Publication date: Dec 15, 2025
Tightening Balancing Market Design Could Reshape BESS Strategies
At a recent expert meeting held in late October 2025, METI proposed two changes for Primary Reserve (FCR) and Secondary Reserve I (S-FRR) in the balancing market:
1. Reducing the procurement volumes by 50–80%starting from FY2026.
2. Lowering the price caps by more than 60%, from the current JPY 19.51 per delta-kW per 30 minutes to JPY 7.21.
The move is the latest change in balancing market design imposed at short notice. Such changes have a great impact on market participants, including emerging BESS operatorswhose business models are increasingly embedded in trading electricity through the energy markets, including the balancing market.
Concerns were widely expressed among committee members about this latest proposal. They pointed to the potential for significant effects on both existing and planned investment projects, and warned that it could lead to market exit or a slowdown in new entry, outcomes that would damage the development of a market still at a very early stage. This policy shift also appears to reflect the government’s intention to curb speculative behavior among certain BESS operators that have relied on high clearing prices.
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Stakeholder Reactions and Market Implications
Industry stakeholders have likewise reacted strongly. The Energy Resource Aggregation Business Association (ERA), which promotes the adoption of distributed energy resources (DERs), submitted an urgent recommendation to METI. ERA argued that the proposal risks weakening the balancing market’s essential function as a mechanism for efficiently procuring flexibility. The association further recommended that METI restore procurement volumes to previous levels over time and ease or raise price caps during periods of system stress, when the value of balancing capacity is visibly higher.
Shulman Commentary: BESS developers should view these reforms as an indication of how Japan’s flexibility markets may evolve as BESS deployment accelerates. METI’s attempt to limit high clearing prices associated with speculative bidding will guide the balancing market toward steadier, more transparent price signals. With day-ahead trading for all balancing products set to start in April 2026, this creates an environment where strong operational capabilities, accurate forecasting, and smart portfolio design can translate into more consistent returns across both operating assets and future projects.