A New Beginning: Long-term Decarbonized Capacity Auction Overview

January 24, 2023|Electricity Markets

Later this year the government plans to introduce a new auction system that will provide price guarantees for non-fossil power generation. In effect, it should reduce the risk of investing in building new sources of electricity that don’t emit CO2, thus contributing to Japan’s carbon-neutrality goals.

The system will be an extension to the existing power capacity market, but with some markedly different rules. It promises one of the biggest changes for the power industry in recent times. Successful bidders will win 20-year contracts that offer fixed revenue for operable power plants. In return, the government hopes to improve the security of Japan’s electricity supply, which has deteriorated in recent years due to competitive pressures and rising market risk.

Coming about 10 years after the launch of the Feed-In Tariff (FIT) program, which acted as a catalyst for the rollout of solar and other renewables, the new system will cover a broader set of clean energy sources. And while no single system is a silver bullet, the development is likely to stimulate new interest in Japan’s power markets.

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