In some of Japan’s local power grids, developing renewable energy facilities has proved problematic with a lack of spare capacity often cited as the reason. To address the issue, a few years ago a new kind of “non-firm” contract was rolled out. It allowed new power assets to connect to the grid but limited their operations to times where there was spare capacity in the transmission system.
As such, owners of “non-firm” contracts were the first in line to have their operations curtailed in times of weak demand or oversupply.
Now, with the government looking to give renewables priority access to the grid, bumping thermal and other CO2-emitting sources down the priority order, the group of power facilities likely to benefit the most could be those with a “non-firm” contract. Once owners of an arrangement that offered only a partial operating schedule, developers and investors behind plants with a “non-firm” contract could now see material upside in the value of their assets.
The change could also have a significant impact on coal and gas-fired power plants in areas with a large volume of such contracts. The Tokyo power grid, in particular, may see a strong shakeup in run rates among various power plants.