{"id":22728,"date":"2026-05-15T02:55:09","date_gmt":"2026-05-15T02:55:09","guid":{"rendered":"https:\/\/www.europesays.com\/japan\/22728\/"},"modified":"2026-05-15T02:55:09","modified_gmt":"2026-05-15T02:55:09","slug":"japan-gx-2040-renewables-carbon-pricing-and-battery-storage","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/japan\/22728\/","title":{"rendered":"Japan GX 2040: renewables, carbon pricing and battery storage"},"content":{"rendered":"

A transition to promoting renewable energy as a major power source is one of the core drivers in advancing green transformation in Japan. The \u201cGX 2040 Vision\u201d, approved in February 2025, places establishing renewable energy as a major power source at the epicentre of supply-side energy sector initiatives.<\/p>\n

As indicated in the 7th Basic Energy Plan (2025), making renewable energy a major power source is also a key pillar of Japan\u2019s energy policy, expected to account for the largest share (about 40-50%) of the power generation mix towards 2040.<\/p>\n

The concept of the growth-oriented carbon pricing scheme materialised by the GX Promotion Act 2023 enters full implementation phase in 2026.<\/p>\n

Japan GX boosts renewables viability<\/p>\n

Meanwhile, phased introduction of a legally mandated emissions trading system starting in 2026, and a carbon levy starting in 2028, is expected to increase costs for fossil fuels-derived power generation, further enhancing the economic viability of renewable energy.<\/p>\n

\"MasamichiMasamichi Sakamoto
Partner
City-Yuwa Partners<\/a>
Tokyo
Tel: +81 3 6212 5579
Email: masamichi.sakamoto@city-yuwa.com<\/a><\/p>\n

Geopolitical risks surrounding energy \u2013 namely, rising crude oil prices against the backdrop of recent Middle East tensions and turmoil in the natural gas market stemming from the Russia-Ukraine crisis since 2022 \u2013 have also brought the vulnerability of Japan\u2019s energy supply structure into sharp relief again.<\/p>\n

Headwinds affecting the transition to decarbonisation include rising development costs in sectors such as offshore wind, contributing to project delays, and evolving policy priorities in major economies.<\/p>\n

But Japan\u2019s GX vision remains important; not only as an environmental policy but also for ensuring stable energy supply, one of the key pillars of the country\u2019s S+3E energy policy \u2013 prioritising safety, energy security, economic efficiency and environment.<\/p>\n

Role of storage batteries <\/p>\n

Storage batteries are considered critical infrastructure for addressing the variability of renewable energy and ensuring stability of Japan\u2019s power systems.<\/p>\n

In 2022, the Ministry of Economy, Trade and Industry (METI) announced the Storage Battery Industry Strategy aimed at strengthening the competitiveness of Japan\u2019s storage battery industry.<\/p>\n

The importance of deploying flexible resources such as storage batteries and pumped-storage hydropower to support the transition towards renewable energy as a major power source is also underscored in the 7th Strategic Energy Plan and GX 2040 Vision.<\/p>\n

An increasing need for output curtailment accompanying the introduction and expansion of renewable energy sources such as solar power is additionally enhancing the value of storage batteries as a means of absorbing surplus electricity.<\/p>\n

The market-linked feed-in premium (FIP) system introduced in 2022, meanwhile, encourages the active use of storage batteries that enable output adjustment and time shifting in response to price fluctuations.<\/p>\n

Japan battery storage liberalisation<\/p>\n

Since the full liberalisation of Japan\u2019s electricity retail market in 2016, foreign-affiliated companies have already entered the power generation and retail electricity businesses. While prior notification or a post-facto report may be required under the Foreign Exchange and Foreign Trade Act 1949, such requirements do not pose a significant barrier to market entry by foreign companies.<\/p>\n

\"KentaroKentaro Sawata
Associate
City-Yuwa Partners<\/a>
Tokyo
Tel: +81 3 6212 5700
Email: kentaro.sawata@city-yuwa.com<\/a><\/p>\n

Storage batteries have attracted attention as an investment target in recent years driven by liberalisation of the electricity market, progress in carbon-neutral policies, and the development of an investment support framework. Regulatory reforms aimed at promoting investment in battery storage have progressed in tandem.<\/p>\n

Following an amendment of the Electricity Business Act in 2022, a business that discharges electricity from grid-scale batteries with a capacity of 10,000kW or more is classified as \u201cpower generation business\u201d.<\/p>\n

As a result, the same grid connection rules as the rules of power generation facilities \u2013 notably that general electricity utilities shall not refuse a request for grid connection without justifiable grounds \u2013 are now applied to electric facilities related to grid-scale storage batteries. This facilitates grid connection access for such facilities.<\/p>\n

Further, based on deliberations by the relevant government council in 2023 regarding storage batteries installed alongside FIP power sources (which are treated as part of the power generation facilities [ancillary facilities] under relevant laws), these batteries may, under certain conditions, be charged not only from the associated power generation facilities but also from the grid.<\/p>\n

Electricity charged from renewable energy sources when these batteries generate power became eligible for FIP payment on top of the market price. In addition, starting with electricity generated in April 2025, such electricity is eligible for non-fossil value recognition through the issuance of non-fossil value certificates (non-FIT).<\/p>\n

As a result, these batteries can not only charge electricity generated from renewable energy sources and sell it during peak market hours; they can also engage in market arbitrage by leveraging price differential in the electricity market to generate revenue similar to grid-scale batteries, which is expected to improve utilisation rates.<\/p>\n

From a broader focus, the feasibility of battery storage businesses spans multiple markets such as energy value (wholesale electricity market), balancing value (supply and demand adjustment market), and capacity value (capacity market).<\/p>\n

But unlike the traditional FIT-based power generation business, battery storage businesses cannot rely on single long-term fixed revenue and are inherently exposed to market risks arising from market price fluctuations and operational strategies.<\/p>\n

As a result, success or failure of a storage battery business depends on operational capabilities such as market participation strategies.<\/p>\n

Long-term auction boosts battery storage<\/p>\n

Regarding the development of an investment support framework, the Long-Term Decarbonised Power Source Auction, introduced in 2023, supports new installation of and replacement of decarbonised power sources \u2013 particularly capital-intensive technologies such as grid-scale storage battery, nuclear power, hydrogen and ammonia, and thermal power \u2013 and enhances revenue foreseeability in the capacity market.<\/p>\n

This support mechanism expands the capacity market framework by providing capacity payments to the electricity generation utility, from capacity contribution funds contributed by electricity retailers through to long-term contracts of up to 20 years.<\/p>\n

It enables recovery of revenue equivalent to the level of fixed costs associated with power sources, subject to conditions designed to prevent double counting with revenues from other markets, including the wholesale electricity market and the supply and demand adjustment market.<\/p>\n

According to 2024 results of the auction, storage batteries accounted for 27 out of all 38 successful bids, comprising about 22% of the total awarded capacity. This represented an increase of about 25% compared to 2023, indicating expansion in the storage battery business.<\/p>\n

Barriers to entry regarding storage batteries may appear to be increasing due to reduced maximum solicitation volumes and expanded requirements: for example, a minimum six-hour discharge duration requirement for storage batteries, together with limits on foreign-made lithium-ion cells, and the JC-STAR certification framework introduced from cybersecurity and supply chain perspectives.<\/p>\n

But while 2025 auction results had not yet been announced at the time of writing, the auction continues to play an important role as a complementary system that supports business viability.<\/p>\n

While foreign companies cannot participate in auction bidding on their own, they may participate through a consortium that establishes a special purpose company (SPC) in Japan.<\/p>\n

Alongside the auction, the METI\u2019s subsidy programme for expanding renewable energy deployment and supporting grid-scale battery and other energy storage systems also plays an important role.<\/p>\n

In December 2025, the ministry announced the 2025 results of this subsidy programme, under which a record-high amount of about JPY36.3 billion (USD228.4 million) was approved and a record-high 37 projects were selected, indicating growing expectations for grid-scale batteries.<\/p>\n

In addition, other subsidy programmes supporting storage batteries are available at the Ministry of the Environment, and at local government levels.<\/p>\n

Although project financing for battery storage projects has been constrained by revenue uncertainty and other challenges, a growing number of transactions across various business models has been observed, indicating that the market is evolving.<\/p>\n

EU battery rules reshape Japan<\/p>\n

In Europe, under the EU Battery Regulation (2023\/1542), a comprehensive regulatory framework covering the entire lifecycle of battery storage is being introduced in phases.<\/p>\n

The regulation sets out requirements relating to carbon footprint, recycled content and due diligence, which impacts Japanese companies that place batteries or battery-containing products on the EU market.<\/p>\n

In response, the importance of ensuring sustainability and addressing supply chain issues is growing in Japan as well, with initiatives such as development of a Japanese version of the \u201cbattery passport\u201d underway.<\/p>\n

\"\"CITY-YUWA PARTNERS<\/a>
Marunouchi Mitsui Bldg., 2-2-2 Marunouchi,
Chiyoda-ku, 100-0005 Tokyo, Japan
Tel: +81 3 6212 5500
Email: takuro.awazu@city-yuwa.com<\/a>
www.city-yuwa.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"A transition to promoting renewable energy as a major power source is one of the core drivers in…\n","protected":false},"author":2,"featured_media":22729,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[18000,18001,18002,18003,5523,18004,18005,5603,2189,18006,18007,18008,18009,8,18010,18011,18012,6643,33,2405,18013,18014,6613],"class_list":{"0":"post-22728","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-japan","8":"tag-battery-storage-investment","9":"tag-capacity-market","10":"tag-carbon-pricing","11":"tag-city-yuwa-partners","12":"tag-decarbonisation","13":"tag-electricity-business-act","14":"tag-emissions-trading-system","15":"tag-energy-policy","16":"tag-energy-transition","17":"tag-feed-in-premium","18":"tag-fip-system","19":"tag-grid-scale-batteries","20":"tag-gx-2040-vision","21":"tag-japan","22":"tag-kentaro-sawata","23":"tag-long-term-decarbonised-power-source-auction","24":"tag-masamichi-sakamoto","25":"tag-meti","26":"tag-nihon","27":"tag-renewable-energy","28":"tag-renewables-as-a-major-power-source","29":"tag-storage-batteries","30":"tag-sustainability"},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts\/22728","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/comments?post=22728"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/posts\/22728\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/media\/22729"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/media?parent=22728"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/categories?post=22728"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/japan\/wp-json\/wp\/v2\/tags?post=22728"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}