Publication date: July 10, 2026
LTDA To Better Reflect Rising Costs From 2027
The Ministry of Economy, Trade and Industry (METI) has held an expert meeting to discuss the new framework for the fourth round of the Long-Term Decarbonized Power Source Auction (LTDA), scheduled for next January (see our previous newsletter for the FY2026 third-round auction results).
In light of recent interest rate increases (in June, the Bank of Japan raised its policy rate to 1%, the highest level in around 30 years), the expert meeting proposed revising the assumed financing costs for power plant construction. Under the proposal, the capital cost that operators can factor into their bid prices would rise by 0.5 percentage points from the previous levels, setting the capital cost at 4.5%, 5.5%, or 6.5%, depending on the length of the construction period.
Changes were also proposed for the BESS category. The ceiling price for the FY2027 auction will vary by region, ranging from JPY 70,675 to JPY 74,417/kW-year, down from JPY 76,205 to JPY 80,657/kW-year in FY2026. The proposed ceiling prices for BESS are lower than those for other technologies, such as pumped hydro and nuclear power, and assume a 4.5% cost of capital. In contrast, for LNG-only thermal power projects, METI will raise the ceiling price in the next auction to JPY 92,000/kW-year for projects that develop LNG terminals and JPY 65,000/kW-year for projects that do not, to encourage investment in LNG-fired power generation.
🔍 Shulman Commentary:
In the face of increasing unpredictability and persistent inflation combined with yen depreciation, the government-sponsored LTDA has become a reliable investment destination for generators, as awarded power sources receive stable revenue for 20 years. However, the lower ceiling prices proposed for BESS suggest the government believes battery costs and financing risks have declined sufficiently to warrant reduced support. The introduction of regional ceiling prices also places greater emphasis on project location and regional economics when assessing project viability.
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