Shulman Advisory

Japan Modifies Proposed FY2026 Balancing-Market Reforms

Publication date: Feb 7, 2026

Japan Modifies Proposed FY2026 Balancing-Market Reforms

In October 2025, the Ministry of Economy, Trade and Industry (METI) proposed a reduction in the balancing market price cap to JPY 7.21 starting from FY2026. This was met with widespread criticism from market participants, who claimed it could undermine market dynamics. Following discussions, the METI’s System Review Working Grouprecently announced new plans for the balancing market. The major revisions are as follows:

  • Lowering the price cap for Frequency Containment Reserve (#FCR) and Synchronized Frequency Restoration Reserve (S-FRR) and combined products in the balancing market from the current JPY 19.51 per delta-kWh to JPY 15 in FY2026, with further stepwise reductions to JPY 10 and JPY 7.21 if market competition does not improve.
  • Procurement volumes for FCR, SS-FRR, and combined products will be reduced in FY2026 from levels covering nearly all contingency events to levels covering around 84% of events. The deduction for “out-of-market reserves” will be abolished, leading to higher procurement volumes for combined products. The procurement volume could be increased again if sufficient competition is confirmed.

The meeting also indicated that the legal positioning and governance of the balancing market operator will be reviewed, with METI having more governance and authority to ensure appropriate reporting and oversight. Currently, the market is operated on a voluntary basis by Electric Power Reserve Exchange (EPRX), which is made up of general transmission and distribution operators.

🔍 Shulman Commentary: Lower price caps and reduced procurement volumes point to a more constrained balancing-market environment, with implications for market participants, particularly BESS operators whose main arena of transactions has been Frequency Containment Reserve (FCR). Following strong industry advocacy, the revised price cap is likely to be set at JPY 15 per delta-kWh, limiting the immediate impact compared with the previously proposed sharp cut. However, the government has signaled its intention to continue closely monitoring market conditions and to strengthen its governance in the market through legal reforms. This suggests that, while the market is becoming more predictable in the near term, a more limited upside is likely as regulation becomes more restrictive.

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