FIP calculation

Background

The feed-in premium (FIP) is the main subsidy scheme in Japan. The FIP premium depends on the plant's own subsidy rate and on electricity market prices, both current ones and those of the previous financial year. The FIP often makes up a significant share of a solar plant's revenue, so it has to be calculated to estimate that revenue.

Tensor Cloud calculates the FIP for each asset from actual prices for the past and from price forward curves for the future.

FIP period

The FIP is paid for 20 years. The period starts on the asset's COD, but no earlier than the FIP start date and no later than 3 years after it. For an asset that moves from FIT to FIP, the FIP applies from the FIP start date until 20 years after the start of the FIT period.

When a PPA names the offtaker as the FIP beneficiary, the simulation books no FIP revenue for the IPP.

FIP premium calculation logic

For fiscal year $Y$ (April to March) and month $M$, and subsidy rate $R$:

1. Calculate $P_{avg}$: the average of the spot price $P_s$ and the intraday price $P_i$ in each time slot, weighted by their volumes $V_s,V_i$. For historical premiums we use this value as published by JEPX. Simulations do not forecast intraday prices, so they use the spot price $P_s$ as $P_{avg}$. $$P_{avg} = (P_s \cdot V_s + P_i \cdot V_i)/(V_s + V_i)$$
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 $P_{reference,total} = P_{reference} + P_{nfve} - P_{balancing}$, 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 JPY/kWh in the month.
10. Calculate $P_{premium,raw} = R - P_{reference,total}$
11. Calculate $P_{premium} = P_{premium,raw} \cdot F$
12. $P_{premium} = \max(P_{premium}, 0)$

In simulations, the area PV generation used as weight is reduced by the zonal curtailment of the scenario.

note

The FIP premium is constant throughout each month, except that it is zero in slots where prices are at or below 0.01 JPY/kWh (price floor). If the asset has a FIP rate schedule, the rate $R$ changes on the date of each scheduled change, so the premium can also change within a month.

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 is known, the FIP compensation is the premium multiplied by the energy eligible for FIP.

The formula below covers the general case of an asset with a battery and grid charging enabled.

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

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

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

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

For DC-coupled batteries, $\lambda_M$ is calculated from the energy flows on the DC side of the site inverter. In a month without any battery charging, $\lambda_M$ is zero.

note

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

The battery is optimized against the day-ahead price plus the FIP premium, so it values discharge in slots where the premium is paid.

Further reading

• FIP premium calculator: Enter project assumptions to estimate the premium.
• Japan's FIP scheme for solar and storage: Read the policy background to these calculations.
• Electricity sales service: Explore options for selling FIP-supported electricity.