Introduction

Current status and outlook for corporate PPA - Attorney Mitsuru Misawa Official Website

Japan's Corporate PPAs It has been attracting attention as a means for companies to procure renewable energy, and it appears to have spread rapidly following the amendment to the Renewable Energy Special Measures Act on April 1, 2022.
Below, we will provide a more detailed explanation of the current status, mechanisms, and future prospects of Corporate PPAs.

current situation

As mentioned above, many companies are actively using corporate PPAs to achieve carbon neutrality, and the market size is rapidly expanding.
In particular, against the backdrop of rising demand for renewable energy and fluctuations in electricity prices, there is a growing trend for companies to seek a stable long-term power supply.

Increased demand

There are three main types of contracts, each with its own characteristics, advantages, and challenges:
The Renewable Energy Institute's " Corporate PPA: Latest Trends in Japan 2024 Edition " provides a very easy-to-understand explanation, so please take a look.
The following image is taken from the report:

Contract type

Advances in energy storage technology
The development of energy storage systems is likely to lead to a more stable supply of renewable energy.
The batteries used in storage batteries are lithium-ion batteries, and their energy density has been improving year by year, making it possible to provide a stable supply of electricity for long periods of time.

On-site PPA
A method in which power generation equipment is installed on a company's premises and used directly

We expect the market for virtual PPAs to develop and direct trading of non-fossil certificates to become more common.
According to a document titled "Non-Fossil Value Trading" issued by the Agency for Natural Resources and Energy on December 24, 2024, as of 2023, the trading volume of non-FIT certificates will reach approximately 150 billion Wh per year, and is expected to continue to increase.
In particular, as the liberalization of the electricity market progresses, an environment is being created that allows companies to make more flexible use of non-fossil fuel certificates.

Physical PPA
A contract under which a company procures electricity directly from a power plant

It appears that many companies are showing interest in corporate PPAs in order to combat climate change and achieve carbon neutrality.
In particular, with the increase in the number of companies joining RE100 and the expansion of ESG investment, companies' need for renewable energy procurement is rapidly increasing.
As of February 2025, when this article was posted, the number of RE100 member companies in Japan has reached 89 .

Virtual PPA
A method that uses environmental value certificates to allow companies to secure renewable energy electricity while reducing risks in the electricity market.

After the Renewable Energy Special Measures Act was revised in April 2022, specifically after the FIP system was launched, various businesses have been created.
A characteristic of this field is that it is expected that new businesses will continue to be born in the future.
Currently, the following technologies are gaining popularity:

Economic efficiency

From 2022 onwards, rising electricity prices due to rising fossil fuel prices have increased the economic merits of corporate PPAs.
In particular, the adoption of PPAs is accelerating in energy-intensive industries due to both the need to reduce electricity costs and to achieve carbon neutrality.

Price Comparison

Currently, the unit price of off-site PPAs is said to be slightly higher than the average electricity rate.
For this reason, companies need to consider the balance between price benefits and environmental value when introducing these technologies.

Regulatory Status

FIP System

This time, we will explain about corporate power purchase agreements (hereinafter referred to as "corporate PPAs").
I had been planning to cover this topic for a while now, but for some reason I kept putting it off.

assignment

Currently, various regulatory issues exist, and efforts are underway to resolve them.
Specifically, there is a demand for easing grid constraints, reducing transmission costs, and improving the stability of long-term contracts.
With regard to the grid in particular, since this is not an issue that can be resolved immediately, it seems necessary to tackle the issues in a planned manner.

Energy Policy

Policies are being implemented to promote the spread of renewable energy, but companies need to pay close attention to fluctuating energy regulations and policies.
For example, the government's Green Transformation (GX) policy has set a goal of increasing the proportion of renewable energy sources to 36-38% by 2030, and this is expected to lead to growth in the PPA market.

Future developments

Below, we explain how Japan's corporate PPA market will evolve, as well as the factors that will drive its growth and future prospects.
As the PPA market expands, contract types are becoming more diverse and new technologies are being introduced, creating an environment in which companies can procure renewable energy more flexibly and cost-effectively.

Market growth and diversification

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Diversification of contract types
Currently, on-site PPAs are likely to be more prevalent, but in the future, off-site PPAs (both physical and virtual PPAs) are expected to become more common, increasing the number of options available to meet the needs of companies.

Improved economic efficiency

Pro-renewable energy policies are expected to make off-site PPAs more cost-competitive and closer to the standard electricity tariff levels.
In addition, the introduction of carbon pricing could increase the cost of thermal power generation, making PPAs relatively more economical.
In addition, the Japanese government has set a goal of reducing dependence on fossil fuels by 50% by 2040, and it is expected that the introduction of renewable energy will progress further.

Technological innovation and new developments

Increasing demand
As companies accelerate their efforts to achieve carbon neutrality, demand for corporate PPAs is expected to continue to grow.
According to a report by Yano Research Institute , the size of Japan's domestic PPA market is predicted to exceed 1GW in 2023 and 6GW in 2030.

Virtual Power Plant (hereinafter referred to as "VPP")
A VPP is a system that controls distributed energy resources as if they were a single power plant and adjusts the balance of electricity supply and demand.
VPPs are also related to aggregation, but in the future, it is highly likely that new business models that combine corporate PPAs and VPPs will become more widespread.

Introduction This time, we will discuss the Corporate Power Purchase Agreement (CPPA).

Aggregation
The English word "aggregation" means "to bundle together," and in the context of renewable energy, it refers to a system that aims to bundle small-scale renewable energy sources and consumers together and manage them efficiently.
The aggregation model, in which small businesses and multiple companies jointly enter into PPA contracts, is expanding.
I would like to explain aggregation on another occasion, but it is expected that this will make it easier for small and medium-sized enterprises to procure renewable energy, further expanding the PPA market.

Expanding trading of non-fossil fuel certificates

Currently, various regulatory issues exist, and efforts are underway to resolve them.
Specifically, there is a demand for easing grid constraints, reducing transmission costs, and improving the stability of long-term contracts.
With regard to the grid in particular, since this is not an issue that can be resolved immediately, it seems necessary to tackle the issues in a planned manner.

Action plan for companies

Companies considering introducing a corporate PPA will have to decide how to proceed, but they will generally follow the steps below.

1. Current energy consumption analysis: Identify the company's annual power consumption, peak demand times, and future power usage forecasts.
2. Choice of contract type: Select the most appropriate contract from on-site, physical, or virtual PPA depending on the company's electricity demand, risk tolerance, and whether or not it owns real estate.
3. Compare market price with contract price: Compare the current market electricity price with the price of the PPA contract and simulate the long-term cost savings.
4. Risk management and legal considerations: Evaluate the stability of power supply, the risk of market price fluctuations during the contract period, and the risk of regulatory changes, and carefully consider PPA-related contract clauses.
5. Coordination with internal and external stakeholders: Reach consensus with the company's management, finance department, and procurement department, and ensure consistency with the decarbonization goals of business partners and the supply chain.
6. Post-implementation monitoring and optimization: Even after the PPA contract is signed, we will monitor electricity usage and consider renegotiating the contract or procuring additional renewable energy if necessary.

summary

Corporate PPAs are expected to continue to grow and become established as a means for companies to procure renewable energy. For companies considering adopting them, it is important to consider the optimal contract type and strategy while keeping an eye on changes in the market environment.
In terms of basic directions, I think it is fair to say that we can continue to see progress with the expansion of government policy support for achieving carbon neutrality, the invigoration of trading in non-fossil fuel certificates, and the evolution of energy storage technology.