Lecturer:Yukie Yamashita,Representative of office SOTO 

On October 19, the 8th online seminar was held on the theme of “Fundamentals of Electric Power Business and How PPA Works.”
Takahisa Fujii, Representative Director, thanked the participants for attending the seminar, and stated that in considering energy in the future, it would be necessary to learn not only about the problem of the mass disposal of solar panels, but also about the electric power business.Following his brief, Ms. Yukie Yamashita, representative of office SOTO, made a presentation. 

Ms. Yamashita has been engaged in new power demand response and energy solutions after working for a major power group.
In this seminar, she explained in detail the basic terminology of the electric power business as well as the current status of Power Purchase Agreements (PPAs), which are currently expanding.
The following is a summary of the seminar. 

Structure of Retail Electricity Business

Electricity is produced by power generators, distributed by the 10 nationwide general transmission and distribution companies, and sold by retail electricity providers. Power generators and retail electricity providers are licensed.

Four major operations of a retail electricity provider

Retail electricity providers are responsible for four major operations: procurement of power sources, supply and demand management, billing and various explanatory obligations to consumers, and promotion of energy conservation and demand response.
Procurement of power sources must be done in a cost-effective manner, without being biased toward a single power source, and with the need to gather power sources that can be used at any time of the day, regardless of weather, day of the week, or time of day. For supply and demand management operations, “planned values” and “actual values” of electricity demand are matched in 30-minute increments and submitted as weekly, monthly, and annual plans according to a format.

Structure of Electricity Rates

The electricity charges (basic charge + metered charge + fuel procurement cost) received from customers are the source of sales.

The renewable energy levy is paid directly to the government, so it is not a source of profit.

The cost consists of power supply cost + supply and demand management costs + administrative costs and a transmission charge.The transmission charge consists of two parts: a basic charge and a metered charge, and the metered charge takes into account transmission losses (loss ratio).

How to Register as a Retail Electricity Provider

The procedure involves registering with the Organization for Promotion of Electricity Cooperation in Wide-Area Operations (OCCTO), to which the demand forecasting plan is submitted, followed by prior consultation with the Ministry of Economy, Trade and Industry (METI) and submission of the application documents. The review period is publicly announced as one month, but tends to be lengthy. After registration, a contract with a general transmission and distribution company is required, and if necessary, membership in the Japan Wholesale Power Exchange may be required.

(*Membership in the Japan Wholesale Power Exchange is not mandatory.)

Power Purchase Agreements (PPA)

Corporate PPAs began in Japan several years ago. It is a long-term contract to purchase electricity from a designated renewable energy generation facility. Contract terms range from 5 to 20 years.

It can be categorized by installation location, equipment owner, and contract method. If the installation site is in the demand area (on-site) and a third party owns the equipment, it will be a conventional lease and a PPA where the customer purchases the electricity generated.

When a third party owns a power plant outside the demand area (off-site), there are two types of PPAs: Physical PPAs, which are common today, and Virtual PPAs, which procure only environmental value.

Virtual PPAs are not widely used in Japan.

On-site and off-site PPAs

On-site PPAs are those in which power generation equipment is installed at the demand site, such as on a factory roof or in a parking lot, for on-site consumption.

Therefore, there is no intervening transmission or distribution network. No retail electricity business license is required, and consumers can also procure environmental value. 

Off-site PPA (Physical) is a contract to procure electricity from a power plant outside the demand area, which involves the transmission and distribution network and requires a retail electric provider.

It is similar to general electricity procurement, but apart from the off-site PPA contract, a separate contract with the power company is also required for rainy weather and nighttime supply.

Self-consignment in off-site PPAs

When electricity is sent from an offsite power plant owned by the company or its group of companies to the company’s own demand site, the customer is obligated to be a Retail Electricity Provider and is required to submit supply and demand management.
For solar power generation, self-commissioning at low-voltage demand sites is practically impossible.
In principle, the self-shipping was limited to the company’s own power plants, but this was relaxed the year before last. Only newly established renewable energy sources can self-share among members of a cooperative if the cooperative is established. Demand for off-site PPAs is expected to increase in the future.

For power generators to participate in off-site PPAs

The key is to find a retail electricity provider that can handle off-site PPAs, to reduce the cost of power generation, and to reduce operational risks due to technical factors of the power plant.

See related links from the Renewable Energy Foundation and the Ministry of the Environment below.

Corporate PPA Guidebook: For Business Energy Users in Japan (renewable-ei.org)