Publication date: July 12, 2024
METI Beefs up Second Decarbonization Auction
Japan’s Ministry of Economy, Trade, and Industry (METI) and the Agency for Natural Resources and Energy (ANRE) are preparing for a second long-term decarbonization power auction (LTDA), with several changes announced. The auction is designed to promote investment in new flexible carbon-free and low-carbon power and energy storage options to help achieve carbon neutrality by 2050.
After meeting its target of 4GW in the inaugural auction earlier this year (FY2023), the total auction capacity is expected to increase to 5GW in FY2024. Notably, the category “Safety Investment for Existing Nuclear Power,” has been allocated a target cap of 2GW this year, aimed at promoting the construction and enhancement of nuclear power. This power source contracted 1.3GW in the first auction.
Expanding Capacity and Addressing Challenges
In the pumped hydro and battery energy storage system (BESS) category, a capacity cap of 750MW will be set for storage durations of both 3 to 6 hours, and 6 hours or more – taking the total procurement target to 1.5GW for these energy storage options. This plan has received broad agreement from committee members, with a period of public comment solicitation to follow.
In a boost for LNG-only thermal power, which sets its own separate procurement target within the LTDA framework, an additional 4GW will be added over the next two years. LNG was initially expected to provide only short-term supply, but operators expressed concern over supply chain challenges, prompting an extension of supply commission deadlines from six to eight years from the date of bidding.
Recognizing the low interest in some categories, such as upgrades to existing thermal plants through ammonia and hydrogen co-firing, the government intends to enhance incentives here. Improvements will target the remuneration rate, refund rate from other market revenues, and the maximum bid price in the pay-as-bid market.
As the LTDA continues to evolve, any changes must be balanced against additional cost to the consumer, and will be considered and reviewed before final approval. As Japan moves towards its net zero target, it will become increasingly important to promote a wide range of flexible low carbon power and storage options to cope with rising solar and wind intermittency, and ensure grid stability.
________________________________________________________________________________________
