Publication date: Sept 1, 2026
Key Takeaways
Japan is moving toward longer-term electricity procurement, with proposed obligations requiring retailers to secure 50% of expected demand three years ahead and 70% one year ahead. A new Mid-Long Term Market is expected to begin in FY2028 to support this shift.
Retailers will be able to meet these obligations through the Mid-Long Term Market, bilateral contracts and their own generation, making forward procurement and hedging increasingly important to managing price and volume risk.
Japan’s Mid-Long Term Market design takes shape
To reduce exposure to increasingly volatile power markets and spot-price spikes, the Ministry of Economy, Trade and Industry (METI) is advancing discussions to establish a new Mid-Long Term Market. The market is intended to help retailers secure electricity several years in advance while giving generators greater visibility into future sales and fuel procurement.
Mid-Long Term Market basics
Japan is considering introducing a new supply capability obligation for electricity retailers, requiring them to secure a specified proportion of their expected electricity demand (kWh) in advance. The measure is intended to reduce retailers’ reliance on short-term procurement and support the stable and continuous supply of electricity to customers. Under the current proposal, retailers would be required to secure a supply equivalent to 50% of expected demand three years ahead and 70% one year ahead. For smaller retailers, the corresponding thresholds would initially be lower, at 25% and 50%. This is expected to be a requirement for all supply plans from FY2030 (prepared in FY2029) onwards.
To meet these new obligations, METI is designing a new wholesale market, the “Mid-Long Term Market”, which will allow electricity retailers to procure supply for delivery one or three years ahead. The new market is expected to begin in FY2028, ahead of retailers’ electricity procurement obligations. The Mid-Long Term Market will, however, be only one of several ways of meeting the new obligation, with retailers also able to rely on bilateral contracts or supply from their own generation assets.
Framework and ongoing discussions
METI established the Mid-Long Term Market Design Working Group (WG) in June to discuss the new market design, building on work undertaken by the former Working Group on System Design Based on the Review of Power System Reforms.
Overall framework and product types
Under the proposal, trading would open on April 1 and continue through March 31 of the following year. This schedule reflects that retailers’ supply capacity requirements would be determined by supply plans submitted in February by retailers and generators.
In general, there will be three product types: baseload, mid-load, and peak-load products. During the initial phase, the main products traded three years ahead would be baseload products (flat output from 00:00 to 24:00 daily), while one-year-ahead trading would focus on middle-load products (08:00 to 20:00 on weekdays). This would allow procurement profiles to align more closely with demand as delivery approaches. The clearing method will likely be ‘zaraba’ (continuous trading) and not single price, though this is still under discussion.
At its latest meeting on August 3, the WG discussed further design details:
Required offering volumes
The aggregate mandatory offer volume would equal 10% of retailers’ total annual demand and would be allocated among covered generators in proportion to their expected generation. The requirement would apply to generators with at least 5 GW of capacity. Additionally, operators with a dominant position in wholesale supply in a particular area would also be covered, even if their capacity is below 5 GW
Renewables and FIT resources excluded
Generation from solar, wind, pumped storage, and Feed-in Tariff (FIT) resources would be excluded from the generation volumes used for this allocation because these resources do not align with the market’s purpose.
No cap on products with fuel cost adjustments
METI withdrew its earlier proposal to cap the number of products with fuel cost adjustments linked to indicators such as crude oil prices.
Buyers to specify a delivery area
Transactions would take place through a single nationwide order book, but buyers would not match with generation resources outside their specified area. This would allow buyers to avoid price-spread risks caused by market splitting at delivery.
As the market design progresses
The market should give retailers greater price and volume certainty, reducing exposure to spot-price volatility and retailers’ exits, although procurement costs may ultimately be passed through to consumers.
Retailers must adapt not only to the evolving market landscape but also to the benefits of integrating market purchases with bilateral contracts and hedging strategies to create stable, competitive customer offerings. Additionally, METI’s coordination between this market, the Capacity Market, and the phased removal of the Baseload Market will influence overall market design, affecting not just retailers but a wide range of market participants.
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