Japan's Power Market News 2022/W52

2022 year in review.

It was a busy year for Japan’s power market in 2022, with fundamental changes likely to drive market transformation in the coming years.

The year marked the start of the post-FIT era in Japan, with the introduction of the feed-in-premium (FIP) system and the increased use of corporate PPAs. Early in the year, the first and last FIT auction for offshore wind saw Mitsubishi win all three projects. This led to a change in auction rules for the second round, limiting the capacity awarded to any one bidder and increasing the weighting for prompt delivery, as well as switching the pricing basis to the FIP system.

In September, we reported on Solar FIP auctions in Japan being greatly undersubscribed , partly due to rising EPC costs, a lack of available land, and difficulties financing FIP projects.?

Then, in October, we wrote about a rise in solar corporate PPAs , leaving fewer developers seeking government FIP support. Offsite physical and even virtual corporate PPAs announcements have significantly increased this year. JEPX market volatility and prices increased in 2022, just as renewable generators were more exposed to the market.?

This has had several significant consequences:?

• The retail price of power has steadily increased during the year, and the structure of power bills for some C&I customers has started changing to incorporate some market exposure.?
• Retailers with no generation capacity, high exposure to JEPX, and limited risk-hedging capabilities have exited the market. We first reported on this trend in April, and the number of bankruptcies has increased since, leading to a major consolidation in the retail power sector.

Higher power prices have made Japanese public opinion more favorable towards reinstating idled nuclear plants. This was the basis of our September piece, “Clear skies ahead for nuclear power in Japan.” The improving public sentiment has encouraged the government to state its willingness to restart as much nuclear capacity as quickly as possible and draw up longer-term plans to build new nuclear plants.

The JEPX volatility, a roll-out of balancing markets, and regulatory clarifications from METI have also been driving the development of grid-scale battery storage. This was the topic of our weekly news in May, and the trend had gathered pace by the time we next covered it in November.

Finally, this year METI has been discussing a possible future merging of the JEPX and balancing markets. This is a major change in market structure, but perhaps more importantly, it highlights the pain points in the current structure. Other planned changes include a new capacity market for low-carbon generation assets that could be implemented as soon as FY2023.

Sources: (all are past published news from this year): Consolidation of the Japan power retail market , https://www.dhirubhai.net/pulse/japans-power-market-news-2022w50-dan-shulman/?published=t , Batteries energy storage systems development picking up in Japan , The case for batteries is stronger than ever in Japan , Development of standalone battery projects picks up in Japan , Clearer skies ahead for nuclear power in Japan , METI is considering a future reform of the JEPX market , METI is considering a future reform of the Capacity market

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