JAPAN Law and Practice Contributed by: Yutaro Fujimoto, Yurika Masakane, Hirokazu Tanaka and Yutaro Kato, Nagashima Ohno & Tsunematsu
which generation capacity is to be provided. In addi- tion, instead of receiving the full amount of such fixed remuneration, generators must pay OCCTO approxi- mately 90% of the profits earned from the operation of such power sources. Grid-Scale Battery Promotion In order to relax supply-demand pressures and pre- vent price spikes in the electricity market, grid-scale battery business is being encouraged. In grid-scale battery business, electricity is (i) stored when the elec- tricity market price is low; and (ii) discharged when the electricity market price is high, to earn a profit. To establish an appropriate business environment, METI has reformed the legal framework for grid-scale bat- tery business. The 2023 Amendment stipulates that discharges from grid-scale batteries that have stored electricity over a certain capacity are to be regulated as electricity generation business under the Electric- ity Business Act. On the other hand, the supply of electricity for charging grid-scale batteries is regulat- ed as electricity retail business under the Electricity Business Act. In addition, in response to the lack of established rules governing grid connection for those engaged in the charging of grid-scale batteries and in response to an increase in inappropriate applications for grid connection, revisions to the grid connection rules are currently being discussed by METI (see 2.1 The Wholesale Electricity Market ). Master Plan and Network Construction Plans In March 2023, OCCTO prepared a master plan for the construction of a cross-regional interconnection net- work in Japan (the “Master Plan”) to promote renew- able energy and achieve the Japanese government’s proclaimed carbon-neutral target in 2050. Individual network construction plans for each transmission- grid (which corresponds to the major utilities’ cover- age) are to be prepared with the costs and benefits of the networks under each plan taken into account, in accordance with the Master Plan. As of the date of this article, several network construction plans have been under development, the implementation of some of which is estimated to cost over hundreds of billions of Japanese yen. For example, implementation of the construction plan for the submarine network connect- ing the Hokkaido–Tohoku–Tokyo areas is forecast to cost approximately JPY2.5 trillion to JPY3.4 trillion.
However, recent significant increases in construction costs and changes to the power business environ- ment have provoked discussion to revise the Master Plan (and the network construction plan, accordingly). Integrated Market Under Discussion As TSOs often run short of control reserves, the trad- ing prices of control reserves tend to be high even when a sufficient quantity of kWh’s is sold on the JEPX spot market. In order to provide a solution for this situation, ANRE and OCCTO have been discussing the establishment of a market integrating kWh trades at the JEPX spot market and control reserve trades at the balancing market. An integrated market will seek to optimise kWh trades and control reserve trades overall. There are many undecided issues surrounding the idea of an integrated market, and it remains under discussion (possibly starting in 2030). If the integrated market is established, it could alter many aspects of the existing electricity trading systems, such as bid rules and pricing in the various markets, balancing mechanisms and curtailment rules. Medium to Long-Term Market Trading Currently, players usually conduct only short-term trading at JEPX, and liquidity in medium and long- term trading is quite low. Hence, in March 2026, METI decided to establish a new electricity market to pro- mote medium and long-term electricity trading. The objectives of the medium to long-term market are: (i) to enable electricity retailers to stably secure long-term electricity supply; and (ii) to improve predictability for electricity generation businesses and fuel procurement. At the same time, they decided to impose a new obliga- tion on electricity retailers to secure capacity for elec- tricity supply three years in advance of actual delivery, and thus the medium to long-term trading market will be of critical importance for electricity retailers to fulfil their obligations. Trading in the medium to long-term market is expected to open in 2028. 1.8 Unique Aspects of the Power Industry As the vertically integrated major utilities enjoyed a regional monopoly for nearly 50 years, the reality is that these major utilities (and their affiliates) continue to control the dominant share of the retail market in their region.
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