The first auction for Non-FiT Non-Fossil Certificates (NFCs), which are provided by power sources that do not fall under the feed-in tariff (FiT) scheme, was conducted from November 5 to November 12 on the Non-Fossil Value Trading Market, which has been set up for the trading of environmental value of electricity that does not emit carbon dioxide (CO2). An auction of FiT NFCs was also held, and the trading volume including Non-Fit and FIT NFCs exceeded 2.3 billion kilowatt-hours (kWh) (Table 1, Figure 1). The contract volume (trading volume) per auction for FiT NFCs had been less than 0.2 billion kWh so far even at the peak. The total volume of NFCs increased over tenfold with the start of Non-FiT NFCs.
Source: Created by REI based on public information from Japan Electric Power Exchange
Figure 1 Non-Fossil Certificate Types GIO: Green Investment Promotion Organization
Source: Agency for Natural Resources and Energy
It is particularly noteworthy that over half of the overall transaction was accounted for by Non-FiT NFCs with No Renewable Energy Attributes, which is primarily nuclear power. Electricity retailers purchasing these certificates can sell “CO2-free” electricity, and consumers can report CO2 emissions as zero (when the electricity’s CO2 emission factor combined with the certificates is lower than the national average). However, the power source type is not listed on the certificates, so it is possible that some consumers are purchasing and using the certificates as CO2-free electricity without realizing that the environmental value they represent is from nuclear power. Going forward, consumers need to be cautious when purchasing CO2-free electricity.
In order to avoid problems like this, the government needs to quickly take measures making it possible to trade NFCs with the power source identified. NFCs from nuclear power, in particular, need to be clearly differentiated. Moreover, many countries have established tracking systems to identify the power sources for electricity and certificates derived from renewable energy. In Japan, a pilot tracking system for only a part of FiT NFCs is currently taking place, but from an international standpoint, the national tracking system including Non-FiT NFCs, is absolutely essential. RE100, an international initiative promoting the use of 100% renewable electricity by companies, is among those calling on the Japanese government to establish a national tracking system. If the government is slow to respond, it could negatively affect the international competitiveness of Japanese companies and ultimately the competitiveness of the Japanese industries overall.
FiT NFCs Hit Record High; Tracking Rate Declined
In the first round of Non-FiT NFCs trading, it is also noted that there was only a small difference in contract prices compared to FiT NFCs. Non-FiT NFCs with No Renewable Energy Attributes, which are primarily nuclear power, can be used when selling “CO2-free” electricity but not for renewable electricity. Nevertheless, the contract price reached JPY1.10/kWh. Non-FiT NFCs (Renewable Energy Attributes), which is primarily large-scale hydropower, was JPY1.20/kWh. Non-FiT NFCs are just JPY0.10-0.20/kWh less expensive than FiT NFCs at JPY1.30/kWh.
There is no tracking for Non-FiT NFCs with Renewable Energy Attributes and power sources cannot be identified, so they are not recommended by the RE100 as renewable electricity (Non-FiT NFCs by bilateral contracts are accepted because it can be tracked by contract). In addition, most large-scale hydro power facilities have aged significantly, so there is no “additionality” in which CO2 emissions are reduced by adding newer non-fossil power sources. The environmental values pale in comparison to FiT NFCs, the majority of which are relatively new power sources, but there was hardly any difference in the contract price.
There are two possible reasons why the contract volume of Non-FiT NFCs was so large. The first is related to the interim target for the non-fossil power source rate that has been imposed on electricity retailers. By 2030, electricity retailers with sales volume above a certain level (0.5 billion kWh per year) must procure non-fossil power sources by 44% or more of the electricity they sell. The initial year of this interim target (it differs depending on the retailer) is set at fiscal year 2020 from April. Electricity retailers not meeting the target must raise their rate by purchasing NFCs. Retailers wanting to secure certificate volume early would purchase Non-FiT NFCs at their slightly lower prices than FiT NFCs.
The other reason is that companies and local governments are getting more actively involved in reducing CO2 emissions and have raised demand for renewable electricity and CO2-free electricity. In particular, suppliers and supply volume of renewable electricity are currently limited, and it is difficult for electricity retailers to procure large volumes. By purchasing Non-FiT NFCs (Renewable Energy Attributes), they are able to sell renewable electricity to large numbers of consumers.
For these reasons, contract volume for FiT NFCs has increased as well. It was 2.7 times higher than the previous high, which was the second auction of fiscal year 2019 (Figure 2). However, previously, around 90% of FiT NFCs are estimated to have been sold to consumers with tracking information via the pilot system, but with the latest auction there is a high likelihood that the tracking rate was only around 50%. This shows that consumer demand is increasing for FiT NFCs even without tracking information.
Figure 2 FiT Non-Fossil Certificate Contract Volume
Source: Created by REI based on public information from Japan Electric Power Exchange
Disclosure by Retailers; Labeling of Certificate Types and Renewable Energy
With both FiT and Non-FiT NFCs, unless there is tracking information, the power source is unknown. The environmental values of renewables from solar, wind, hydro, geothermal, and bio (including organic waste products) are all mixed together. And even though the majority of Non-FiT NFCs (No Renewable Energy Attributes) is from nuclear power, there is no way to identify it. Given this situation, there are recommended methods for consumers to select renewable electricity.
The Electricity and Gas Market Surveillance Commission, a governmental body, has published Retail Business Guidelines for electricity retailers. With starting Non-FiT NFCs trading, the commission is working to revise the guidelines and intends to require electricity retailers to disclose environmental value (Non-Fossil Certificate, etc.) by type and percentage (Figure 3).
Figure 3 Environmental Value and Power Mix Labeling Example
Source: Electricity and Gas Market Surveillance Commission
How much to subdivide the certificate types, whether to indicate the percentage of certificates with tracking information, and other such details are left up to the retailer. One of the decision-making factors for consumers is whether or not the electricity retailer specifically discloses this information on its website and other marketing tools. When this information is disclosed, consumers can know the percentage of Non-FiT NFCs (No Renewable Energy Attributes), which is primarily nuclear power. However, the Retail Business Guidelines only stipulate that disclosure of information, including the power source mix, is “preferable,” meaning it is not mandatory. Assuming growth in NFCs trading volume and renewable electricity sales volume going forward, disclosure of information necessary for making appropriate decisions from the perspective of consumers should be made mandatory.
Another decision-making factor is related to the differences in how combinations of certificates and electricity are labeled. The commission is currently considering changes to ways electricity retailers have presented renewable electricity and CO2-free electricity. Thus far the commission has allowed the label of “Renewable Energy” only when the electricity combined with the certificate is non-FiT even if the certificates are NFCs with renewable energy attributes. Going forward, this will be changed to allow the “Renewable Energy” label when the certificate is combined with FiT electricity (Figure 4-1). At the same time, when NFCs with Renewable Energy Attributes are combined with non-renewable electricity, it must be labeled as it is now, which is as “Effectively Renewable Energy.” Consumers that want to purchase a combination that is 100% renewable, both the electricity and the certificate, have to exclude “Effectively Renewable Energy.”
Figure 4-1 Changes in Labeling and Promotion Method for Renewable Electricity Sold by Electricity Retailers
(explanations of *1 to *3 omitted)
Source: Electricity and Gas Market Surveillance Commission
The labeling of CO2-free electricity is also changing. When Non-Fossil Certificates (all types) are combined with FiT electricity, the label will change from “Effectively Zero CO2 Emissions” to “Zero CO2 Emissions” (Figure 4-2). What should be noted, however, is that the “Zero CO2 Emissions” label can be used regardless of the type of NFCs. When Non-FiT NFCs (No Renewable Energy Attributes) are combined with FiT electricity, the electricity is designated as zero CO2 emissions primarily due to the environmental value of nuclear power. In this case, electricity retailers need to provide an explanation regarding FiT electricity, but there are no stipulations on the type of NFCs. Given this, it is possible to sell CO2-free electricity with the environmental value of nuclear power without the consumer knowing that this is the case.
Figure 4-2 Changes in Labeling and Promotion Method for CO2-free Electricity Sold by Electricity Retailers
(explanations of *1 and *2 omitted)
Source: Electricity and Gas Market Surveillance Commission
It should be mandatory, when selling renewable electricity and CO2-free electricity, to disclose both the type of NFCs and type of electricity (preferably with the power source as well for both). Until this system is established, consumers should select electricity after confirming the details with the electricity retailer. If companies or local governments announce that they are using renewable electricity or CO2-free electricity without knowing the power source, their thinking on sustainability could be called into question. For example, the Taxonomy list stipulated by the EU that classifies sustainable economic activities includes electricity from renewable energy, but does not include electricity from nuclear power. Nuclear power is not regarded as sustainable because it produces radioactive waste. It will become more and more important for consumers to verify power source details for the electricity and certificates they purchase.
