[Column] Japan Battery Energy Storage System Investment Guide 2025 — Comprehensive Analysis of Market Opportunities, Revenue Strategies, Regulatory Environment, and Legal Practice

2025-11-122026-01-28

✅ Executive Summary

📈 Rapid Growth Market: Grid-scale battery connection applications surged sixfold year-on-year to 9,544 in FY2024. Japan is one of the fastest-growing markets, expecting 14.1 to 23.8 GWh of capacity by 2030.
💰 Diverse Revenue Models: Revenue secured from three markets: the Wholesale Electricity Market (arbitrage), the Supply-Demand Adjustment Market (frequency regulation), and the Capacity Market (securing capacity). A 20-year fixed income is also possible through the Long-Term Decarbonization Power Source Auction.
⚖️ Complex Regulatory Environment: Understanding Japan’s unique regulatory framework—grid interconnection, FIP/FIT schemes, and the Capacity Market—is key to investment success. Requires mandatory adherence to the latest measures, such as speculative capacity hoarding prevention and managing forward flow congestion.
🌏 International Investment Opportunity: Foreign ownership restrictions are limited, allowing overseas investors to enter with proper legal support. Bilingual capabilities and local practical experience are crucial for project realization.
⚠️ Operational Risk Management: Project success hinges on sophisticated legal handling of practical challenges, including the “phantom capacity” issue, fluctuations in construction cost contributions, and the linkage between land due diligence and grid connection.

Table of Contents

Part 1: Business Strategy & Market Analysis

Introduction – Why the Japanese Storage Market Now?

This report provides a comprehensive overview of investment in Japan’s grid-scale battery energy storage sector, covering both business strategy and legal practice.

Japan’s Energy Market at a Historic Turning Point

As of 2025, Japan’s energy market is undergoing a historic transformation.
The government aims to raise the renewable energy ratio to 36-38% by 2030. Achieving this ambitious goal requires the massive deployment of battery storage infrastructure to absorb the output fluctuations of solar and wind power.
A notable development is the dramatic expansion of electricity price volatility due to the large-scale integration of renewables.
While the average daily price spread was about ¥4 until around 2020, it has expanded to an average of ¥20 in 2024. This price volatility is the core revenue opportunity for the battery storage business.

Definition and Role of Grid-Scale Battery Energy Storage Systems (BESS)

The “Grid-scale Battery Energy Storage Systems” (BESS) discussed in this paper refer to large-scale battery facilities directly connected to the power grid, contributing to overall supply-demand adjustment and system stabilization.
Unlike residential batteries or EV batteries, BESS are broadly categorized into the following two models:

Transmission/Distribution System Operator (TSO/DSO) Side Model

A model directly connected to the grid of a General TSO/DSO, primarily aiming for trading in the wholesale electricity market and providing adjustment capacity to the system operator. This model seeks to maximize market revenue.

Customer Side Model (Co-located with Renewables)

A model co-located with solar or wind farms, primarily intended to avoid curtailment (output suppression) and reduce imbalance charges.
It contributes to the revenue stabilization of renewable energy operators.

Stable Business Model with Multiple Revenue Streams

The Japanese government positions batteries as a “strategic material” for achieving carbon neutrality by 2050, promoting strong policy support for both industry development and deployment.
As a result, a mechanism has been established for BESS projects to earn revenue from the following three main markets:

Wholesale Electricity Market (JEPX): Arbitrage trading—charging during cheap hours and discharging during expensive hours.
Supply-Demand Adjustment Market: Compensation for providing grid stabilization services, such as frequency regulation.
Capacity Market / Long-Term Decarbonization Power Source Auction: Fixed income for securing future supply capacity.

The ability to combine multiple revenue streams for a stable business model, beyond traditional arbitrage in the wholesale market, makes this an attractive investment for international investors.

Attractiveness and Challenges for Investors, Especially International Investors

The Japanese market is considered an attractive investment destination for investors, especially international ones, in the following aspects:

Policy Stability: Maturity of the legal system and predictability of policy as a developed nation.
High Technological Standard: Advanced technological base in battery technology and grid control.
Openness to Foreign Entry: Foreign ownership regulations are limited in the energy sector.
Project Finance Sophistication: Extensive track record of renewable energy finance by major financial institutions.

However, the following challenges also exist:

Regulatory Complexity: Different rules and participation requirements for each of the three markets.
Language and Business Practice Barriers: All procedures are conducted in Japanese.
Complicated Grid Interconnection: Long periods required from connection study to actual system integration.

Overcoming these challenges necessitates appropriate local partners and specialized legal support.
The following sections comprehensively analyze the market environment, revenue structure, regulatory framework, and practical legal issues essential for investment decisions.

Market Environment and Overview of Business Opportunities

Market Size and Growth Trends

Explosive Increase in Connection Applications

The number of grid-scale battery interconnection study applications reached 9,544 in FY2024, recording a phenomenal increase of approximately six times the previous fiscal year (1,599 applications) (METI Document).
This surge is underpinned by the following factors:

Expansion of the battery storage quota in the second Long-Term Decarbonization Power Source Auction (scheduled for January 2025).
Expansion of subsidy programs (METI SII, Tokyo Metropolitan Government, etc.).
Increased revenue opportunities due to expanded electricity price volatility.
Increase in speculative applications for the purpose of capacity hoarding.

As noted, this surge includes speculative moves to “secure connection rights for future resale.” METI is advancing regulatory enhancements starting from FY2025 to prevent such hoarding, including:

Setting limits on connection study applications (per operator, per area).
Increasing the security deposit.
Mandatory submission of a project implementation plan and proof of land title documents.

Deployment Targets and Market Potential

According to METI’s outlook, Japan’s domestic battery storage deployment target is set at 14.1 to 23.8 GWh by 2030, representing a significant expansion from the cumulative installed capacity as of 2023 (approx. 10,000 MWh).

The grid-scale BESS sector, in particular, is forecast to grow at an annual rate of 30-40% even beyond FY2025, making the next five years a critically important period for market formation.

Regional Market Characteristics and Investment Opportunities

Japan’s battery storage market exhibits significant regional variations, necessitating optimization of investment strategies based on local characteristics.
The following sections explain the characteristics by region.

Kyushu Area – The Largest Market Opportunity

Characteristics:

Solar power penetration rate is approximately double the national average.
Output curtailment is routine: Curtailment rate of 6.1% and a curtailed volume of 1.04 billion kWh in FY2024.
Daytime electricity prices frequently drop to ¥0.01/kWh.

Investment Opportunities:

Highest number of co-located projects with existing solar power operators.
Clear economic value from avoiding output curtailment.
Maximum arbitrage revenue due to the largest price spread between day and night.

Points of Note:

Severe grid congestion leads to long waiting periods for interconnection.
Non-firm connection (connection premised on output control) is becoming standard.

Hokkaido/Tohoku Area – High Synergy with Wind Power

Characteristics:

Abundant wind and solar resources.
Severe transmission capacity constraints (insufficient inter-regional link capacity to Honshu).
Grid reinforcement work can take a long time (5-10 years).

Investment Opportunities:

Co-location projects with large-scale wind farms.
System value from alleviating transmission congestion to Honshu.

Points of Note:

Risk of high construction cost contributions.
Measures required to address battery performance degradation in winter low-temperature environments.

Kanto/Kansai Area – Proximity to Demand Centers

Characteristics:

Major electricity demand centers.
Concentration of data centers, factories, and logistics facilities.
Some areas have relatively ample grid capacity.

Investment Opportunities:

Offsite batteries through direct PPA contracts with consumers (retailers/large end-users).
Demand for peak shifting and emergency Business Continuity Planning (BCP) response.
Response to increasing power demand driven by the surge in data centers.

Points of Note:

High land costs.
Strict regulations under the City Planning Act and Building Standards Act.

Key Players and Competitive Landscape

The following players have entered the Japanese battery storage market:

Trading Companies (Sogo Shosha)

Sumitomo Corporation: Announced an investment plan of approximately ¥200 billion.
Itochu Corporation: Developing battery storage projects in over 10 locations nationwide.
Marubeni: Aggressively bidding in the Long-Term Decarbonization Power Source Auction.

Utility-Affiliated Companies

Tokyo Electric Power Company (TEPCO) Group: Entered the large-scale BESS business through a subsidiary.
Kansai Electric Power (KEPCO) Group: Primarily focusing on co-located renewable energy projects.

Renewable Energy Developers

Existing solar and wind power operators are increasingly co-locating batteries to avoid output curtailment.

Foreign-Affiliated Companies

Tesla: Supply of Megapack and project participation.
BYD: Expanding market share with low-cost products.
South Korean Companies (Hanwha, LG Energy Solution, Samsung SDI, etc.): Significant presence in equipment supply.

Funds and Investors

Investment by infrastructure funds and private equity is accelerating.
Particular attention is being paid to the 20-year fixed income model offered by the Long-Term Decarbonization Power Source Auction.

Characteristics of the Competitive Environment:

“First-come, first-served” scenario due to delays in grid interconnection procedures.
Intense competition for suitable sites (land with available grid capacity).
Shortage of skilled personnel among EPC contractors and O&M service providers is becoming apparent.

Revenue Structure and Business Model Types

Understanding the revenue structure of the grid-scale BESS business is one of the most critical aspects of the investment decision.
Below is an analysis of the revenue from the three main markets and the three resulting business model types.

Overview of the Revenue Structure

Revenue for BESS projects is primarily derived from the following three markets:

① Revenue from the Wholesale Electricity Market (JEPX)

Revenue Source: Price spread (arbitrage) by charging (purchasing power) during cheap hours and discharging (selling power) during expensive hours.
Revenue Scale: Calculated by Daily Price Spread × Charge/Discharge Cycles × Capacity.
Volatility: High (fluctuates daily based on weather and supply-demand conditions).

② Revenue from the Supply-Demand Adjustment Market

Revenue Source: Compensation for providing frequency regulation and supply-demand balancing services to the system.
Two Revenue Components:
- Adjustment Capacity ($\Delta$kW): Payment for the ability to provide adjustment (capacity assurance fee).
- Energy (kWh): Payment for the actual energy corresponding to adjustment instructions.
Volatility: Medium (varies by product category and period).

③ Revenue from the Capacity Market / Long-Term Decarbonization Power Source Auction

Revenue Source: Payment for securing future supply capacity (kW) (four years in advance).
Revenue Feature: Price fixed four years in advance (Capacity Market), or fixed for 20 years (Long-Term Auction).
Volatility: Low to Medium (Capacity Market fluctuates annually, Long-Term Auction is fixed).

Cost Structure:

CAPEX: Battery unit, PCS (Power Conditioning System), BOS (Balance of System), grid interconnection construction costs, land acquisition costs.
OPEX: O&M costs, insurance premiums, land lease fees, system usage fees.
Power Procurement Cost: Cost of purchasing power for charging (Market Price × Charged Quantity).

Three Main Business Model Types

Investors can choose from the following three business models based on their risk tolerance and revenue targets:

① Full Merchant Model
② Long-Term Decarbonization Power Source Auction Model
③ Tolling Model

① Full Merchant Model – High Risk, High Return

Features:

Free trading in all three markets, pursuing maximum revenue through market price fluctuations.
No long-term fixed income; operational strategy is flexibly adjusted according to the market environment.

Revenue Structure:

Wholesale Electricity Market (40-60%), Supply-Demand Adjustment Market (30-50%), Capacity Market (10-20%).

Advantages:

Achieves high returns during favorable market price periods.
Highest degree of operational flexibility.

Disadvantages:

Significant revenue reduction if market prices decline.
Stricter financing conditions from financial institutions (high DSCR requirements).

Suitable Investors: High-risk-tolerance funds, trading companies, and utilities with market operation expertise.

② Long-Term Decarbonization Power Source Auction Model – 20 Years of Stable Revenue

Features:

Secures a 20-year fixed income by winning a bid in the Long-Term Decarbonization Power Source Auction.
In exchange, the operator is obliged to return 90% of the revenue earned in the markets to OCCTO.

Revenue Structure:

Fixed Income (Capacity Assurance Fee): Annual XX JPY/kW × 20 years.
10% of Market Revenue: 10% of the revenue from the Wholesale Electricity Market and Supply-Demand Adjustment Market.

Advantages:

Extremely high revenue predictability, facilitating project finance structuring.
Significantly mitigates market price fluctuation risk.

Disadvantages:

Upside potential is limited during high-price periods because 90% of market revenue is clawed back.
Requires a 20-year long-term commitment (early termination incurs penalties).

Suitable Investors: Infrastructure funds, pension funds, and other investors prioritizing long-term stable income.

③ Tolling Model – Fixed Fee for Revenue Certainty

Features:

Enters into a long-term tolling agreement with a power off-taker (e.g., electricity retailer).
The battery operation rights are entrusted to the off-taker in exchange for a fixed fee (tolling fee).

Revenue Structure:

Tolling Fee (Capacity × Fixed Rate).
Market risk is borne by the off-taker.

Advantages:

Revenue is completely fixed, resulting in zero market fluctuation risk.
Operation tasks can be outsourced to the off-taker.

Disadvantages:

Profitability may be low depending on the level of the tolling fee.
The investor is exposed to the off-taker’s credit risk.

Suitable Investors: Investors lacking operational expertise, those prioritizing revenue stability above all else.

Practical Considerations for Business Model Selection

In actual projects, the adoption of hybrid models of the three types above is increasing:

Long-Term Auction + Full Merchant: Part of the capacity is fixed through the Long-Term Auction, and the remainder is operated under the Full Merchant model.
Tolling + Long-Term Auction: After winning the Long-Term Auction, the operation rights are entrusted via a tolling agreement.

Investors must select the optimal business model based on their risk tolerance, operational capabilities, and financing strategy.

Comprehensive Guide to Revenue Markets and Regulatory Frameworks

The following sections detail the three main revenue markets for BESS projects, covering everything from regulatory design to practical considerations.
Accurate understanding of these market mechanisms is prerequisite for investment decisions and revenue forecasting.

Grid Interconnection System – The Gateway to the Project

Grid Access Process

In Japan, connecting power generation facilities or batteries to the electricity grid requires a contract with a General TSO/DSO (e.g., TEPCO Power Grid, Kansai Transmission and Distribution, and eight others).

Procedure Flow

Connection Study Application

Purpose: To evaluate technical connection feasibility and estimated construction costs.
Duration: 3 months for High Voltage, 6 months for Extra High Voltage.
Response Content: Connection feasibility, estimated construction costs, required equipment specifications.

Connection Contract Application

Purpose: Formal execution of the connection contract.
Security Deposit: Set according to connection capacity (tens of millions to hundreds of millions of JPY).
Duration: Typically 3-6 months after the response to the study.

Determination of Construction Cost Contribution

Determined after detailed design (note that this can fluctuate $\pm$20-30% from the estimate).
If grid reinforcement is required, cost allocation rules apply to other connected projects.

Execution of Connection Contract and Start of Construction

Construction completion takes 1-5 years (highly dependent on the scale of reinforcement work).

Key Points of Note for Foreign Investors are as follows:

All procedures are conducted in Japanese.
The connection study response is not legally binding (it is merely an “examination result”).
Technical standards are unique to Japan (JIS standards, etc.) and may differ from international norms.

Grid “Capacity Availability” and the “First-Come, First-Served Rule”

Japan’s grid interconnection operates under a First-Come, First-Served Rule, where connection rights are allocated in the order of connection study application acceptance.
Therefore, securing suitable sites with available grid capacity early on is the first step to project success.

Reality of “Capacity Availability”:

The “Capacity Availability Map” published on TSO/DSO websites is for reference only.
Actual connection feasibility is determined through individual connection studies (may differ from public information).
Even if capacity is available at the distribution line level, constraints may exist in the higher-level grid (substations, etc.).

Speculative Capacity Hoarding Prevention and Regulatory Strengthening

Following the surge in connection study applications in FY2024, METI is considering introducing the following measures to prevent speculative hoarding (METI Document).

Key Regulatory Enhancements:

Application Limit Setting: Upper limits on the number of applications per operator and per area.
Increased Security Deposit: Raised to 2-3 times the conventional amount (forfeited upon withdrawal).
Mandatory Submission of Business Plan: Submission of proof of land title, funding plan, and project schedule.
Strict Expiry Date: Restriction on reapplications after the expiry of the connection study response validity period (1 year).

These regulatory enhancements are expected to exclude speculative “hoarding” cases, but for investors genuinely aiming for commercialization, early, concrete business plan formulation and securing land title will become even more crucial.

Forward Flow (Charging) Grid Congestion Issue

A problem unique to BESS, forward flow (charging from the grid to the battery) grid congestion, is becoming apparent.
While conventional generation facilities only involve reverse flow (power transmission from the power plant to the grid), BESS requires bi-directional flow management on the distribution line because it consumes power during charging.

Mitigation Technology:

N-1 Charge Stop Device: Mandatory installation of a device that automatically stops charging in the event of a grid fault.
Non-Firm Connection: A system allowing early connection, premised on the possibility of charging being curtailed during grid congestion.

Impact on Investment Decision:

The potential for charging curtailment must be factored into revenue projections.
The cost of the N-1 device (several million JPY~) must be included in CAPEX.

Wholesale Electricity Market and Arbitrage Strategy

Mechanism of the JEPX Wholesale Electricity Market

The Japan Electric Power Exchange (JEPX) Spot Market trades electricity in 30-minute intervals (48 slots) for the following day.

Trading Features:

Blind Single-Price Auction System: Sellers and buyers submit prices, and transactions are executed at the price that balances supply and demand.
Price Formation: Prices are determined by the marginal cost (the most expensive power plant required to meet demand).
Price Limits: ¥0.01/kWh to ¥200/kWh (though ¥0.01 is the effective floor).

Arbitrage Trading Revenue Opportunities

The primary revenue source for BESS is arbitrage trading, which exploits the electricity price difference within a single day.

Source of Revenue Opportunity: Expanded Price Volatility Due to Mass Renewable Integration

Around 2020: Average daily price spread was approximately ¥4/kWh.
2024: Average daily price spread is approximately ¥20/kWh (occasionally exceeding ¥100/kWh).

This widening price spread is due to the following factors:

Surge in Solar Power: Oversupply during the day causes prices to fall (sometimes near zero).
Decrease in Thermal Power: Supply shortages during evening/night peak demand cause prices to spike.
Inelasticity of Demand: Electricity demand fluctuates by time of day but is difficult to adjust in the short term.

Basic Revenue Calculation Formula:

Daily Revenue = (Discharge Price - Charge Price) × Charged Quantity × Round-trip Efficiency - Transaction Costs

Example (Typical Summer Sunny Day):

Price at 12:00 PM: ¥2/kWh (Massive solar supply)
Price at 7:00 PM: ¥25/kWh (Evening demand peak)
Price Spread: ¥23/kWh
Charged Quantity: 10,000 kWh
Round-trip Efficiency: 85%
Daily Revenue: (25 – 2) × 10,000 × 0.85 = ¥195,500

Annual revenue is projected by factoring in seasonal fluctuations (large price spread in summer/winter, small in spring/fall) and market conditions.

Importance and Risks of Market Price Forecasting

Since arbitrage revenue is entirely dependent on market prices, long-term price forecasting is the most critical element of the investment decision.

Key Factors Influencing Price:

Renewable Energy Penetration: The more solar and wind power, the lower the daytime price.
Thermal Power Operation: Retirement/mothballing of LNG/coal-fired power tends to increase nighttime prices.
Nuclear Power Restarts: Increased baseload power may shrink price volatility.
Electricity Demand Fluctuation: Demand growth from data centers, etc., is a price-increasing factor.
Weather: Heatwaves/cold snaps cause price spikes; moderate weather leads to price stability.

Risk Factors:

Mass restarts of nuclear power plants could shrink price volatility.
Mass deployment of BESS itself will reduce the price spread (market maturity).
Changes in the price formation mechanism due to regulatory changes (market design review).

Investors must conduct price forecasting under multiple scenarios (optimistic, neutral, pessimistic) and perform stress tests.

Capacity Market and Long-Term Decarbonization Power Source Auction

Mechanism of the Capacity Market and BESS Positioning

The Capacity Market is a mechanism to secure electricity supply capacity (kW) four years in advance, with the first auction conducted in 2020.

System Objectives:

Prepare for future supply shortage risks.
Provide generation business operators with revenue predictability for investment recovery.

BESS Participation Requirements:

Capacity certified as supply capacity: Dischargeable kW × a certain evaluation coefficient.
The evaluation coefficient is set based on the battery’s state-of-charge maintenance capability (typically 0.8-1.0).

Contract Price Volatility Risk:
The contract price in the Capacity Market fluctuates significantly based on supply and demand:

FY2020 (First Auction): ¥14,137/kW
FY2021: ¥7,366/kW
FY2024: ¥11,500/kW (Historical high)

This magnitude of price fluctuation is a risk for business models solely dependent on the Capacity Market.

Details of the Long-Term Decarbonization Power Source Auction

The Long-Term Decarbonization Power Source Auction (OCCTO Website) is an innovative system that guarantees 20 years of fixed income for BESS projects.

System Overview:

Target: New investments in decarbonization power sources such as BESS, renewables, and nuclear.
Contract Period: 20 Years.
Income: Determined by the auction bid.

90% Market Revenue Clawback Obligation:
BESS projects that win a bid are obliged to return 90% of the revenue earned in the Wholesale Electricity Market and Supply-Demand Adjustment Market to OCCTO.
This means only 10% of market revenue can be enjoyed as additional income.

Revenue Structure Concept:

Annual Income = Fixed Income (Auction Award Amount) + Market Revenue × 10%

Contract Results (FY2024 Second Auction):

Battery Allocation: 1.37 GW (1,370 MW)
Number of Winning Bids: 27
Winning Prices: Not disclosed (bid data managed by the Oversight Committee)

Compared with the first round of the Long-Term Decarbonization Power Source Auction in FY2023, the number of bids increased, while clearing prices declined, indicating intensified competition.

Capacity Market vs. Long-Term Decarbonization Auction — Which Should Investors Choose?

Investors must decide whether to participate in the Capacity Market, the Long-Term Decarbonization Power Source Auction, or pursue a fully merchant operation.

Criteria for Selection:

Criteria	Capacity Market	Long-Term Decarbonization Power Source Auction
Contract term	1 year	20 years
Revenue stability	Low (price varies annually)	High (fixed for 20 years)
Share of market revenue retained	100 %	10 % only (90 % refunded to OCCTO)
Upside potential	Large (when prices surge)	Limited
Downside protection	None (revenue falls when prices drop)	High (fixed income)
Financing	Difficult	Easy (bankable)

Recommended approach:

Conservative investors (infrastructure funds, pension funds): Long-Term Auction
Higher-risk investors (trading houses, power utilities): Capacity Market or Full Merchant
Hybrid model: Fix part of capacity in the Long-Term Auction, operate the rest merchant

Balancing Market — Mechanism and Revenue Opportunities

Overview of the Balancing Market

The balancing market is operated by general transmission and distribution utilities (TDUs) to procure balancing capacity for frequency control and supply-demand adjustment.

Two components of balancing value:

ΔkW (Delta-kilowatt): Payment for capacity available to adjust (capacity reservation fee)
kWh (kilowatt-hour): Payment for actual energy delivered in response to dispatch instructions

Because batteries can both charge (up-regulation) and discharge (down-regulation), they are highly valued in this market.

Five Product Categories and Battery Suitability

The balancing market has five categories based on required response speed and duration:

Product Category	Response Time	Duration	Battery Suitability
Primary Control ①	≤ 10 seconds	Continuous	◎ (ideal)
Primary Control ②	≤ 5 seconds	Continuous	◎ (ideal)
Secondary Control ①	≤ 5 minutes	Continuous	○ (suitable)
Secondary Control ②	≤ 5 minutes	Continuous	○ (suitable)
Tertiary Control ①	≤ 15 minutes	Continuous	△ (depends on capacity)
Tertiary Control ②	≤ 45 minutes	Continuous	△ (depends on capacity)

Thanks to their millisecond-level response, batteries are best suited for Primary Control ① and ②.

Revenue formula:

Monthly revenue = (ΔkW price × available capacity) + (kWh price × actual dispatched energy)

Current Issues — Limited Procurement and Price Suppression

Currently, the following challenges exist in the supply-demand adjustment market.

The balancing market faces several challenges:

Insufficient procurement volumes:

The total balancing capacity procured by TDUs is reportedly below the system’s actual needs
which may be artificially suppressing prices.

Procurement Deduction” (clawback mechanism)

Capacity already secured in the Capacity Market is deducted from the balancing market’s procurement volumes
further reducing demand and putting downward pressure on prices.

These issues are under discussion in government councils, and future reform is expected. For now, balancing market revenues should be estimated conservatively in financial models.

Working with Aggregators

While batteries can technically participate directly in the balancing market, in practice participation is usually through an aggregator (a licensed entity that aggregates multiple resources and bids into the market).

Advantages of using an aggregator:

Handles market transactions (bidding, real-time balancing management)
Aggregates multiple batteries to ensure stable and reliable capacity
Supports compliance with technical requirements

Key terms to negotiate in aggregator contracts:

Revenue split: typically 70:30 – 80:20 (major share to battery owner)
Operational authority: define to what extent the aggregator may control charging/discharging
Penaltiy allocation: clarify liability for imbalance or failure to follow dispatch instructions

FIT/FIP Schemes for Co-Located Renewable + Storage Project

System Overview

When installing batteries alongside renewable generation, it’s essential to understand the interaction with Japan’s FIT (Feed-in Tariff) and FIP (Feed-in Premium) schemes.

FIT: Fixed-price purchase for 20 years (since 2012).
FIP: Market-based price + premium (since 2022).

Standalone batteries:
Not eligible for either scheme.

Requirements for Co-Located Renewables

To maintain FIT/FIP eligibility while adding storage, projects must meet strict conditions.

Charging source limitation: Batteries may be charged only by the associated renewable generator (no grid charging).
Purpose restriction: Discharging allowed only to prevent curtailment (no market trading).
Measurement and recording: All charging/discharging volumes must be metered and recorded accurately.

These conditions greatly restrict operational flexibility.
However, co-located batteries help renewable operators avoid curtailment and maximize FIT/FIP revenues.

Investment decision factors:

Accept operational limits for stable FIT/FIP income, or
Forego FIT/FIP and pursue grid-connected merchant operation.

The decision depends on regional curtailment frequency, FIT/FIP tariff levels, and market price forecasts.

Government Subsidy Programs

Key Subsidies Supporting Battery Deployment

National and local governments provide financial incentives for battery adoption.
Major programs include:

① METI–SII Subsidy Program

Formal name: “Subsidy Program for the Introduction of Stationary Battery Systems”
Eligible projects: Commercial/industrial batteries, grid-scale systems
Subsidy rate: Up to 1/3 of equipment + construction costs (with caps)
Requirement: Unit cost must fall below specified benchmarks

② Tokyo Metropolitan Government Subsidy

Eligible projects: Batteries installed within Tokyo
Subsidy rate: According to metropolitan standards
Feature: May require the use of 100 % renewable electricity

③ Ministry of the Environment Subsidy

Eligible projects: Batteries contributing to decarbonization
Subsidy rate: 1/2 – 2/3 depending on project type

Application Trends

Recent subsidy application trends show diversification of applicants:

Shift in applicant profile:

Previously: Mainly solar power developers
Recently: Power retailers, end users (factories, data centers), renewable developers

Drivers:

Power retailers: Need balancing capacity, BCP preparedness
End users: Cost reduction, decarbonization goals
Renewable developers: Avoid curtailment, adapt to FIP scheme

Practical notes:

Even after approval, time to disbursement can be long → manage cash flow carefully.
Repayment obligations apply if the project is discontinued within a set period.
Subsidized assets may be eligible for accelerated depreciation (tax benefit).

Part II: Development Practice & Legal Strategy

Practical Steps for Project Development

The success of a battery storage project hinges on how precisely you manage the interlock between grid connection and site acquisition in the earliest development phase. Below are concrete development steps drawn from practice and lessons learned from frequent failure cases.

The Interlock Between “Grid Connection” and “Land” That Determines Success

Why the Interlock Matters

The biggest challenge many investors face in developing battery projects is synchronizing the timing of the grid connection process and land acquisition.

Typical dilemma:

Scenario	Risk
Secure land first	Later discovery of no grid capacity → connection impossible → land costs wasted
Secure grid first	Fail to secure land within the 1-year validity of the connection study result → loss of connection rights

Solving this dilemma requires high-level project management to advance both tracks in parallel.

The Reality of the “First-Come, First-Served” Grid Rule

Japan’s interconnection regime allocates connection rights in the order that connection study applications are received.

How the rule is actually run:

Timestamping: Application receipt time is recorded to the second; strict first-come ordering is enforced.
Multiple applications at one point: If several apply to the same point, the earliest filer has priority.
Waitlist: If a leading project withdraws, rights move to the next in line.

Practical implications:

“Available capacity” changes by the minute (it can be pre-empted by others).
Utility “available capacity maps” online are reference only; true feasibility is known only through an individual study.
Even if a distribution feeder shows spare capacity, upper-level system constraints (substation, backbone transmission) may block interconnection.

Advice for foreign investors:
Capacity information is published only in Japanese on utility websites. English materials are limited, so leveraging local partners or a Japanese law firm to obtain and interpret information is essential.

Best Timing to Secure Land Rights

Recommended practical flow:

[Phase 1: Early Scoping] (1–2 months)
├ select 3–5 candidate sites.
├ Informally check available capacity (enquiry to the T&D utility).
└Make initial contact with landowners (sign an NDA).

[Phase 2: File Connection Study] (in parallel)
├ File a connection study for the top candidate (fee: ≈ JPY 200,000).
└ Execute a land purchase reservation or option agreement with the landowner
(condition: proceed to definitive contract only if the study returns “connectable”).

[Phase 3: Connection Study Period] (3–6 months)
├ Utility conducts technical assessment.
├ In parallel, run land due diligence (title, permitting risks).
└ Receive the connection study response.

[Phase 4: Go/No-Go]
├ If connectable: Sign the definitive land purchase + file connection application.
└ If not connectable: Terminate the reservation/option (minimize compensation to landowner).

Why an Option Agreement Matters:

Conclude an option (purchase reservation) agreement with the landowner to manage risk.

Option fee: Typically 5–10 % of land price; right to purchase within 6–12 months.
Investor benefit: If connection proves impossible, you do not proceed to the definitive contract; loss is limited to the option fee.
Landowner benefit: Receives option fee and a credible prospect of sale within the period.

Notes for foreign investors:

Options are not explicitly codified in Japan’s Civil Code; define them clearly in the contract.
Even if you prefer English, governing law is typically Japan with Japanese as the controlling language.
For farmland, no Agricultural Land Act permission is needed at the option stage (permission is needed at definitive purchase).

Practical Measures Against “Capacity Hoarding”

As noted, the 2024 surge in connection study filings includes many speculative hoarding cases. To distinguish a genuine project:

Show credibility through concrete actions:

Submit a detailed business plan voluntarily with the connection study.
Attach proof of land rights (purchase reservation or landowner consent letter).
Disclose financing plan (sponsor financials, lender commitment letters).
Engage the locality: Keep records of pre-briefings to municipalities and residents.

These steps demonstrate serious intent and may help raise the priority of your study.

Practical Know-How for Site Acquisition

What Makes a Site Suitable

蓄電池事業に適した用地は、以下の条件を満たす必要があります。

Must-haves:

Proximity to the grid: Near substation/feeder (to control interconnection costs).
Adequate area: For ~10 MWh, about 1,000–2,000 m².
Flat topography: To limit civil costs.
Access roads: Width ≥ 4 m for container transport.Preferable:
Zoning: Industrial or quasi-industrial (lower opposition risk).
Low disaster risk: Outside flood/landslide hazard zones.
Existing utilities: Water/sewer, communications.

How to Find Sites:

①Broker networks

Provide conditions to local real estate brokers; collect listings.
Brokerage fee guideline: 3% of price + JPY 60,000 + VAT (per Real Estate Brokerage Act).

②Public land

Idle municipal land (closed schools, unsold industrial park lots).
Acquire via public tender or sign a long-term ground lease.

③Farmland conversion

If not prime farmland, Type-2/Type-3 may be convertible
pre-consult with the Agricultural Committee is essential.

④Former PV sites

Convert post-FIT PV sites to storage.
If already interconnected, you may inherit interconnection rights.

⑤Direct approach to owners

Identify owners via the registry and negotiate directly.
If many owners (co-owned or intestate), negotiations are complex.

Notes for foreign investors:
Japan generally has no foreign ownership restriction for land, but certain areas (remote islands, defense zones) require prior filings under the Foreign Exchange and Foreign Trade Act (FEFTA).
FEFTA prior/after filings are often overlooked—pay attention.
Direct acquisition by a foreign corporation can take longer at the registry; most form a Japanese SPC to acquire.

Legal Due Diligence on Land Rights

This section explains the key items to check in legal due diligence that should be conducted prior to land acquisition.

■Registry Review (Real Property Registry)

Confirm:

Ownership: Current owner matches the seller.
Co-ownership: All co-owners must consent.
Mortgages: Check for liens; confirm redemption at closing (seller’s solvency).

Verify whether it can be discharged upon settlement (seller’s debt repayment capacity)

Surface/lease rights: Any third-party use rights?
Easements: Any burdens benefiting neighbors?
Seizure/attachment: Any tax liens or attachments?

Typical pitfalls from practice:

Unsettled inheritance: Registered owner deceased; obtaining consent from all heirs took months.
Co-ownership: A co-owner lived abroad and could not be reached; sale stalled.

■On-Site Inspection

Verify items not evident from the registry:

Boundary markers: Are boundaries physically staked?

If unclear: require survey/boundary confirmation (cost JPY 1–3M, 3–6 months).

Actual use vs. registered land category (farmland/residential, etc.).
Encroachments: Neighboring buildings/trees crossing the boundary.
Buried objects: Industrial waste, old foundations.
Road access: Public vs. private road; sufficient width?

■Government Office Checks

At the city’s Urban Planning, Agricultural Committee, Building Control, etc., confirm:

Zoning: Whether storage is allowed in industrial/quasi-industrial zones.
Coverage/FAR: If the containerized BESS is treated as a building, limitations may apply.
Agricultural Land category: Feasibility of conversion (Type-1/2/3).
Development permit: Required above certain sizes.
Disaster risks: Flood/landslide hazard maps.
Cultural assets: Whether archaeological investigation is needed.

Notes for foreign investors:
All office interactions are in Japanese; retain a gyoseishoshi (administrative scrivener) or law firm.
Practices vary widely by municipality; local experience matters.

Farmland Conversion — Risks and Practice

Many suitable BESS sites are on farmland; conversion approval is often the biggest hurdle.

■Agricultural Land Act — Basic Structure

Farmland is divided by productivity; conversion difficulty differs:

Category	Definition	Conversion
Type-1	High-quality farmland (e.g., contiguous 10+ ha)	In principle not permitted
Type-2	Peri-urban farmland	Permitted only if no alternatives
Type-3	Farmland within urban areas	Permitted in principle

Practical Approval Process:

We generally follow these four steps.

[Step 1: Pre-consultation with Agricultural Committee] (1–3 months)
├ Confirm land category.
├ Explain purpose (argue public interest of BESS).
└ Obtain list of required documents.

[Step 2: Prepare application] (1–2 months)
├ Business plan.
├ financing plan.
├ Site use plan drawing.
├ Neighbor consents.
└ Local environmental impact explanation.

[Step 3: Review by Agricultural Committee] (2–4 months)
├ Deliberation at Committee general meeting.
├ Opinion forwarded to Prefectural Governor.
└ Governor decides approval/denial.

[Step 4: Post-approval] (≈1 month)
├ File conversion completion notice.
└ Change registered land category (farmland → miscellaneous land).

Total: ~5–10 months

Typical denial cases:

Type-1 farmland: Area used cohesively for agriculture.
Alternative sites: If officials deem other suitable sites exist.
Feasibility doubts: Weak funding or business plans.
Local opposition: Strong objections from neighboring farmers/community.

Advice for foreign investors:

No explicit statutory ban on foreign entities owning farmland, but in practice use a Japanese entity because:

Committees are cautious toward foreign corporations.
All documents are in Japanese, requiring translations of charters/financials.
Post-approval reports (construction progress, completion) can be burdensome.

Other Regulatory Risks — Forest Act, Urban Planning Act, Building Standards Act

In addition to agricultural land, various legal regulations apply to battery storage sites.

■Forest Act

Scope: Development in designated private forests.

Permit:

Forest land development permit (Prefectural Governor).
If >1 ha: EIA may be required.

Timeline: 6–12 months.

Notes:

Possible compensation talks with forest cooperatives
logging disposal can be costly (millions of yen).

■Urban Planning Act

Scope: Development over certain sizes within urban planning areas.

Permits:

In urbanized areas: permit required over 1,000 m².
In urbanization control areas: development is restricted; exceptions exist.

Review focuses on:

Roads/drainage public facilities
disaster prevention (retaining walls, drains)
stakeholder consents.

Timeline: 3–6 months.

■Building Standards Act

Whether a BESS container is treated as a “building” determines the need for a building confirmation.

Building test:

Fixed to a concrete foundation: more likely a building.
Local discretion: Judgments vary by municipality; early confirmation is essential.

If deemed a building:

Building confirmation required (via private agency or municipality)
structural calcs, Fire Service Act compliance, etc.
Timeline: 1–3 months.

Practical stance:
Many design to avoid being a building (minimal foundation, movable structure), but some municipalities judge strictly—confirm early.

Lessons from Failure Cases

We will introduce actual failure cases that occurred in real projects and explain countermeasures.

Case 1 : Misjudging Interconnection

Facts:

Investor bought land after a capacity map showed “spare.”
The study then found substation-level constraint;
grid reinforcement estimated at JPY 500M;project uneconomic;
land turned into a stranded asset.

Lesson:

Public maps reflect feeder-level only, not upper-tier constraints.
Before acquiring land, you must submit a connection feasibility application and obtain an estimate of construction costs.

Mitigation:

File the connection study first (paid, ~JPY 200k).
Use option contracts for land; execute definitive purchase after a favorable study result.

Case 2 : Farmland Conversion Denied

Facts:

Investor assumed Type-2
the Committee ruled Type-1; denial
project canceled
forced to sell as farmland at a loss.

Lesson:

Category is ultimately the Committee’s judgment, not the registry.
Prior to acquiring land, you must conduct preliminary discussions with the Agricultural Committee.

Mitigation:

Pre-consult the Committee before acquiring land. Add a condition precedent: “Sale closes only if conversion permit is granted.”
Keep earnest money minimal until approval.

Case 3 : Boundary Dispute Delays Works

Facts:

After purchase, a neighbor challenged the boundary
demanded survey
6 months to fix; missed the Long-Term
Auction COD deadline; penalty incurred.

Lesson:

Confirm boundaries beforehand (boundary confirmation map; neighbor confirmation letters).
In cases where boundaries are unclear, include a special clause in the contract requiring the seller to bear the cost of conducting a survey and establishing the boundaries.

Mitigation:

Include seller’s boundary-fixing obligation in the SPA.
Provide termination/right to liquidated damages if boundary cannot be fixed.

Case 4 : Community Opposition

Facts:

Site near housing.
Just before works, residents opposed citing fire risk and visual impact
city requested delay pending “community understanding”
briefings failed
project canceled; land sold at a loss.

Lesson:

Even if technically/legal compliant, social acceptance risk is high near residences.
Prior explanations to local residents should be provided even if there is no legal obligation to do so.

Mitigation:

Ensure setback distance (≥ 200 m) from housing at site selection.
Start municipality/community briefings early.
Offer local benefits (disaster cooperation agreements, local hiring).

Case 5 : Discovery of Soil Contamination

Facts:

Former factory site. During foundation works,
lead/arsenic detected
cleanup under the Soil Contamination Countermeasures Act cost ~JPY 50M;
economics deteriorated.

Lesson:

Former factories/gas stations have elevated contamination risk.
A soil contamination survey (Phase 1 survey: historical investigation, Phase 2 survey: boring survey) should be conducted prior to land acquisition.

Mitigation:

Conduct Phase-I (historical) and Phase-II (boring) investigations before purchase.
In the SPA, clearly allocate seller’s non-conformity liability for contamination;
require seller to bear investigation costs or price-adjust for those costs.

Negotiation Strategies and Risk Allocation for Key Contracts

Battery storage projects require entering into a wide range of agreements with multiple counterparties. Below is a practical explanation of negotiation points, risk-sharing concepts, and clauses that foreign investors should pay particular attention to for each contract type.

Land-Related Agreements in Practice

Key Clauses in a Land Sale and Purchase Agreement (SPA)

A land SPA is the most critical agreement forming the foundation of the project.

■ Price Clause

How prices are set in practice:

Appraisal basis: Use the appraised value determined by a licensed real estate appraiser.
Comparable transactions: Refer to nearby transaction cases (price per tsubo).
Fixed asset tax valuation: Often set at about 1.2–1.5× the fixed-asset tax valuation.

Negotiation points for price:

Cite interconnection uncertainty to moderate price (explain there is a possibility of no project if the connection study is unfavorable).
Propose staged payments (e.g., 10% at signing, 90% at closing) instead of a single lump-sum.
Attach conditions precedent (e.g., farmland conversion approval) and secure return of the deposit if conditions are unmet.

■ Conditions Precedent / Termination Conditions

For BESS projects, it’s advisable to include the following conditions precedent.

Article ○ (Conditions Precedent)
This Agreement shall become effective only if all of the following conditions are satisfied:
(1) The buyer has received a connection study response from the general T&D utility and determined that interconnection is feasible.
(2) The buyer has obtained farmland conversion approval (or development permit, as applicable).
(3) The project has won a bid in the Long-Term Decarbonized Power Source Auction (or the Capacity Market).

■ Representations and Warranties

Have the seller represent and warrant the following:

Title integrity: Full ownership of the land with no third-party encumbrances.
Boundaries fixed: Boundaries with adjacent parcels are settled.
Legal compliance: No violations of relevant laws (Building Standards Act, Urban Planning Act, etc.).
Environmental matters: No soil contamination, underground obstructions, asbestos, or similar issues.
No disputes: No lawsuits or disputes related to the land.

Remedies for breach:

Termination right + damages
Right to cure non-conformity (e.g., soil remediation)

■ Non-Conformity Liability

(Following the 2020 Civil Code reform, “latent defect liability” was replaced with “contract non-conformity liability.”)

Practical sample clause:

Article ○ (Contract Non-Conformity Liability)
１．If non-conformity with contract specifications is discovered after delivery, the buyer may demand cure by setting a reasonable period.
2．If such non-conformity is material and cure is impossible or unreasonably costly, the buyer may terminate this Agreement and claim a refund of amounts paid and damages.
3．The liability under this Article may be pursued only within two (2) years from delivery.

Negotiating the liability period

Seller: prefers short (6–12 months)
Buyer: prefers long (2–5 years)
Typical compromise: 1–2 years

Notes for foreign investors:
Japanese land SPAs differ structurally from standard English-language agreements.

Earnest money (deposit) is customary (≈ 10% at signing).
Earnest-money termination: Within a set period, the buyer may terminate by forfeiting the deposit; the seller may terminate by paying double the deposit.
If an English translation is prepared, include a “controlling language clause” stating that Japanese prevails.

Land Lease (Ground Lease) Agreements

If leasing rather than purchasing the land, consider the following points.

■ Term and Renewal

BESS projects assume 20+ years of operation; the ground lease must also be long-term.

Japanese law options:

Ordinary leasehold (Leasehold and Tenancy Act): 30+ years, renewable.
Fixed-term leasehold (same Act): 50+ years, no renewal, limited to building ownership purposes.
Civil Code lease: Up to 50 years, renewable.

BESS is not a “building”; strictly speaking the Leasehold and Tenancy Act does not apply. In practice, however, parties often model terms on that Act.

Recommended terms:

Initial term: 20–30 years
Renewal: Renewable by mutual agreement (with “just cause” required to refuse renewal).

■ Rent and Adjustments

Rent level benchmark:

Roughly 2–4%/yr of land price.
Example: If land price = JPY 100 million, annual rent ≈ JPY 2–4 million.

Sample rent-adjustment clause:

Article ○ (Rent Revision)
1．Rent shall be reviewed every three (3) years through discussion between the parties, considering changes in public charges, neighborhood rent levels, and inflation.
2．If discussion fails, either party may petition for mediation or bring an action for rent increase/decrease.

■ Early Termination and Liquidated Damages

Restrictive clauses on unilateral termination by the landowner are critical:

Article ○ (Restrictions on Early Termination)
1．The lessor shall not terminate this Agreement during the term except in the following cases:
　(1) The lessee is in arrears for three (3) months or more;
　(2) The lessee commits a material breach of this Agreement.
2．If the lessor terminates in violation of the preceding paragraph, the lessor shall pay the lessee liquidated damages equal to the rent for the remaining term.

■ Limiting Restoration Obligations

The following provisions are often established regarding restoration to original condition after the termination of the storage battery business.

Article ○ (Restoration)
1．Upon termination, the lessee shall remove the BESS equipment and restore the land to its original condition; normal wear and tear is excluded.
2．If the lessor so requests, the lessee may leave the BESS equipment in place, in which case the lessee is released from restoration.

In practice, some landowners prefer equipment left for re-leasing to another operator, so keep the clause flexible.

Battery Supply Agreement (BSA)

A supply contract with the battery manufacturer (or the EPC contractor) for the BESS units.

Features in Practice

Counterparty structures:

Pattern 1: Purchaser ⇔ Battery manufacturer (direct)
Pattern 2: Purchaser ⇔ EPC contractor ⇔ Battery manufacturer (subcontract chain)

When using foreign batteries (CATL, Tesla, BYD, Korean makers, etc.), Pattern 2 is common.

Negotiation Points on Performance Guarantees

■ Guaranteed Performance Parameters

The following performance metrics shall have their guaranteed values clearly specified as outlined below.

Energy capacity (kWh): ≥ 95% of nameplate.
Power (kW): ≥ 95% of nameplate.
Round-trip efficiency: ≥ 85%.
Response time: Millisecond-level response suitable for frequency control.
Cycle life:≥ 80% of initial capacity after ~6,000 cycles.

■ Warranty Term and Cycle Count

Define by both period and cycles.

Article ○ (Performance Warranty)
The supplier warrants that, until the earlier of ten (10) years from delivery or 6,000 cycles, the BESS meets.
(1) ≥ 80% of initial capacity;
(2) ≥ 95% of nameplate power.

Negotiation dynamics:

Manufacturer: shorter term, fewer cycles.
Purchaser: longer term, more cycles.
Typical compromise: 10 years / 6,000 cycles.

■ Remedies for Underperformance

If actual performance falls below guaranteed values.

Repair free of charge;
Replacement of modules/units if repair is infeasible;
Damages if performance cannot be restored even after repair/replacement;
Price reduction corresponding to shortfall.

Practical issue:
Lost-profit calculations are difficult; many contracts limit remedies to repair/replacement and cap damages at (up to) the contract price.

Transfer of Title and Risk

■ Title Transfer Timing

For international trade, follow Incoterms.

FOB: Title passes at loading at export port.
CIF: Same (loading), with freight/insurance included.
DDP: Title passes at named place in Japan upon delivery.

For domestic deals, parties commonly choose one of.

Ex-works (factory dispatch)
On-site delivery
Upon acceptance (after inspection)

Recommended (take title after quality is verified)

■ Risk of Loss

Allocate who bears loss during transport/installation.

Article ○ (Risk of Loss)
1．Risk of loss or damage to the BESS passes from supplier to purchaser upon acceptance.
2．Loss or damage before acceptance is borne by the supplier, who must provide replacements.
3．Notwithstanding the foregoing, loss/damage attributable to the purchaser’s fault is borne by the purchaser.

Insurance coverage will also be provided in the following manner.

In transit: Supplier places cargo insurance.
Post-delivery / pre-acceptance: Supplier or purchaser places construction all-risk insurance.
Post-acceptance: Purchaser places property insurance.

Managing Interfaces in EPC Contracts

Because multiple contractors/vendors are involved, it is crucial to clarify interface responsibility.

Typical Interface Problems (Examples)

In EPC contracts, where multiple contractors and suppliers are involved, clearly defining the interfaces is of utmost importance.

Typical Interface Issues

■Specific examples of the problem

Caution is required as the following “gaps in responsibility” are likely to occur.

■BESS–PCS connection faults

BESS maker: “Problem is on the PCS side.”
PCS maker: “Problem is on the BESS side.”
Result: Root cause unresolved; COD delayed.

■Grid intertie equipment vs. PCS mismatch

Grid works contractor: “PCS settings are wrong.”
PCS maker: “Grid specs are unclear.”

■Civil works vs. electrical works boundaries

Civil contractor: “Foundations are done; cabling is electrical.”
Electrical contractor: “Conduit should have been prepared by civil.”

Practical Interface Management

■Responsibility Matrix

Attach a Responsibility Matrix as an exhibit to the EPC contract, clarifying responsibilities by task and system:

Item	Battery Maker	PCS Maker	Civil	Electrical	Responsible Party
BESS unit supply	●	–	–	–	Company A
PCS supply	–	●	–	–	Company B
BESS–PCS hookup	△	●	–	–	Company B
Foundations	–	–	●	–	Company C
Cabling	–	–	△	●	Company D
Grid intertie works	–	–	–	●	Company D
Integrated testing	○	○	–	○	EPC Prime

Legend: ● Primary responsibility / △ Cooperation / ○ Witness

■Regular Interface Meetings

Hold monthly meetings during construction to.

Review progress by workstream;
Share interface issues/risks;
Communicate change directives/spec changes;
Confirm the following month’s plan.

■Emphasize Integrated Testing

Beyond subsystem FAT, conduct SAT for the integrated plant.

Key items of the integration test:

Charge/discharge functional tests;
Intertie protection operation checks;
SCADA communications tests;
E-stop testing;
Load tests (continuous operation at rated output).

Make successful SAT the milestone for completion and handover, reducing interface-gap risk.

Structuring the Aggregation Agreement

Contracts with aggregators—who optimize BESS operations and participate in balancing markets on your behalf—are key to maximizing revenues.

Confirm Operating Policy Upfront

■Operational Discretion

Define the scope of charging/discharging dispatch rights granted to the aggregator.

Pattern 1: Fully outsourced

Aggregator determines all dispatch
owner does not intervene
revenue maximization is fully entrusted

Pattern 2: Consultative

Owner decides major policies (which markets to join, etc.)
aggregator issues daily dispatch commands.

Pattern 3: Hybrid

A portion of capacity (e.g., 50%) is delegated to the aggregator
the rest is owner-operated.

Given Japan’s market complexity, fully outsourced is often realistic for foreign investors; but selection of the aggregator (credit, track record, tech capability) is critical.

Fees and Risk Sharing

■Fee Models

The following models are commonly used for remuneration under aggregation agreements.

Model 1: Fixed fee (tolling-like)

Monthly fee = Energy capacity (kWh) × fixed unit price (JPY/kWh/month)

Pros: stable revenue
Cons: no upside participation

Model 2: Success-based (revenue share)

Aggregator fee = Market revenue × share (20–30%)

Pros: incentives align in high-revenue periods
Cons: owner’s take falls if revenues drop

Model 3: Hybrid

Revenue = Base fee + success fee (a share of market revenue).

Most common in practice.

Negotiating the split:

Aggregator: 30–40%
Owner: keep to 20–30%
Typical compromise: 25–30%

5 Penalty Allocation Clause

If the unit fails to follow balancing commands, penalties (imbalance charges) may apply. Allocation of these is a key negotiation point.

■Allocation of Responsibility

Article ○ (Penalty Allocation)
1．If failure is due to the aggregator’s fault (system failure, dispatch error, etc.), the aggregator bears the penalty.
2．If failure is due to BESS equipment failure, the owner bears the penalty.
3．If failure is due to force majeure (natural disasters, grid-side faults), the owner bears the penalty.

Insurance use:
Consider covering equipment-failure penalties via O&M or insurance policies.

O&M Agreement and Risk Allocation

Availability Guarantee

Require the O&M contractor to guarantee a minimum uptime.

Article ○ (Availability Guarantee)
1．The O&M contractor shall operate and maintain the BESS to achieve an annual availability of 95% or higher.
2．If availability falls below 95%, the O&M contractor shall compensate as follows:
Compensation = Annual O&M fee × (95% − actual availability) × 10

Define availability explicitly

Availability (%) = (Total hours − Downtime) / Total hours × 100

※Exclude from “Downtime”
– Planned outages under owner instructions
– Grid-side incidents
– Force majeure

Degradation Management

Because BESS degrades over time, clarify responsibility:

Article ○ (Performance Degradation)
1．If capacity drops below 80% of initial capacity, the owner may demand replacement under the manufacturer’s warranty.
2．If degradation is caused by improper O&M operation/management, the O&M contractor shall indemnify the owner.

Detailed Analysis of Market Price Risk

Practical Price Scenario Analysis

Investment decisions require stress-testing across multiple market scenarios.

■Three scenarios

Upside case:

Assumptions: accelerated renewables, slow nuclear restarts, thermal fade-out
Price volatility: ≥ JPY 25/kWh/day
Annual return: 12–15% of initial capex

Base case:

Assumptions: current trends continue; partial nuclear restarts
Volatility: JPY 15–20/kWh/day
Annual return: 8–10%

Downside case:

Assumptions: large-scale nuclear restarts; heavy BESS buildout compresses spreads
Volatility: JPY 8–10/kWh/day
Annual return: 4–6%

Sensitivity analysis
Compute IRR, NPV, and payback for each scenario to support investment decisions.

Future Business Environment Shifts

■ Rising Data-Center Demand

With AI/DX, data-center power demand is soaring.

2024 (Japan): ~2,000 MW
2030 forecast: ~5,000 MW (2.5×)

Data centers need stable 24/7 power, likely lifting nighttime prices, expanding BESS revenue opportunities.

■ Thermal Generation Fade-Out

Carbon-neutral policy drives retirement—especially coal:

2020 coal: ~48 GW
2030 forecast: ~20 GW (sharp reduction)

As thermal capacity—key for balancing—shrinks:

Evening/night supply tightness → price spikes
Balancing market shortfalls → higher value for BESS

■ Prospective “kWh + ΔkW” Simultaneous Market

Today, wholesale (kWh) and balancing (ΔkW) markets are separate; discussions are underway to integrate them into a simultaneous market (per Agency for Natural Resources and Energy materials).

Concept:

Trade energy (kWh) and flexibility (ΔkW) together.
Participants bid both simultaneously.
More efficient price formation.

Implications for BESS:

Simplifies complex market transactions; lower transaction costs.
Aggregator role grows in importance.
Greater transparency → more accurate revenue forecasting.

Timing is undecided, but 2027–2030 is under consideration; plan for this institutional shift in medium- to long-term strategies.

Future Outlook and the Importance of Legal Support

Market Developments Ahead

Regulatory Changes

Full-Scale Measures Against Speculative “Capacity Holding”

From fiscal year 2025, the following progressive tightening of grid connection study applications is expected:

From April 2025: Security deposit increase (×2–3)
From October 2025: Mandatory submission of business plans and proof of land rights
From April 2026: Application caps (e.g., maximum XX applications per developer per year)

For investors genuinely aiming for commercialization, early and concrete preparation will be a decisive competitive advantage.

Clarifying Technical Standards for Grid Congestion Management

Mandatory installation of N-1 charge cut-off devices and the expansion of non-firm connections are being implemented as part of Japan’s charging-side congestion countermeasures.
These compliance costs must be incorporated into project financial planning.

Technological Innovation and Competitive Landscape

Commercialization of Next-Generation Batteries

All-solid-state and sodium-ion batteries are expected to reach commercial viability around 2027–2030, potentially displacing lithium-ion technology.

Implications

Existing lithium-ion BESS projects may become comparatively less competitive.
Investors should treat technological shifts as key risk factors in long-term planning.

Aggressive Pricing by Chinese and Korean Manufacturers

Low-cost products from BYD, CATL, LG, and Samsung are rapidly expanding market share.
The price gap with Japanese manufacturers (e.g., Panasonic) has reached 30–50%.

Impact on investment decisions

CAPEX reduction vs. quality/warranty risk trade-offs
Whether risks can be mitigated through O&M frameworks or insurance

Advancing International Collaboration

Asia Zero Emissions Community (AZEC) Initiative

Japan’s government is promoting the AZEC initiative with ASEAN countries, encouraging battery technology exports and international standardization.

Key opportunities for Japanese-market investors:

Foreign investors with a proven track record in Japan can expand into ASEAN markets
Leverage Japanese subsidy and financing schemes for overseas expansion

The Importance of Legal Support — Our Firm’s Role

Why Specialized Legal Support Is Indispensable

As explained throughout this article, investment in Japan’s battery storage sector involves multiple complex dimensions:

Institutional complexity: three revenue markets, interconnection regimes, FIT/FIP systems
Multiple contracts: land, BSA, EPC, O&M, aggregation, and financing agreements
Cumbersome permitting: farmland conversion, development permission, building confirmation, etc.
Language and practice barriers: all procedures in Japanese, unique domestic business customs

For foreign investors, navigating these issues alone is extremely difficult — local legal expertise is critical to project success.

Comprehensive Support Provided by Our Firm

Our firm has extensive practical experience in renewable energy and battery storage projects, providing end-to-end support to both domestic and international investors.
Where solo execution is difficult, we coordinate with partner professionals to deliver seamless solutions.

■ Investment Stage

Regulatory research and analysis
Market and revenue model assessment
Structuring (SPC formation, tax optimization)
Legal and land due diligence

■ Development Stage

Interconnection procedure support (negotiations with T&D operators)
Land acquisition negotiations and contract drafting
Permitting (applications for farmland conversion, development approval, etc.)
Local stakeholder engagement and government coordination

■ Contract Negotiation Stage

Review and drafting of bilingual contracts (JP/EN)
Land sale and lease agreements
BSA, EPC, and O&M contracts
Aggregation and PPA agreements
Project finance and subordinated loan contracts
Attendance and advice during negotiations

■ Operation Stage

Contract management and compliance
Dispute resolution (litigation, mediation, arbitration)
Restructuring and contract renegotiation
M&A (project sales and acquisitions)

Specialized Support for International Investors

In particular, we offer the following special support to investors from ASEAN countries and Europe and the United States.

■ Bilingual Legal Services

English communication (meetings, emails, contracts)
Accurate JP↔EN translation using precise legal terminology
English reporting (investor reports, due diligence reports)

■ Cultural and Commercial Bridging

Explanation of Japanese practices (earnest money, seal certificates, nemawashi culture)
Negotiation style guidance (direct vs. consensus-based approaches)
Business etiquette (greetings, hospitality, meetings)

■ Regional Collaboration Across Asia

Network of partner law firms across ASEAN
Cross-border transaction support between Japan and Asia
Advisory on AZEC-based business expansion

■ Project Finance Structuring

Coordination with Japanese and foreign financial institutions
Term sheet negotiation and contract review
Structuring of sponsor support agreements

Engagement Flow

■ Initial Consultation (free for sessions under 30 minutes)

Hearing your investment plan and challenges
Overview of Japan’s market environment
Explanation of our services and fee framework

■ After Engagement

Formation of a project team (lawyers, administrative scriveners, technical advisors)
Kick-off meeting (schedule and role confirmation)
Regular reporting (monthly or by milestone)

■ Fee Structure

Initial research: fixed-fee basis
Development/contract phase: hourly rate

Conclusion

As outlined above, this article has provided a comprehensive explanation of battery storage investment in Japan — from business strategy to legal execution.

Key Takeaways:

Market opportunity: rapid growth at 30–40% CAGR through 2030
Revenue structure: diversified income from wholesale, balancing, and capacity markets
Business models: three archetypes (full merchant / long-term auction / tolling)
Regulatory environment: complex but manageable with expert guidance
Development practice: synchronized management of interconnection and land acquisition is key
Contract strategy: precise interface and risk allocation design are essential
Future environment: data-center demand and thermal phase-out as strong tailwinds
Legal support: collaboration with experts is the decisive success factor

Japan’s battery storage market is expected to achieve explosive growth over the next decade, driven by strong policy support and the nation’s 2050 carbon-neutral goal.
However, the market also presents regulatory and procedural challenges that demand professional insight.
Accurate understanding and sound risk management are indispensable for success.

For foreign investors, partnering with a law firm deeply familiar with Japan’s legal system and business culture will be the key to both investment decisions and project execution.

Our firm stands ready to fully support your entry into Japan’s market.
Please feel free to contact us regarding battery storage investments.
We hope this article assists your strategic decision-making and project success.

This article is based on information available as of November 2025.
Laws and regulations are subject to change; please confirm the latest updates before making any investment decisions.
The contents herein are provided for general informational purposes only and do not constitute legal advice.
For specific matters, please consult a qualified professional.