Japan’s Long-Term Decarbonization Power Source Auction

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The first "Long-Term Decarbonization Power Source Auction" (the "Auction") is expected to start in Japan in January 2024. The Auction will provide a 20-year fixed revenue for newly developed power sources that contribute to decarbonization of the Japanese power industry, including battery energy storage systems ("BESS)".


On 11 July 2023, the Japanese Agency for Resources and Energy ("ANRE") issued its "Auction Guidelines"1, subsequent to the draft "Interim Report" released by the Ministry of Economy, Trade and Industry ("METI") on 21 June 20232 and the draft "Auction Rules" released by the Organization for Cross-regional Coordination of Transmission Operators, Japan ("OCCTO") on 5 July 2023.3 Although the discussions regarding further details on the Auction are still ongoing, a large part of the Auction rules have now been fixed.

The Auction offers certain eligible power sources with a 20-year fixed revenue. This will have significant impact on the financials and the business model of a BESS project in Japan. With the registration of potential bidders likely to start in October 2023, various BESS developers are now considering whether to participate in the Auction.

Eligible Power Sources

Although the specific power sources that may be eligible for the Auction are still under consideration, they will likely include the following:

  • hydro power, hydrogen/ammonia co-fired thermal power, nuclear power, geothermal power and biomass power;
  • BESS and pumped hydro;
  • solar, onshore wind and offshore wind; and
  • LNG-fired thermal power.

The above power sources cannot be already subject to the Feed-in Tariff or the Feed-in Premium regimes. In addition, a BESS cannot be co-located with another power source.

The total capacity of all power sources subject to the Auction is expected to be 4GW. Of such amount, the total capacity for BESS and pumped hydro is expected to be 1GW.

Eligible Applicants

To be eligible to participate in the Auction, an applicant must be either:

  • a domestic entity (established under the laws of Japan, and with its principal office in Japan); or
  • a consortium (whether a domestic entity or a foreign entity) that will incorporate a Special Purpose Company ("SPC") (a domestic entity) and transfer any rights under the Auction to such SPC within one year from the announcement of the bid award.

Any entity that is considering participating in the Auction must register with OCCTO. Such registration will likely take place in October 2023.

Support Mechanism

The support mechanism available to the successful bidders who have been awarded under the Auction will consist of:

  • a fixed revenue at the auctioned price for 20 years; but
  • subject to the successful bidder returning 90% of its total profit generated from other transactions.

The "profit" (shuueki) that is subject to the above 90% return rule will be calculated as follows:

  • the total "revenue" (shuunyu) deriving from the sale of electricity and environmental attributes via bilateral transactions and market participation; less
  • the "variable costs" associated with the power generation (e.g., costs deriving from fuel, waste disposal, consumables, Generation Side Tariff and business tax).


All projects that are awarded support under the Auction will then be subject to various requirements and assessment and may be subject to penalties in case of breach. For example, the relevant project:

  • must be able to start supplying power within a certain time frame;
  • must maintain its capacity throughout the contracted term; and
  • must report to OCCTO on the project's performance.

The specific time frame to start supply of power depends on the type of power source. For example, a BESS project must be able to start its supply of power within four years from the bid award and contract execution.

If OCCTO finds that a project has breached any of its requirements, OCCTO may impose penalties.

1 https://www.enecho.meti.go.jp/category/electricity_and_gas/electric/summary/regulations/pdf/choukigl_20230711.pdf
2 https://www.meti.go.jp/shingikai/enecho/denryoku_gas/denryoku_gas/seido_kento/pdf/20230621_1.pdf
3 https://www.occto.or.jp/iken/2023/files/230705_youryou_long_bosyuyoukou.pdf

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