To run or not to run: this is the dilemma facing Japan’s utilities as they weigh the future of their aging thermal power plants. With stricter environmental regulations and ambitious decarbonization targets, the once straightforward decision of whether to switch on more baseload generation has become far more complex.

Utilization rates at coal-fired power plants of major utilities, also known as EPCOs, have dropped below 60% from close to 80% in FY2018. And while the total installed capacity of coal stations has inched higher, and is unlikely to drop in the coming decade, how much the utilities rely on those units looks set to decline further.

EPCOs are now exploring seasonal shutdowns and reduced operations to stay within state-mandated emissions limits, a shift that underscores the changing economics of thermal power. From the coming fiscal year, there will also be a cap on the run rate of less-efficient coal-fired power plants.

Until a decade ago, Japan’s power generation landscape was dictated by straightforward calculations: forecast electricity demand, procure fuel, maintain plants, and pass on costs to consumers through regulated tariffs. However, the liberalization of Japan’s electricity market in 2016 ushered in a new era of cost competition, leading to the closure of many older and less efficient thermal power plants.

The introduction of state-mandated emissions targets has further complicated matters. Starting in fiscal year (FY) 2026, major emitters will face legal obligations to report their carbon footprints and demonstrate reductions. By the end of the decade, a carbon levy and mandatory emissions caps will require utilities either to cut emissions or to purchase offset credits. These policies are already reshaping operational strategies.