FIP calculation

Background

Feed-in premium is the main subsidy scheme in Japan. The FIP premium depends on the plant's subsidy rate, which is specific for each plant, and the prices on the electricity market at present and over the last financial year. Calculation of the FIP is essential for estimating the revenues of solar plants, as this often represent a significant portion of revenues.

In our platform, we calculate the FIP for each asset using actual prices for the past, and using forward price curves for the future.

FIP premium calculation logic

For year $Y$ and month $M$, and subsidy rate $R$:

1. Calculate $P_{avg}$: average between spot price $P_s$ and intraday price $P_i$ weighted over volumes for each time slot $V_s,V_i$

$$P_{avg} = (P_s \cdot V_s + P_i \cdot V_i)/(V_s + V_i)$$

2. Calculate $P_{avg}(Y-1)$: average of $P_{avg}$ weighted over total PV generation in the area for year Y-1
3. Calculate $P_{avg}(M,Y-1)$: average of $P_{avg}$ weighted over total PV generation in the area for month M in year Y-1
4. Calculate $P_{avg}(M,Y)$: average of $P_{avg}$ weighted over total PV generation in the area for month M in year Y
5. Calculate $P_{reference,raw} = P_{avg}(Y-1) + (P_{avg}(M,Y) - P_{avg}(M,Y-1))$
6. Take $P_{nfve}$, the non-fossil value price: a fixed schedule derived from the results of the quarterly auctions for non-fossil certificates (see Assumed values)
7. Calculate $P_{reference}$: if $P_{reference,raw} + P_{nfve} \leq 0$ then $P_{reference} = 0$ else $P_{reference} = P_{reference,raw}$
8. Calculate $P_{reference,total} = P_{reference,raw} + P_{nfve} - P_{balancing}$, with the balancing cost $P_{balancing}$ taken from a fixed schedule (see Assumed values)
9. Calculate adjustment factor $F$: total PV generation during the month / total PV generation during slots when prices are >0.01 yen/kWh in the month.
10. Calculate $P_{premium,raw} = R - P_{reference,total}$
11. Calculate $P_{premium} = P_{premium,raw} \cdot F$
12. $P_{premium} = \max(P_{premium}, 0)$

note

The FIP premium is constant throughout each month, except for slots where prices are exactly 0.01 JPY/kWh (price floor): in that case the FIP premium is zero.

Assumed values

Two inputs to the reference price are not derived from market data at calculation time, but taken from fixed schedules.

Non-fossil value price

$P_{nfve}$ follows a step schedule in JPY/kWh. Each value applies from the month shown until the next change, and the earliest value also applies to any month before it.

Period	$P_{nfve}$ (JPY/kWh)
up to 2023-01	0.6
2023-02 – 2023-04	0.775
2023-05 – 2024-01	0.95
2024-02 – 2024-04	0.775
2024-05 onwards	0.6

Balancing cost

$P_{balancing}$ is set per Japanese fiscal year (April to March) in JPY/kWh. It is assumed to step down from 1.0 to 0.8 JPY/kWh in FY2025, then to decrease by a further 0.1 JPY/kWh each year until it reaches zero in FY2033.

Fiscal year	$P_{balancing}$ (JPY/kWh)
before FY2022	0
FY2022 – FY2024	1.0
FY2025	0.8
FY2026	0.7
FY2027	0.6
FY2028	0.5
FY2029	0.4
FY2030	0.3
FY2031	0.2
FY2032	0.1
FY2033 onwards	0

FIP compensation calculation logic

Once the monthly FIP premium value is known, we calculate the FIP compensation by multiplying the FIP premium by the effective energy exchanged eligible for FIP.

Below, we describe a case that includes assets with batteries and grid charging enabled.

This logic is based on the official METI documentation. For each time slot t within month M:

$$R_{\text{FIP}} (t) = \begin{cases} P_{\text{premium},M} \Big( E_\text{solar-to-grid}(t) + \lambda_M E_\text{battery-to-grid}(t) \Big) & P_{\text{day-ahead}}(t) > 0.01\\ 0 & P_{\text{day-ahead}}(t) = 0.01 \end{cases}$$

With $\lambda_M$ the fraction of battery energy coming from solar during the month:

$$\lambda_M = \frac{\sum_{t \in M}{E_\text{solar-to-battery}(t) } }{ \sum_{t \in M}({E_\text{solar-to-battery}(t) + E_\text{grid-to-battery}(t)})}$$

note

For assets without a battery, $E_\text{battery-to-grid}$ is zero, thus the only contribution is from solar. For assets with a battery but without grid charging, the $E_\text{grid-to-battery}$ is zero, thus $\lambda_M=1$ and all the battery discharge contributes to FIP revenues.