METI Addresses Demand Growth and Supply Security in Power Market Reforms

Rising energy demand, driven by data center expansion, is increasingly driving power market conditions in Japan, while growing renewable capacity is reshaping supply dynamics. To grapple with the changing energy market, the Ministry of Economy, Trade and Industry (METI) has recently advanced a series of institutional reforms, including amending the Electricity Business Act (EBA), proposing a new retailers’ obligation, and restructuring specialized working groups. We tease out key aspects of each of these reforms, as they are likely to lead to major institutional changes/discussions in FY2026.

Expanding METI’s Oversight and Enabling Long-Term Investment

The EBA will be amended as follows:

Allowing the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) to finance large-scale power generation facilities and grid infrastructure, especially targeting projects that require long construction periods and substantial capital.
Enabling the deregistration of electricity retailers inactive for more than one year (‘dormant retailers’) or retailers that fail to begin operations within one year after registration, without a legitimate justification, to prevent fraudulent activities.
Increasing METI’s governing authority over the balancing market and the planned Mid-Long Term Market, with the aim of promoting sound market management.

With these measures, METI envisions boosting investment in generation facilities and grid infrastructure, while closely monitoring the market by preventing fraudulent activities and increasing market oversight. The cabinet has already approved the amendment bill, and the national diet will further deliberate it this year.

Rules on Retailers’ Future Obligations Are Taking Shape

METI had decided that retailers would be obliged to secure 50% and 70% of supply volumes (in kWh) three years and one year ahead, respectively, starting from the FY2030 supply plan (for small-scale retailers, 25% and 50%, respectively). METI’s working group has recently clarified that required supply volumes for each retailer will be calculated based on past sales performance, and if retailers fail to secure the amounts, the government will issue guidance and recommendations. Additionally, joint procurements by balancing groups (BGs) will be allowed, and if a BG as a whole meets the procurement requirement, all retailers within the BG are deemed to have fulfilled their obligations, even if individual retailers within the BG fail to meet their targets. For now, METI will conduct hearings with industrial stakeholders to refine the framework and plans to revise the supply plan format by around autumn 2026.

New Working Groups to Deepen Market Reform Discussions

To effectively respond to the market evolution, METI has decided to establish three new working groups (WGs).

The Power Supply Stability WG will discuss and develop the capacity market and reserve power framework. This WG will examine a prior consultation system for the suspension or decommissioning of power plants, in line with the EBA amendment bill and the Long-Term Decarbonization Power Source Auction (LTDA).

The Power Business Environment Development WG will discuss public financing for large-scale power plants and transmission lines, retailers’ supply obligations, and a planned simultaneous market design.

The Mid-Long Term Market Design WG will be established for about a year to work on the detailed market design.

By establishing these specialized WGs, METI envisions alleviating the heavy burden on existing WGs, such as the former System Review WG, while enabling in-depth discussions on the relevant themes.

We have reviewed some ongoing debates regarding METI’s institutional reforms. These reforms collectively indicate that, while METI envisions increasing its regulatory authority over the energy market, it also plans to broaden the government’s legal capacity to invest more actively in power sources and grid infrastructure. Concrete results from these reforms will be seen as the year progresses.

________________________________________________________________________________________

Thank you for reading.

Shulman Advisory supports foreign players in navigating policy, market design, and commercial execution.

Let’s talk!