Balancing Market Price Caps Are Lowered to JPY 10/ΔkW-30 Min from September

The Ministry of Economy, Trade and Industry (METI) presented a policy at the Power Supply Stability Working Group (WG) to lower the price caps for certain products in the balancing market. For Frequency Containment Reserve (FCR, or Primary), Synchronized Frequency Restoration Reserve (S-FRR, or Secondary 1), and combined products, METI plans to lower the price cap from the current JPY 15 to JPY 10/ΔkW-30 min from September 1 (From FY2026, all products in the balancing market transitioned to 30-minute slots and day-ahead procurement). This move followed METI’s decisions to lower the price cap from the previous JPY 19.51 to JPY 15/ΔkW-30 minfrom March 2026 and shift all products to day-ahead trading from April 2026.

Since the revisions, METI has reviewed the subsequent data and found that although bid volumes have increased, they have continued to fall short of procurement volumes, and awards near the price cap remained possible. METI found it difficult to conclude that competitive conditions had improved under the new setting.

Lowering the price cap to the new threshold could reduce bids from certain power sources whose costs exceed the new cap. However, METI assumes that this will not hinder securing flexibility, as these sources are likely to be replaced by procurement through leveraging generators’ surplus energy (surplus utilization system).

🔍 Shulman Commentary:

METI’s decision to lower the price caps for a second time does not come as a surprise, having already signaled earlier this year that further reductions would be considered if competitive conditions failed to improve. Market behavior following BESS participation in the balancing market from September will be closely watched, and continued weak competition or evidence of speculative bidding by BESS operators could prompt another reduction, potentially to a single-digit price cap. Such an outcome would significantly reduce revenue potential for many participants, particularly BESS operators.

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