Navigating Japan's Renewable Energy Market: A Guide to Non-Fossil Certificates (NFCs)

As Japan strives to increase its share of renewable energy, businesses operating in the country face unique challenges and opportunities. This article explores the landscape of renewable energy procurement in Japan, focusing on the role of Non-Fossil Certificates (NFCs) in helping corporations achieve their renewable energy goals. 

Japan has set a target for renewables to comprise up to 50% of its electricity mix by 2040. While the share of renewable electricity has grown over the years, corporates operating in Japan continue to face difficulties when seeking to transition to 100% renewable electricity. With high procurement costs and limited supply, Japan continues to be recognized as one of the most challenging markets to procure renewable electricity. 

Despite the challenges, corporate buyers have become an important driver of renewable development in recent years. Over 200 companies, both headquartered and with offices in Japan, have joined RE100 and committed to using 100% renewable electricity in their operations by 2050. 

Although Japanese corporations may use a variety of renewable electricity sourcing methods, energy attribute certificates remain a key element of their overall renewable electricity sourcing strategies. 

The NFC system, established in 2017, was designed to account for and trade the environmental attributes of renewable energy supported by Japan's Feed-in Tariff (FiT) program. In 2021, the NFC scheme underwent significant reforms, leading to the market being divided into FiT NFCs and non-FiT NFCs (encompassing both renewable and non-renewable attributes).  

The primary distinction between FiT and non-FiT NFCs lies in the eligible buyers and their intended uses: FiT NFCs can be acquired by electricity retailers, brokers, and end-users for voluntary purposes, whereas non-FiT NFCs are predominantly purchased by electricity retailers to fulfill their compliance requirements under the Act on Sophisticated Methods of Energy Supply Structures. 

For corporates looking to meet their renewable electricity goals, FiT NFCs are an ideal choice for a few reasons. The high supply of such NFCs offers greater access to renewable electricity and presents companies with a more cost-effective option. Furthermore, FiT NFCs are recognized by voluntary climate initiatives such as RE100 and the Science-based Targets Initiative (SBTi).  

Although FiT NFCs initially lacked tracking information, this issue was addressed in 2021 when the system was revised to enable the addition of environmental attributes such as the energy type, location, and commissioning date of the power plant. With this update, FiT NFCs were permitted by RE100 and SBTi to be used by companies to credibly claim renewable electricity consumption. In 2023, the majority of RE100 member companies used NFCs to claim renewable energy generation, underscoring the significance of FiT NFCs in corporate renewable electricity sourcing strategies. 

When procuring NFCs, corporates should consider: 

• FiT NFCs are valid for use only from April of their issuance year until June of the next year. For example, if a certificate is issued in January 2025, it's only valid for use from April 2025 to June 2026. NFCs that have not been retired at that point cannot be carried over and will expire. Thus, companies need to buy new certificates annually to continue claiming renewable energy.  

• NFCs are measured in kilowatt-hours (kWh) instead of megawatt-hours (MWh). To ensure accurate renewable energy consumption claims, buyers should express their procurement requirements in kWh rather than MWh.