Shulman Advisory

Japan’s First Long-Term Decarbonization Auction Shows Bess Is Booming

Publication date: May 16, 2024

Japan’s First Long-Term Decarbonization Auction Shows Bess Is Booming

On 26 April, the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) published the results of Japan’s first “Long-Term Decarbonization Power Source Auction” (LTDA), or Long-Term Decarbonization Capacity Market.

The overarching aim of the LTDA is to incentivize and accelerate Japan’s transition towards a low-carbon energy landscape by providing long-term financial support to renewable energy projects. The LTDA is characterized by a pay-as-bid market approach, granting successful participants incentives spanning 20 years, providing a stable foundation amidst the fluctuating dynamics of the power market.

OCCTO set a nationwide target capacity based on expected future supply needs at a modest 4GW, which it successfully met in the inaugural auction. The breakdown by successful contracted capacity is as follows:

  • Battery Energy Storage Systems (BESS): 1.10GW
  • Pumped Hydro: 0.57GW
  • Thermal Power Plant Upgrades (with hydrogen and ammonia co-firing): 0.83GW
  • Nuclear: 1.32GW
  • Other projects: 0.27GW


Japan’s First Long-Term Decarbonization Auction Shows Bess Is Booming

Booming BESS Success in Japan’s Decarbonization Drive

1.67GW of capacity was awarded to pumped hydro and battery energy storage systems, significantly surpassing the initial 1GW collective procurement target for these technologies, with 69% and 24% of bidding projects selected as winners. BESS was awarded 1.1GW of the 4GW on offer, with the low success rate indicating a high level of competition among Japan’s growing number of BESS providers. Eleven companies successfully bid for BESS projects, with ORIX securing the largest single project at 96MW. HEXA Energy Services secured the highest number of BESS projects, totaling 342MW across 11 projects. Over a third of all BESS projects selected in the initial auction will be located in Hokkaido.

Key success factors likely included low strike prices, collaboration with Japanese partners and the ability to demonstrate existing expertise in power trading within Japan.

We anticipate this trend will continue with increased market consolidation by experienced players who are capable of financing, managing, and operating BESS projects and navigating merchant markets effectively.

Despite the possible deterrence posed by potentially low bid prices for developers seeking guaranteed and stable revenues, these results show that developers and investors may prefer the security provided by the LTDA system.



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