Japan mulls 177GW for first power capacity auction

Japan is considering seeking around 177GW of power generation capacity through its first auction in July to secure reliable power supplies during the April 2024-March 2025 fiscal year.

A working group to discuss basic policy on electricity and gas, set up under the ministry of economy, trade and industry, proposed today that the first auction, which is being done by the organisation for cross-regional co-ordination of transmission operator (Occto), look for 177.47GW of capacity available in 2024-25 based on the previous demand forecast for the year. The targeted capacity should be 12.6pc above total of peak demand average for the top three days in the country's nine areas, excluding Okinawa.

The auction adopts a single price auction system that allows all winners to issue the same contract price. The working group has estimated the net cost of new entry (net Cone) at ¥9,425/kW ($87.96/kW), which indicates the ceiling price at ¥14,138/kW. Some 176.53GW of capacity would be purchased at a contract price of ¥14,138/kW, while 182.12GW would be secured at a zero price, the working group said.

The fixed targeted capacity and net Cone are scheduled to be announced next month, ahead of the first auction that is scheduled to be held during 1-7 July. Occto may hold another auction in June 2023, if the awarded capacity in the July auction is below the targeted capacity.

Bidders can offer existing or planned generation capacity of hydro, thermal, nuclear and renewable power sources, which should have stable operations during 2024-25, with a minimum capacity of 1MW. Bidders are also allowed to offer more than 1MW of less stable hydro and renewable supplies in the different categories.

The new mechanism is designed to promote investment in power generation plants, by securing capacity and funding in advance, especially amid growing instability in renewable power sources. Occto will collect money from the country's registered power retailers and pay winning companies during 2024-25.

The power capacity market is prohibited for co-use with the country's feed-in-tariff scheme, which ensures purchases of renewable power supplies at a fixed price during a particular period.

Japan has been stepping up efforts to deregulate the country's power market since March 2000. It opened the retail power market for free competition in April 2016 and split utilities' power transmission businesses in April this year, in the final phase of deregulation. The liberalisation has prompted the government to introduce new power-related trading systems, such as a base-load power market, a non-fossil value trading market and futures market, as well as the power capacity market.

By Motoko Hasegawa