Long Term Decarbonization Power Source Auction in Japan

After years of expectation, Japan has finally created an auction system to provide a 20-year fixed revenue for newly developed power sources, including battery energy storage systems (BESS). The Government is hoping that with this support, it will foster the development of new technologies and stabilize the electricity supply after months of heavy curtailment (especially in Kyushu region).

The subsidy scheme is open to all special purpose companies (SPCs) registered in Japan, including Japanese subsidiaries of foreign companies. It is worth pointing out that the bidding process started in October 2023 with the auction expected to be held in January 2024.

The eligible power sources are:

• Hydro power, hydrogen/ammonia co-fired thermal power, nuclear power, geothermal power, and biomass power.

• BESS.

• Solar, onshore wind and offshore wind.

• LNG-fired thermal power.

The projects should not be subjected to the FIT or FIP regimes, and BESS cannot be co-located with any other power production facility (like solar). The expected capacity for the auction is around 4GW of which, at least 1 GW, should be allocated to BESS projects.

Last year, the Japanese government announced it would transition from a Feed-in-Tariff (FiT) to a Feed-in-Premium (FiP) starting in April 2022. The new program allows renewable generators to sell electricity in the spot market at a premium to wholesale prices. The change is designed to increase competition in the renewable space, support the emerging corporate PPA opportunity, while also lightening the consumer cost burdens of the existing FiT program.

With Japan looking to double the renewable capacity on the grid in the next few years, as well as the Government’s desire to become a regional leader in grid management and balancing, investment in battery storage is booming.

Market demands from industry and a renewed urgency to improve energy security are pushing the growth of renewables in Japan. Despite supply chain bottlenecks and inflation, investment into Japan’s renewables market is strong, and positive policy changes are being pushed forward, albeit not at the pace that industry would desire.

Vector Renewables's been in Japan for 10 years and reaffirms its commitment to the market as the country continues its growth in the industry and develops into a leading renewable energy consulting services company. Since then, Vector has provided many services to Japanese clients supporting them in every new challenge through its Technical Advisory and Asset Management services.

For more information about Vector Renewables Japan, you can contact us via our website or LinkedIn.