TOKYO, Sept 9 — Investors are pouring billions of dollars into Japan's emerging electricity storage market as power demand grows after years of decline, but proposed changes to energy auctions risk curbing returns.
Japan, which relies on imported fossil fuels for about 70 per cent of its electricity, has been expanding renewables to improve energy security. But frequent curtailments on its fragmented grid, especially in Tohoku and Kyushu, have spurred interest in battery energy storage systems (BESS).
Since December 2023, companies have announced at least US$2.6 billion (RM10.94 billion) in storage projects, including US$677 million from real estate firm Hulic and US$1.3 billion from trading house Sumitomo, according to Reuters calculations.
“If Japan is to meet its renewable energy targets, it will need to address the issue of curtailment, and energy storage is an obvious solution,” said Franck Bernard, managing director for energy storage and flexibility at Singapore-based Gurin Energy. His company plans to build a 1 gigawatt-hour battery project in Fukushima with TotalEnergies’ Saft unit, costing ¥91 billion (RM2.6 billion) and starting up in 2028.
Battery developers applied for 113 gigawatts of grid connections in the fiscal year ending March, nearly triple the previous year, according to the Ministry of Energy, Trade and Industry (METI). Most requests came from Tohoku, Tokyo, Kyushu and Chugoku.
Rystad Energy forecasts Japan’s battery storage could reach 4 GW based on awarded and planned projects, requiring US$6 billion of investment. As of March, Japan had just 0.23 GW of grid-connected storage, compared with 75 GW in China and 26 GW in the US.
Auction changes
Planned changes to the government’s long-term decarbonised capacity auctions (LTDA) — which guarantee revenue for up to 20 years — could weaken the appeal of storage projects.
The next auction will cut available battery capacity to 800 MW from 1.7 GW, while expanding natural gas and nuclear slots. METI also plans to require batteries to run at least six hours, up from three to six hours previously.
Battery firms prefer shorter-duration units that capture lucrative peak-hour demand. Developers warn that longer duration would require more land and permits, risking missed deadlines for the October LTDA registration.
“Rather than replacing old capacity with new, it may end up preserving existing power sources,” Mika Kudo of the Renewable Energy Institute said in a note.
Mahdi Behrangrad of Pacifico Energy, which runs projects in Kyushu and Hokkaido, said the changes could deter global investors. “We must convince them to be here ... we are having a harder time to explain: are we the best place to be?” he said. — Reuters
