Writer:: Lynn HSIAO, George K. KIONGSON
Social Media Team: George K. KIONGSON
If your company operates in Japan and needs to purchase unbundled renewable energy certificates (RECs), you might be concerned about how to choose among the different types of RECs available. Clearly, for a company's first attempt with low demand in this market, the most flexible and accessible way is to choose Non-Fossil Certificates (NFCs).
Background
In 2016, the Sophisticated Act was amended, mandating electricity retailers to achieve at least a 44% non-fossil fuel target by 2030. At that time, because general electric utilities acquired most of the renewable energy electricity through FIT, the electricity market required a more accessible approach to procure non-fossil value. Thus, the first NFCs were issued in 2017 at the Non-fossil Value Trading Market under the Japan Electric Power Exchange (JEPX), allowing small and medium-sized electric retailers to participate in certificate auctions.
Subsequently, increasing numbers of electricity consumers required the market to provide unbundled RECs due to regulatory requirements or voluntary commitments. In 2021, the market further expanded, with the original "Non-fossil Value Trading Market" splitting into the "Renewable Energy Value Trading Market" and the "Fulfill Sophisticated Act Market." The former allows direct participation from general electricity consumers, while the latter is limited to retailers.
Transformation
In the original NFCs system, end-users could only acquire certificates through retailers, increasing costs. Additionally, since NFCs initially did not track information on renewable energy, they were not recognized by RE100. For RE100 members with operation sites in Japan, NFCs did not provide assistance.
Based on the reasons mentioned above, NFCs underwent partial changes in 2021. Firstly, end-users were allowed to acquire certificates through retailers or directly participate in market auctions, increasing flexibility in acquisition approaches and allowing end-users to reflect market prices in their costs. Secondly, all certificates traded in the Renewable Energy Value Trading Market must track information on renewable energy. Consequently, multinational corporations joining RE100, such as Microsoft, began using NFCs after 2021.
Different Types of NFCs
NFCs can be divided into three types: FIT NFC, non-FIT NFC (renewable), and non-FIT NFC (non-renewable). The distinction between FIT-NFC and non-FIT is based on whether the renewable generation facility accepts FIT. Therefore, FIT NFCs are primarily sourced from solar energy. Besides, since NFCs are certificates issued for non-fossil fuels, the distinction between non-FIT NFC (renewable) and non-FIT NFC (non-renewable) depends on whether the latter is given for nuclear energy or waste plastic.
In the Renewable Energy Value Trading Market, only FIT NFCs can be obtained. The other two types of NFCs are traded in the Fulfill Sophisticated Act Market, and businesses seeking to use these NFCs can only purchase certificates through retailers. For companies with high certificate demand and a desire for more options, over-the-counter trading provides a more tailored solution to meet the company’s specific needs.
Table 1: Different Types of NFCs
Source: JPEX, REI, METI
Made by Mt.Stonegate
Status
Currently, NFCs (excluding Non-FIT NFC (non-renewable)) represent the highest issuance and transaction volume among all renewable energy certificates in Japan. In FY2022, the total issuance of RECs, including GEC, I-REC, and J-Credit (renewable), exceeded 20 million MWh, with FIT-NFC accounting for 72% and non-NFC (renewable) representing 21%. Regarding pricing, FIT NFCs in the market trade within the range of 0.4-4 JPY/kWh, while non-FIT NFCs are in the range of 0.6 to 1.3 JPY/kWh.
Table 2: Consumer Cost and Issuance of FIT NFC and non-FIT NFC
Source: JPEX, REI, METI
Made by Mt.Stonegate
Conclusion
Due to NFCs’ comparatively lower prices, higher issuance quantities, and diverse acquisition options, NFCs are an excellent choice for end-users initially utilizing renewable energy certificates. For companies already well-versed in procuring and using such certificates, there is an opportunity to diversify the company’s renewable energy certificate portfolio. For instance, businesses can opt for higher-quality certificates or RECs with greater international recognition. Alternatively, for companies seeking a stable, long-term supply of a substantial quantity of renewable energy certificates, engaging with suitable retailers can provide a tailored combination or package of certificates to suit the company’s specific needs. For further assistance in navigating Japan’s renewable energy sector, don’t hesitate to contact Mt.Stonegate, as we lead to a better future. We offer comprehensive one-stop solution services and hold a prominent position in the Asian market.
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