The Japanese government has set a goal of achieving carbon neutrality by 2050, and the energy transition is already underway. According to statistics released by the Ministry of Economy, Trade and Industry (METI), renewable energy sources accounted for 23.1% of Japan’s electricity generation in FY2024. The government has also committed to reducing greenhouse gas emissions by 46% by FY2030 compared to FY2013 levels, and it continues to strive towards the ambitious target of a 50% reduction. The 7th Basic Energy Plan states that Japan will continue to aim to make renewable energy its principal power source in order to decarbonise the electricity sector.

Renewable energy sources currently being introduced in Japan, ranked by their share of the energy mix, are as follows: solar (9.9%), hydro (7.4%), biomass (4.2%), wind (1.2%), and geothermal (0.4%). The following points are particularly noteworthy.

• Solar photovoltaic (PV) – Japan has the highest installed solar capacity per unit of flat land among developed economies, with deployment steadily expanding. Costs for solar energy have declined enough to enable projects outside the feed-in-tariff (FIT) and feed-in-premium (FIP) schemes. However, installation growth has slowed due to limited suitable sites. In a significant policy shift, new ground-mounted commercial solar projects of 10 kW or more will, in principle, cease to be eligible for new FIT/FIP support from FY2027, while government support is increasingly being focused on rooftop solar and next-generation technologies.
• Wind power – onshore wind sites in flat areas are limited, while offshore wind offers large-scale potential in regions such as Hokkaido and Tohoku. Geographic challenges, local co-ordination, and lengthy permitting processes remain issues. Expansion will require grid enhancements, including subsea high-voltage direct current links between Hokkaido and Honshu.
• Geothermal – Japan has the world’s third-largest geothermal resource potential and sees this as a stable baseload source that can support regional revitalisation.

Additionally, the 7th Basic Energy Plan states that, in pursuing carbon neutrality by 2050, Japan will advance the use of hydrogen, carbon capture and other technologies, particularly in sectors that are difficult to electrify. These emerging technologies are expected to complement solar, wind, and other mainstream renewables in driving Japan’s energy transition.

In Japan, investment in renewable energy continues to grow, with a particular focus on solar, biomass and wind power. Notably, the third round of offshore wind power auctions allocated roughly 1.07 GW across two projects in December 2024. However, the offshore wind market has recently faced significant project-execution challenges. Following the decision by the selected operator to discontinue three Round 1 projects in Akita and Chiba, METI and the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) revised the offshore wind auction guidelines in June 2026, placing greater weight on project feasibility and allowing greater flexibility in project schedules. Investments in hydrogen, ammonia, and carbon capture and storage (CCS) technologies are also advancing. Following the entry into force of the Hydrogen Society Promotion Act in October 2024, the government made its first approvals for contract-for-difference (CFD) support for low-carbon hydrogen and ammonia projects in September 2025, with further plans subsequently approved.

Corporate renewable power procurement has also surged. An increasing number of companies are signing long-term power purchase agreements (PPAs) to directly source green electricity.

There are various laws governing the energy sector in Japan.

The Electricity Business Act and the Gas Business Act serve as the fundamental laws for electricity and gas, respectively. For renewable energy, the Act on Special Measures Concerning Procurement of Electricity from Renewable Energy Sources by Electricity Utilities (the “Renewable Energy Special Measures Act”) functions as a special law under which FIT and FIP programmes have been introduced. These programmes are designed to stimulate renewable energy investment by providing, respectively, either a fixed tariff per kWh or a premium on top of the market price for the renewably generated energy. Additionally, the Act on the Development of Marine Renewable Energy Power Generation Facilities (the “Renewable Energy Sea Area Utilisation Act”) allows for the occupation of certain sea areas for a certain period, specifically for offshore wind power development.

Recent legislative initiatives have introduced significant changes. The Act on the Promotion of a Smooth Transition to a Decarbonized, Growth-Oriented Economic Structure (the “GX Promotion Act”) was amended in 2025 to establish a statutory emissions trading scheme, which entered full-scale operation in FY2026. In the offshore wind domain, legal reforms are expanding the scope of development. In June 2025, the revision to the Renewable Energy Sea Area Utilisation Act to extend its coverage to Japan’s exclusive economic zone (EEZ) was approved. This will establish a permitting system allowing offshore wind projects in the EEZ beyond territorial waters, opening up vast new areas for development. Lastly, the Hydrogen Society Promotion Act’s enforcement in October 2024 brought into operation a subsidy auction for low-carbon hydrogen supply, and the CCS Business Act established a licensing framework for CO₂ storage projects.

In Japan, METI, through its Agency for Natural Resources and Energy (ANRE), is responsible for overseeing energy policy. These agencies have broad authority over energy-related businesses.

For instance, companies involved in electric power and gas retail must be registered with the Minister of METI, and renewable energy generation facilities must obtain certain certifications from the Minister to qualify for the FIT and FIP programmes. The Minister also has the power to request reports, conduct on-site inspections, order improvements in operations, and, if necessary, revoke a company’s registration or accreditation. Additionally, penalties are imposed for certain violations, such as operating without proper registration or certification.

Electricity

Businesses operating in the electricity sector in Japan are regulated depending on the type of business carried out. The sector can be roughly divided into three categories: power generation, power transmission and distribution, and retail.

• Power generation is regulated through a filing system, meaning that businesses can operate as long as the necessary information is filed.
• Power transmission and distribution are regulated by a licensing system and are operated as regional monopolies, with Japan divided into ten regions.
• Retail is regulated as a registered business, allowing operations to commence once the required information is submitted and the business is officially registered.

Gas

The gas industry is similarly regulated:

• gas production is subject to filing;
• gas pipeline operations require a licence; and
• gas retail requires business registration.

Renewables

In addition, specific permits and licences are required for renewable energy power generation. To participate in the FIT and FIP programmes, a business plan must be certified by the METI Minister. Certification is granted once the necessary information is submitted, provided the power generation project meets certain criteria. However, for certain projects, such as large-scale solar power generation, a bidding process is required, and the project must pass this process.

For offshore wind power generation, permission is required from the MLIT under the Renewable Energy Sea Area Utilisation Act. This licence can be obtained by participating in and winning an auction process in sea areas designated by both the Ministers of MLIT and METI.

Additionally, new domains are being brought into the regulatory fold: the CCS Business Act became fully effective in May 2026 and now provides the operative licensing framework for CO₂ storage businesses.

The applicable regulations vary depending on the nature of the project but, for renewable energy power generation projects, the transfer of power generation facilities typically requires a modification to the certification of the business plan under the FIT/FIP programmes. Also, according to the 2023 amendment to the Renewable Energy Special Measures Act, a briefing session for residents in the surrounding area is generally required for the approval of such changes, with the exception of residential and roof-mounted solar power generation.

In Japan, there are generally no restrictions on foreign companies investing in Japanese companies or establishing a Japanese subsidiary, except for certain specific limitations under laws such as the Civil Aeronautics Act, Radio Act or Broadcasting Act. However, the Foreign Exchange and Foreign Trade Act (FEFTA) remains the primary legislation governing foreign investment, including in the renewable energy sector.

Under FEFTA, foreign investors are required to submit a prior notification for “inward direct investments” (tainai chokusetsu toushi) in certain circumstances. These investments include activities such as acquiring shares, setting up a new company, or lending money under specific conditions. This notification requirement applies if the Japanese company or its subsidiary is engaged, or plans to engage, in a “designated industry” (shitei gyoushu), which category includes electricity, gas and heat supply.

The prior notification may generally be submitted to the Minister of Finance and the minister with jurisdiction over the relevant industry, via the Bank of Japan, within six months before the proposed investment date.

Once the notification is submitted, the proposed investment or related activities cannot proceed until 30 days have passed from the date of notification. This 30-day waiting period can be shortened if the investment is assessed and found not to pose any significant issues.

It is important to note that industries such as electricity, gas, and heat supply are categorised as designated industries. Therefore, when considering investments in renewable energy or other energy sectors in Japan, it is necessary to check whether the investment falls under the definition of inward direct investment and if the target company operates within a designated industry.

In June 2026, an amendment to FEFTA was promulgated to further strengthen the foreign investment review regime. Among other things, the amendment brings certain indirect acquisitions of interests in Japanese companies within the scope of regulated inward direct investment and expands the government’s powers to address investments presenting national security risks. Most of the amendments will take effect on a date to be specified by Cabinet Order within one year of promulgation.

The renewable energy generation sector in Japan includes a variety of sources, including solar, wind, hydro, geothermal, and biomass. Since the introduction of a FIT scheme under the Renewable Energy Special Measures Act in 2012, Japan’s renewable energy legal framework has undergone several significant reforms. Depending on the type and scale of the energy source, the FIT scheme is gradually being replaced by the FIP scheme, while a bidding system is also being introduced for determining procurement/reference prices under the FIT/FIP scheme. These changes aim to enhance pricing efficiency and better integrate renewables into the market.

Key market participants continue to include traditional electric power companies and independent power producers (IPPs). However, deregulation of the power generation segment has allowed broader participation on a notification basis, resulting in an increasing number of entrants from outside the traditional utility sector, particularly in the solar power sector. These companies undertake the development, construction, and operation of generation facilities that connect to grids managed by general transmission and distribution companies (“transmission system operators”, or TSOs).

A person carrying on a power generation business that meets the applicable statutory requirements must submit a notification under the Electricity Business Act before commencing the business. Generators must also comply with various grid connection rules established by the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) and TSOs. Since April 2024, generation-side wheeling charges have been imposed on power producers that are connected to the transmission and distribution networks operated by TSOs.

Additionally, the development of renewable power facilities is subject to land use and environmental regulations, including potential obligations under the Environmental Impact Assessment Act. Additional permits and approvals may be required under other laws such as the Agricultural Land Act and the Forest Act, depending on the site. Given the wide range of regulatory requirements, it is essential to consult with the relevant authorities and legal or technical experts during the development process.

For participants in the FIT/FIP scheme, “project certification” (jigyo nintei) under the Renewable Energy Special Measures Act remains mandatory. However, the use of corporate power purchase agreements (CPPAs) has been expanding, particularly in response to growing decarbonisation commitments from corporate energy users. These CPPAs enable direct procurement of renewable electricity outside the FIT/FIP framework.

Amendments to the Renewable Energy Special Measures Act in 2024 introduced new requirements, including the obligation to hold local stakeholder briefings for renewable energy projects at the time of project certification or when making certain changes to certified plans (including certain changes of control as a result of M&A transactions involving both project special purpose vehicles and sponsors). Other new measures include suspension of subsidies for operators deviating from their certified plans and strengthened obligations for certified operators to appropriately supervise external contractors such as engineering, procurement and construction (EPC) and operation and maintenance (O&M) service providers. These amendments aim to ensure the sound development and operation of renewable energy projects by enhancing project accountability, improving community relations and addressing issues arising from inadequate project management by delegated entities.

It has also been announced that, from FY2027, new ground-mounted solar projects with a capacity of 10 kW or more will no longer be eligible for new FIT certification, further accelerating the transition towards FIP and market-based arrangements.

In Japan’s renewable energy sector, the gas industry continues to advance decarbonisation initiatives in pursuit of carbon neutrality by 2050. Methanation, which synthesises methane from CO₂ and hydrogen, remains a central focus, as it enables the utilisation of existing infrastructure, such as city gas pipelines and gas-consuming appliances. Major gas utilities lead this technology’s development, aiming to introduce 1% synthetic methane into the existing supply by 2030 and expand this to 90% by 2050. The remaining 10% is expected to be covered by biogas, direct hydrogen use and other decarbonisation technologies, with the ambition of achieving price parity with current LNG.

The Public-Private Council for Methanation Promotion, established in June 2021, continues to facilitate collaboration among a broad range of stakeholders, including energy suppliers, industrial users, research institutes such as the New Energy and Industrial Technology Development Organization (NEDO), financial institutions including the Development Bank of Japan, trading and shipping firms involved in hydrogen and CO₂ logistics, as well as representatives from academia and relevant government agencies.

From late 2024 through to mid-2025, concrete demonstration projects have been launched or advanced under government-funded schemes, particularly through the Green Innovation Fund administered by NEDO. Notably, INPEX is developing a methanation demonstration facility in Nagaoka City, Niigata Prefecture, scheduled to begin operation in 2025. This facility will produce synthetic methane by reacting hydrogen with captured CO₂ and will inject the product into existing city gas pipelines. Additionally, Osaka Gas completed construction in March 2025 of a demonstration plant at the Osaka–Kansai Expo site, utilising solid oxide electrolysis cell (SOEC) technology to produce e-methane from renewable electricity and CO₂. These projects aim to evaluate the feasibility of methanation under both urban and regional conditions and are part of broader efforts to integrate carbon capture and utilisation (CCU) technologies within circular local energy systems.

In parallel, municipalities and agricultural co-operatives continue to operate local energy ventures that supply electricity and heat using biogas from livestock manure and organic waste.

Regulatory oversight remains grounded in the Gas Business Act and the High Pressure Gas Safety Act. As of 25 June 2026, 26 companies were registered as “gas producers” under the Gas Business Act, including not only major city gas operators but also petroleum firms, power producers and steelmakers. Under the High Pressure Gas Safety Act, operators are required to obtain a licence or submit a production notification depending on their output capacity.

In Japan, renewable energy heat sources include solar, biomass, geothermal, hot springs, groundwater, sewage and other water sources. Although development in this sector was historically slow – due to high installation costs, supply-demand imbalances and a lack of experienced operators – it has shown steady growth in recent years. This progress has been supported by national and local subsidies, green heat certificate schemes and policies aimed at promoting decarbonisation in buildings.

The 7th Basic Energy Plan recognises natural renewable heat – such as solar thermal, geothermal, snow and ice, hot springs, seawater, river water and sewage – as a regionally specific yet important energy source. It emphasises the importance of deploying these technologies in ways tailored to local economic and geographic conditions. To support this, the government is promoting the installation of heat supply systems and encouraging area-wide networks that enable heat-sharing among multiple users.

Additional regulatory momentum comes from the Buildings Renewable Energy Utilisation Promotion Zone scheme, introduced in April 2024 under the amended Building Energy Efficiency Act. This scheme allows municipalities to designate zones where the use of renewable energy is to be actively promoted, and targeted technologies under this scheme include renewable heat sources such as solar thermal, geothermal and biomass, thereby facilitating broader deployment of renewable heat in new construction and urban development.

Businesses that supply heat via pipelines with a capacity of 21 gigajoules/hour or more remain regulated under the Heat Supply Business Act. Operators must register under the Act and comply with obligations such as ensuring sufficient supply capacity, providing clear explanations of supply conditions to customers and adhering to updated safety regulations. Since FY2024, a new emissions factor framework has been introduced, allowing registered heat suppliers to offer environmentally credited (carbon-offset) heat through the use of carbon credits and similar instruments. This may enable end users, subject to the applicable carbon accounting and reporting rules, to reflect the environmental attributes of the supplied heat in calculating their Scope 2 CO₂ emissions.

In pursuit of its goal of achieving carbon neutrality by 2050, the Japanese government continues to advance the development of a commercial-scale pilot supply chain for low-carbon hydrogen as part of its “Green Transformation” (GX) initiative. Following the entry into force of the Act for the Promotion of a Hydrogen Society in October 2024, detailed regulations were promulgated in 2025 to clarify eligibility, procedures, and support mechanisms under the Act. In late 2024, the government launched the first call for projects eligible for CFD support , and awards have since been made to several projects. These measures aim to incentivise stable and large-scale hydrogen production and supply.

The 7th Basic Energy Plan further emphasises the role of hydrogen and ammonia as key decarbonisation fuels, setting ambitious targets for their introduction and use in power generation and industry. The Plan also highlights the importance of building resilient supply chains, promoting domestic production and securing stable imports of renewable energy carriers, including hydrogen and biofuels.

For biofuels and other carbon-recycled fuels, the regulatory framework is anchored in the Basic Act for Establishing a Recycling-Based Society, which promotes the recycling and utilisation of biomass and other resources. The Livestock Waste Act mandates the proper management and effective utilisation of livestock manure. In 2024, the government updated its policy to further encourage the production and use of sustainable aviation fuel (SAF), synthetic fuels and synthetic methane. The revised GX Roadmap and the 7th Basic Energy Plan now target the replacement of 10% of the jet fuel used by Japanese airlines with SAF by 2030, supported by a combined public and private investment of JPY1 trillion over the next decade. This will be achieved through ongoing technological development, demonstration projects and the establishment of new regulatory and certification systems, including alignment with emerging international standards for SAF and other decarbonised fuels.

Overall, the production sector for hydrogen and renewable fuels in Japan is characterised by a strong government-led policy framework, active financial support mechanisms and a focus on building integrated supply chains and regulatory systems, as reinforced by the 7th Basic Energy Plan, to accelerate the transition to a low-carbon economy.

Solar PV facilities with an output of 10 kW or more but less than 50 kW, and wind power facilities with an output of less than 20 kW, are classified as “small-scale business electrical facilities” under the Electricity Business Act. Although the owners of these facilities are generally not required to appoint a chief electrical engineer or establish the same safety management system as operators of larger facilities, they must maintain compliance with applicable technical standards, submit basic facility information and conduct and report pre-use self-inspections.

If an inspection identifies non-compliance with the Technical Standards, owners are required to undertake necessary repairs. In some cases, authorities may issue an order to temporarily suspend operations until compliance is achieved. Persistent non-compliance can result in a “Technical Standards Compliance Order” under the Electricity Business Act, and details of such non-compliance may be publicised on the METI website.

Small-scale facilities remain eligible to sell electricity under the FIT/FIP schemes, as provided by the Renewable Energy Special Measures Act, provided they obtain and maintain necessary certification. Serious or continuing non-compliance may also have serious consequences for the project’s certification under the Renewable Energy Special Measures Act.

In Japan, the electric power transmission and distribution business is predominantly managed by TSOs, rather than public grid operators. Under the Electricity Business Act, TSOs are required to obtain a licence and are typically major electric power companies formerly known as general electric power utilities (ippan denki jigyousha). Electricity from renewable energy sources is transmitted and distributed through the TSO-owned grids without physical differentiation from conventional sources. However, electricity from renewable sources is treated differently in terms of curtailment priority compared to other types of electricity.

A business that discharges electricity from grid-connected storage facilities and meets the applicable statutory thresholds, including the relevant capacity threshold, is regulated as a power generation business under the Electricity Business Act, and are subject to the same regulatory framework as generation facilities. These grid-connected storage batteries also feature in the “long-term decarbonisation power supply auction” (LTDA) support programme. Additionally, the introduction of grid storage batteries is supported through various subsidy programmes provided by both national and local governments.

TSOs implement curtailment of power generation (i) to balance supply and demand across the entire grid within their respective areas, and (ii) to limit the electric current within the thermal capacity limits of specific transmission lines.

The curtailment of power generation for balancing purposes is implemented according to a specific rule: the curtailment of power generation by thermal power plants, the use of power by pumped-storage hydropower plants for pumping water or the battery energy storage systems, and the transmission of power to the grids of other TSOs are carried out before curtailing power generation by variable renewable energy such as solar and wind. In addition, starting in FY2026 or 2027, depending on the area where the power plant is located, FIT-based power plants will be subject to the curtailment before FIP-based power plants.

In order to address potential grid congestion, the rule for transmission line usage is shifting from the traditional priority system to a merit order system, under which generators connect to the grid on a non-firm basis. This new approach favours renewable energy sources with low marginal generation costs.

All power producers are required to commit to complying with curtailment of power generation under the aforementioned rules when entering into grid connection agreements with TSOs.

In addition to the supply of power generated from renewable energy sources through the TSO’s general transmission and distribution grid, the supply of power within the same premises via on-site PPAs and through private lines is also permitted. Furthermore, specialised licences are available for businesses that conduct transmission and distribution to specific areas (which may or may not be connected to the TSO’s general transmission and distribution grid) or to specific premises.

Currently, gas from renewable sources, such as biogas, is generally used for the generation of electricity and/or heat on the same site, for example, at a sewage treatment plant or a waste treatment facility, or at an adjacent site connected by pipelines. Such small-scale transportation is generally not regulated.

In principle, the transportation of gas through pipelines is regulated as either a “general gas pipeline service business” or a “specified gas pipeline service business”, as defined in the Gas Business Act). These regulations include both a code of conduct with customers and safety standards. Essentially, the same regulatory framework would apply if gas from renewable sources is injected into the public gas grid, although revisions to safety standards and methods may be considered.

In the 7th Basic Energy Plan, the government of Japan has set a target of injecting synthetic methane or biogas equivalent to 1% of the total gas supply volume into the nation’s pipelines by FY2030.

The use of heat from renewable sources is still limited. The supply of heat through pipelines, above a capacity of 21 gigajoules/hour, is regulated under the Heat Supply Business Act, as described in 3.3 Heat.

The development of a large-scale hydrogen supply chain and the infrastructure necessary for it to operate is just beginning in Japan. It is expected that the government’s support programmes under the Hydrogen Society Promotion Act will accelerate progress in this area. As of August 2026, several hydrogen projects are under development and are being certified and supported by Agency for Natural Resources and Energy under these programmes.

“Gas facilities” (as defined in the Gas Business Act), including pipelines and storage facilities, used in the “gas business” (as defined in the Gas Business Act) are subject to safety regulations under the Gas Business Act. However, since many of the hydrogen facilities constructed to date have been for small-scale or experimental projects, they have often been exempt from these regulations or only subject to limited provisions.

Facilities for the production, storage and use of high-pressure gas are subject to the High Pressure Gas Safety Act.

The trade in and supply of renewable electricity to end users is primarily conducted by registered electricity retailers, either by directly procuring electricity generated from renewable energy sources or by obtaining renewable energy certificates (see 5.5 Renewable Energy Certificates and (Corporate) Power Purchase Agreements).

In recent years, corporate PPAs (whether physical or virtual) between power producers or aggregators and end users have increased rapidly (see 5.5 Renewable Energy Certificates and (Corporate) Power Purchase Agreements). However, under an off-site physical PPA arrangement, an end user must enter into a contract with a registered electricity retailer, whether through a bilateral agreement or a tripartite arrangement involving a power producer or aggregator. This is because the supply of electricity to end users via the TSO’s general transmission and distribution grid generally requires registration as an electricity retailer, subject to limited exceptions.

The market for the trade and supply of gas from renewable sources is still small. As described in 4.3 Gas, the majority of such gas is used on-site, while the government aims to increase the volume of biogas distributed through pipelines by 2030. Its supply to households is rare, with most instances being experimental.

By contrast, methanation is being considered by major gas retailers. Basically, the same regulatory framework would apply if gas from synthetic methane is injected into the public gas grid, although revisions to safety standards and methods may be considered.

The market for the trade and supply of heat from renewable sources is still limited. The supply of heat through pipelines above a capacity of 21 gigajoules/hour is regulated under the Heat Supply Business Act, as described in 3.3 Heat.

There is no established market or public platform for trading hydrogen and other biofuels in Japan. Thus, at the time of August 2026, suppliers and offtakers need to trade hydrogen and other biofuels through bilateral, over-the-counter (OTC) contracts. As is often the case, the contractual structure tends to be similar to that used in trading contracts for conventional fuels or commodities such as LNG and power.

If a supplier intends to supply hydrogen or other biogas to third-party offtakers through pipelines, such supply will be considered to be a gas retail business, and subject to the registration requirement under the Gas Business Act. Even if the gas retail regulations are not applicable, the regulations under the High Pressure Gas Safety Act can be applied to the supply of hydrogen and other biogas to the extent that such gas falls within the technical definition of “high pressure gas”. Conversely, if hydrogen and other biogas are supplied as alternative fuels for power generation, the relevant regulations under the Electricity Business Act may also apply.

Renewable energy certificates are called “Non-Fossil Certificates” (NFCs) in Japan. NFCs generated from renewable energy sources can be used by offtakers to offset carbon emissions as well as in their reporting for global initiatives such as RE100, CDP and SBT.

Currently, there are two types of markets for NFC trading: (i) the market for FIT-based NFCs and (ii) the market for non-FIT NFCs.

FIT-Based NFCs

The market for FIT-based NFCs is a trading platform for NFCs generated from renewable energy projects developed under the FIT regime. Developers of FIT-based projects are entitled to receive a fixed tariff per kWh from OCCTO over a fixed period (typically, 20 years) and such tariff is ultimately funded by electricity consumers through electricity bills. Thus, the environmental attributes from such FIT-based projects are legally considered to belong to the public. As a consequence, FIT-based NFCs are sold by OCCTO on a market where licensed retailers and end-users (corporate buyers) can purchase such NFCs through a multi-price auction held on a quarterly basis.

Non-FIT NFCs

By contrast, the market for non-FIT NFCs is a trading platform for NFCs generated from renewable energy projects developed outside the FIT regime (including projects developed under the new FIP regime). The environmental attributes from projects developed outside the FIT regime are legally considered to belong to developers (generators), and as a consequence, developers (and aggregators) are allowed to sell non-FIT NFCs on a market where licensed retailers can purchase such NFCs through a single-price auction held on a quarterly basis.

In addition, non-FIT NFCs can also be traded by OTC (bilateral) contracts between generators (aggregators) and licensed retailers or end-users (corporate buyers). Both physical PPAs and virtual PPAs are available options for OTC trading of non-NFCs, but the contractual structuring needs to be carefully analysed with due consideration given to various legal and regulatory restrictions as well as accounting treatment. Long-term corporate PPAs are relatively common, especially in renewable projects developed with project financing.

The market for the development of onshore renewable energy projects (especially, solar and onshore wind) is already relatively mature in Japan. Due to the limited availability of remaining land for large-scale development, there have been a decreasing number of large-scale solar and onshore wind projects (ie, those producing more than 10 MW) on a greenfield basis in recent years. By contrast, there have been a growing number of transactions in the secondary market for large-scale solar and onshore wind projects on a brownfield basis.

The most important starting point when developing a green-field renewable energy project is to secure a suitable site and grid connection capacity. Also, if a government subsidy is necessary, a developer needs to obtain government approval under the FIT or FIP regime and develop/operate its project subject to all the relevant regulations under the Renewable Energy Special Measures Act. A project site is typically secured by a lease contract with the owners of the relevant land. Public land owned by the national or local governments is sometimes secured through a permit or a tender.

An environmental impact assessment (EIA) may be required by both national law and the local ordinances for large-scale developments exceeding certain thresholds. If applicable, the EIA process could take several years to complete.

The contractual arrangements in development and operation phases are broadly similar to renewable energy projects in global markets. Single-point EPC arrangements in solar projects are common, but in other renewable projects, such as onshore wind, multi-contract structures where the main turbine and the balance of plant (BOP) are undertaken by different contractors and suppliers are more typical.

As a result of the rapid increase in renewable energy projects (especially solar projects) across Japan, there has been a growing number of disputes and disagreements between developers and local residents. Strong objections from local residents may have a material adverse impact on the sustainable development and operation of projects; developers therefore need to proceed carefully, ensuring that they have the engagement of local stakeholders from the earliest stages of a project.

In this context, it should be noted that from 1 April 2024, developers of renewable energy projects (excluding roof-top solar and small solar under 10 kW) have been required to hold briefing sessions for local residents to explain project plans and social and environmental impacts. This requirement applies not only when obtaining initial certification for FIT/FIP but also when developers need to change certain material aspects of the project, including a change of control of the developer.

Compared with the maturity of the market for onshore projects such as solar and onshore wind, Japan's offshore wind sector still has tremendous growth potential. Naturally, the government is actively promoting promote offshore wind development with the official target of developing 10 GW by 2030 and 30–45 GW by 2040. In addition, the Japanese government published its official target to develop “floating” offshore wind projects of up to 15 GW by 2040. Offshore wind is currently the hottest area in the Japanese renewable energy market – as a sort of “final frontier” where developers can find growing opportunities to develop large-scale projects on a greenfield basis.

Since offshore wind development requires the long-term occupation of public water (ocean areas), developers are not allowed to develop a large-scale offshore wind project unless selected as the operator through an auction process led by the government for each designated sea area under the regulatory framework provided in the Renewable Energy Sea Area Utilisation Act. Broadly speaking, a number of ocean areas (typically, three to four areas with a capacity of 0.5 to 1.0 GW in each area) are designated for the auction process each year. As of the time of writing (August 2026), the auction results have already been released for four projects in Round 1, four projects in Round 2 and two projects in Round 3. However, the Round 4 auction has been postponed to allow the government to focus on redesigning the auction framework after the preferred bidder for the Round 1 projects withdrew from the projects last year. The revised auction guidelines prioritising project execution over price competition were finalised in 2026. Market participants are currently awaiting the commencement of the re-tendering for Round 1 projects and new tender process for Round 4 projects. Almost all of the existing awarded projects are bottom-fixed (only one is floating).

It should be noted that the existing auction system is not centralised. As such, a selected bidder must therefore proceed with the project development independently, without the aid of a centralised mechanism to streamline the process for site surveys, grid connection and the EIA. That said, a selected bidder will be afforded the necessary grid connection and the preliminary consensus with major local stakeholders, including local fishery unions. The government is currently discussing the introduction of a more centralised auction system for some projects from Round 4 onwards.

The contractual arrangements in the development and operation phases are broadly similar to offshore wind projects in European and other markets. Typically, a multi-contract structure is adopted where major components (such as wind turbines, foundations, subsea cables and onshore/offshore substations) will be undertaken by different contractors and suppliers.

In an important recent development in this area, the National Diet (the Japanese legislature) passed a bill in June 2025 introducing a new regulatory framework to enable the development and operation of large-scale offshore wind projects without a competitive auction process in designated sea areas within the exclusive economic zones (EEZ) outside the national boundary of Japan. This legislation came into force on 1 April 2026, establishing a two-stage permitting system consisting of the pre-qualification for site control at the first stage and the pure price competition at the second stage. This new legislation could potentially facilitate the development of large-scale floating offshore wind projects, including GW-scale projects, in the waters off the coast of Japan in the near future.

It is relatively common for developers to use project financing for large-scale renewable energy projects in Japan. There are a number of Japanese banks that are prepared to provide project financing for renewable energy projects with competitive margins. However, in recent years, developers have seen a higher hurdle for achieving “bankability” in project financing for greenfield development of renewable energy projects.

The biggest hurdle is securing a stable cashflow over the long term. Under the old FIT regime, the offtake arrangement at a fixed price over the long term (typically 20 years) was legally guaranteed, and the offtake risk was therefore relatively limited for lenders. However, under the new FIP regime, developers need to find and negotiate with suitable offtakers themselves. Thus, lenders need to carefully scrutinise the creditworthiness and the bankability of each offtaker as well as the detailed terms of offtake agreements.

Another hurdle is securing appropriate risk allocation between developers and contractors/suppliers. In recent years, there has been growing uncertainty in global markets, including Japan, over issues such as the COVID-19 pandemic, the wars in Ukraine and Iran, global inflation, disruptions to global supply chains, and the historically weak Japanese yen. It is becoming more important, but also more challenging, for all the project participants (developers, contractors, suppliers and financiers) to optimise the risk allocation in a project, so as to share the various risks intrinsic to projects among the parties in order to achieve bankability.

Mini-Perm Loans

Unlike other markets, long-term project financing over ten to 20 years (minus a tail period) has been widely used to date in the Japanese project financing market and it is rare to see the use of mini-perm loans with refinancing risks. However, given the current market environment, the use of mini-perm loans for projects with higher risks may become more common in Japan going forward. In particular, in the BESS sector, the use of mini-perm loans is beginning to be adopted for BESS projects that rely on merchant revenues.

The Japanese government has implemented a major reform to change the fundamental framework of the country’s FIT mechanism, under which electricity generated by approved developers from renewable energy sources – such as solar, wind, biomass, hydro and geothermal – is purchased by offtakers (TSOs) at fixed, guaranteed rates for a fixed term (ten to 20 years). Under the FIT mechanism, offtakers pass on the additional costs from purchasing renewable-sourced electricity to end users by adding those costs to electricity bills.

Since the FIT mechanism was introduced in 2012, the development of renewable power plants (especially solar power plants) has boomed, and the annual cost for power purchase has increased exponentially to approximately JPY4.8 trillion as of 2026. This cost is expected to further increase in the coming years. Accordingly, in an effort to reduce the additional burden on households and businesses, METI has worked to shift from FIT to FIP systems, under which more market risks are transferred to developers.

In June 2020, the National Diet enacted a major amendment to the Renewable Energy Special Measures Act in order to implement the fundamental reform of the existing FIT framework, which came into effect on 1 April 2022.

Under the new framework, the government will move away from the old FIT system, which is based on a guaranteed fixed-price tariff for a fixed term (eg, JPY40 per kWh for 20 years in the case of mega-solar projects approved in the 2012 financial year), to the more market-driven FIP system (a CFD mechanism) where developers will receive a premium (“supply promotion subsidy”) to cover the gap between the designated “FIP price” (ie, strike price) and the “reference price”, which is based on average market price. The essential purpose of this reform is to incentivise developers to make greater efforts to sell electricity at higher prices through the wholesale market or OTC transactions in order to reduce the burden on the public (Japanese consumers) to subsidise renewable energy sources.

Given that many solar power plants were rapidly developed all over Japan by numerous developers, including those with limited capability for operation and financing, how to secure decommissioning costs to safely remove and dismantle retired solar power plants, without causing environmental issues in the future, has become a serious policy issue.

Even under the old FIT regime, before the major reform in 2020, developers of solar power plants with a capacity of 10 kW or more were required to make the necessary reserves to secure adequate decommissioning costs at the end of the FIT period (20 years). However, in order to ensure that the necessary funds are more effectively secured, the new legislation enacted in 2020 introduced a new system for external reserves, under which the required amounts are directly withheld from the FIT tariff and reserved by OCCTO.

This new legislation also provides for exceptional cases where “internal” reserves (reserved by developers) are permitted. Developers may submit a business plan specifying the amount and method for reserving the necessary funds for future decommissioning; if the plan meets certain criteria, then the developer may make internal reserves in accordance with the approved plan in lieu of the mandatory external reserves.

It should be noted that the government recently decided to apply the same decommissioning requirements to onshore wind projects from fiscal year 2027 onwards.

In case of renewable energy projects other than solar or onshore wind, developers are usually required by lenders to build up necessary reserves to cover decommissioning costs at the end of the project’s term. In addition, for offshore wind projects, an appropriate plan for decommissioning needs must be included in the bid documents and is subject to the government’s evaluation in the auction procedure.

The government has announced an ambitious target of achieving carbon neutrality by 2050, while maintaining the S+3E balance (safety, energy security, economic efficiency, and environmental compatibility). In February 2025, it approved the 7th Basic Energy Plan, which prioritises decarbonisation of power generation and electrification, positioning renewable energy as a principal power source to be deployed to the maximum extent possible, while ensuring coexistence with local communities and minimising the public burden. To support this goal, the government has formulated the Green Growth Strategy, which identifies key sectors for innovation and investment, including offshore wind, hydrogen and carbon recycling.

To secure the necessary funding, more than JPY150 trillion is expected to be invested in decarbonisation by both the public and private sectors over the next ten years. This investment will be catalysed by the government’s issuance of GX Economic Transition Bonds. As a result, decarbonisation-related investments are expected to significantly increase in the coming years.

Focusing on specific areas, hydrogen- and ammonia-related technologies are gaining considerable attention. These energy sources are expected to be crucial in “hard to abate” sectors, such as steel and chemicals, where alternative technologies are limited and conversion is difficult. They are also seen as key in the mobility sector and in power generation.