At least three times this summer, large volumes of electricity had to be transferred quickly between the major regions into which Japan’s power system is split. The technical aspect of this has so far not caused notable issues, despite ongoing concerns over the country’s aging and segregated power grid. But there are questions around how this electricity is procured.

As part of the liberalization of the electricity sector over the past decade, METI oversaw the unbundling of regional power utilities (EPCOs) and the creation of several market platforms to facilitate non-discriminatory trading in electricity. But one area where this free-market push has struggled to yield results is ‘balancing’, which is the system under which regional transmission operators (TSOs) procure electricity when output fails to meet scheduled levels due to weather, natural disaster, or other reasons.

The balancing marketplace, also known as the Supply-Demand Adjustment Market, was set up in 2021 to help TSOs manage their local grid and system security. This platform was meant to bring together the nine TSOs that cover all of Japan (aside from Okinawa), thus making it easier – and cheaper – to source generation resources from another region when in need. The problem is that almost half of TSOs barely use this market.

The situation has implications beyond power market design. A number of battery operators entering the Japanese market are looking at options to sell power (i.e., outside of bilateral agreements). In addition to the established spot and futures power markets, there’s interest in tapping into revenues from balancing.

What’s more, METI envisions an evolution of Japan’s electricity markets that would include the adoption of something akin to the PJM Ancillary Services Market in the U.S., a nodal structure and a three-part offer system in which balancing is one of the components.

So, can the energy planners and power industry players make the balancing system work?