The Japanese Ministry of Economy, Trade and Industry (METI) has proposed revisions to the price cap structure in Japan’s balancing market that may materially impact the economics of battery energy storage system (BESS) projects in Japan.
Under proposals presented to METI’s System Review Working Group in late October 2025 (the METI proposal), from April 2026 onward the price cap for premium balancing products (Primary, Secondary-1, and composite products) will be reduced from JPY 19.51 to JPY 7.21 per ΔkW/30min, a reduction of approximately 63%. This harmonizes the cap with the lower-value Secondary-2 and Tertiary-1 products, effectively removing the premium previously assigned to faster-response products in the balancing market. The METI proposal comes against a backdrop of concern that many faster-response balancing market bids have clustered at the price ceiling, leading to high balancing costs. These changes, together with recent changes in the Long-Term Decarbonization Power Source Auction (LTDA) 2025–26 auction guidelines, may signal a shift in METI and Organization for Cross-regional Coordination of Transmission Operators (OCCTO) priorities towards promoting long-duration, long-term capacity, in lieu of fast-response systems in the balancing market with potentially high-value arbitrage upside. This shift may affect Japan BESS project economics and market participation and future investment decisions in Japan’s BESS development.