 (the “Renewable Energy Promotion Act”) by introducing, among other things, the Feed-In-Premium (the “FIP”) system by which the energy power purchase price of a utility is determined based on the market price by adding a certain premium.  

Since the introduction of the FIT and FIP system, solar photovoltaic projects have developed significantly and offshore winds present now an enormous opportunity since Japan has the seventh longest coastline in the world which could give Japan the opportunity to lead the market for floating offshore wind energy.  

The year 2023 is expected to be a year in which new projects will flourish and the new reform of the Renewable Energy Promotion Act will enter into force on 1 April. In addition, the Tokyo Metropolitan Government plans to enforce a new system from April 2025 requiring home builders and developers to install solar PV panels on new buildings and houses, which will lead the renewable energy market to a new phase of development and innovation.  

In this first Smart Alert Japan of the year 2023, we present some of the important and recent developments in the offshore wind and solar power renewable energy sector, the outlook on the renewable energy plans of the Tokyo Metropolitan Government, and the upcoming reform in the energy regulations in Japan.  

1. The offshore wind and solar power renewable energy in Japan

1.1. The offshore wind renewable energy 

Considering the potentialities of large-scale implementation, lowering the costs of electricity, and of having a major impact on the country’s energy strategy and economy, Japan considers offshore wind renewable energy as a key for developing renewable energy as the main power source in Japan.  

The development of offshore wind renewable energy presents both an opportunity and a challenge for Japan. Indeed, with a large population and a mountainous and seismic landscape, onshore wind renewable energy projects (and also solar power renewable energy projects) are limited by the few lands available. Such geographical and demographic conditions limit also space for grid connection, and in turn, implied high costs. Therefore, offshore wind renewable energy is a relevant solution to these limitations given that Japan has a long coastline, and the water depths increase quickly near the shore. However, offshore wind renewable energy depends currently on foreign industries for the equipment of the offshore plants. The future challenge for the development of offshore wind renewable energy is to consider reducing costs as well as enhancing competitiveness thereof.  

In its 6th Strategic Energy Plan of October 2021, the Japanese government recall the need to develop domestic offshore wind renewable energy given the natural conditions constraints unique to Japan, such as limited flat land.  

On 30 November 2018, the Japanese parliament approved the Act for the Promotion of Use of Marine Areas for Development of Marine Renewable Energy Generation Facilities (Act n°89 of 2018) to introduce a new national framework for offshore wind projects in Japan. This law bore the purpose to create a much-needed national framework to coordinate efforts to establish an offshore wind industry in Japan in deep water by designating the promotion areas of offshore wind development and installing a competitive auction process for the rights to develop and build projects in these areas. The method of evaluation for applications to the auction process and other details was to be set forth in public tender guidelines published by the government pursuant to which each bidding would be conducted.  

In 2021, the Ministry of Economy, Trade, and Industry (“METI”), announced Round 1 of the auction for offshore wind auctions under the FIT scheme by designating 3 promotions areas ((i) off the coast of Noshiro City, Mikane Town, and Oga City, Akita Prefecture, (ii) off the coast of Oki City, Yurihonjo-shi, Akita and (iii) off the coast of Choshi City, Chiba Prefecture) taking into account the climate and natural aspects of the area, the sea traffic routes, the fishery activity, the likelihood to establish a grid connection to facilities and the transportation of resources to maintain the facility.  

Round 2 of the auction process began on 28 December 2022 and is projected to provide at least 1.8 GW of offshore power generation under the first FIP scheme. This round covers 4 promotions areas: (1) Happo Town and Noshiro City (Akita Prefecture), (2) Enoshima, Saikai City (Nagasaki Prefecture), (3) Oga City, Katagami City and Akita City (Akita Prefecture), and (4) Murakami City and Tainai City (Niigata Prefecture). Proposals to the tender process are due by 30 June 2023 with the result expected in March 2024.  

1.2. The solar power renewable energy  

After the Fukushima Daiichi nuclear accident and the introduction of the attractive FIT system, the number of PV solar power plant projects has considerably increased and solar power accounted for a large part of Japan’s total renewable capacity, occupying the second position following hydropower.  

However, due to the substantial decline in FIT prices year after year, investment in such projects is slowing down. Indeed, the FIT amounted to JPY 40 per kilowatt-hour (kWh) at the beginning of the FIT system in 2012, was higher than the global average. However, power companies struggled to meet the important demand for grid connections of PV solar power companies and have started to block the grid connexion. In addition, with the introduction of the FIT scheme, a portion of the purchase price by the power companies was collected from electricity users in the form of a levy in order to facilitate the introduction of renewable energy in the Japanese energy market which remains costly.  

In light of this situation, to balance the maximum introduction of renewable energy with the reduction of the public burden, from 2017 onwards, METI has adopted a bidding system for new certification for PV solar power plants with an output ranging from 50 kW to 1,000 kW in the FIT target category. In addition, the government has decided to decrease the FIT prices over the years to slow down the rapid development of renewable energy projects and in particular for PV solar power projects. Japan’s FITs are much lower today, with the solar project ranging from 10kW to 50kW being eligible for JPY 11/kWh and projects ranging from 50kW to 250kW being eligible for JPY 10/kWh for the 2022–2023 financial year. However, residential PV solar power projects under 10kW remain eligible for a FIT of JPY 17/kWh. 

The gradual transition from the FIT scheme to the FIP scheme illustrates also the will of the Japanese government to limit the rush by the PV solar power companies. Since 2022, the FIP scheme applies to all PV solar power plants with an output of 1MW or more. In addition, a tender process has become applicable to PV solar power projects with an output between 250kW and 1MW for the FIT system, as well as with an ouptput of 1MW or higher for the FIP system. The tender process is held by the government generally once or twice per year and the government decides on the maximum capacity to be certified and the maximum purchase price. The applica