Japan has built a reputation as a leading producer of solar energy and, consequently, the market offers significant opportunities for energy storage investors and developers – the nation’s battery storage capacity is expected to grow from 2GWh in 2023 to 40 GWh by 2030
Japan has built itself a reputation as one of the world’s leading solar power producing nations. Data shows that the country was ranked third in the world for solar power capacity in 2023, with a total of 89GW, behind second-placed USA (139GW) and top-ranked China (609GW), as the chart below shows.
Source: worldpopulationreview.com/
Such has been the dramatic rise in the use of solar power in Japan in recent years that it has overtaken hydropower as the biggest source of renewable energy in the country. Up to 2019, hydropower was the dominant form of renewable energy, but the turn of the decade saw solar begin to edge out in front (see chart below).
In 2023/24, solar generated 10.2 per cent of Japan’s electricity, more than any other form of renewable energy, with hydropower in second place generating 8.6 per cent (see chart below).
Source: lowcarbonpower.org/
The growth of solar power in Japan is good news for the energy storage sector. This is because, as SolarPower Europe has proclaimed “solar and storage are a perfect partnership” because storage extends solar’s power “beyond the time the sun is in the sky, allowing energy producers to use solar 24 hours a day, 365 days a year”. Consequently, the ‘land of the rising sun’ will also be a land of opportunity for energy storage investors in the coming years.
One investment fund that has been quick to spot the opportunity has been Gore Street Capital. Back in December 2023, Gore Street Capital and ITOCHU Corporation were selected by the Tokyo Metropolitan Government (TMG) to launch Japan’s first fund dedicated to grid-scale energy storage systems. The two firms were jointly selected as the managers of the TMG fund following a competitive process held in April 2023. Under the terms of the agreement, Gore Street and ITOCHU manage the public-private partnership fund, with TMG making a contribution of ¥2bn (£10.6m) at the time of its launch – additional funding will be raised from the private sector. The fund is targeted at projects in the Kanto region of Japan.
JEPX offers valuable revenue stream for storage assets
One of the most mature wholesale energy markets in the Asia-Pacific region is the Japan Electric Power Exchange (JEPX) – which covers nine of Japan’s ten utility regions, the exception being the Okinawa islands – and it provides an important revenue stream for energy storage assets. More than 40 per cent of Japan’s total electricity demand is executed through this spot market, according to Wood Mackenzie, and this incentivises low-cost use by placing a time-of-day usage value on electricity. Consequently, it encourages the charging of grid batteries during periods of low prices, and the discharging of them at peak times when demand, and subsequently prices, are higher. This process enables batteries to earn revenue through energy arbitrage.
Similar to the GB market, battery energy storage systems can generate revenue through the wholesale, capacity, and balancing markets. Gore Street has said that, broadly speaking, the proportion to total revenue derived from each service is similar to that seen in GB – however, the introduction of new balancing markets, for example, will mean that the picture will change and the revenue mix will vary.
Japanese storage boom predicted
The Sumitomo Corporation believes all the necessary ingredients are in place for a Japanese energy storage boom. Sumitomo expects Japan’s local battery storage capacity to grow from 2GWh in 2023 to 40 GWh by 2030. The company has said it aims to install 500MW, or more, of battery storage in Japan by March 2031.
Other interested parties are also gearing up to boost deployment. In May last year, alternative investment firm Stonepeak and Singaporean battery energy storage system project development and electricity data management company CHC created a platform focused on the development, construction, and operation of energy storage projects in Japan. The Stonepeak/CHC platform was awarded a 20-year fixed revenue capacity market contract for four BESS projects as part of the Japanese government’s inaugural Long-term Decarbonization Auction. Meanwhile, Canadian Solar also won three battery energy storage system projects – totalling 193 MW – in the auction. Elsewhere, in April last year, Eku Energy announced its first battery storage project in Japan, the 30MW / 120MWh Hirohara battery energy storage system located in Oaza Hirohara, Miyazaki City in Miyazaki Prefecture. Eku Energy agreed a 20-year offtake agreement for the project with Tokyo Gas – the battery is expected to begin operating in July 2026. Once live the battery will be capable of storing enough electricity to power approximately 63,000 households for four hours, Eku Energy said.
With the solar sector’s share of Japan’s electricity generating capacity increasing and a growing number of opportunities for generating revenue from storage assets, expect more energy storage developers and investors to begin making waves in the market in the near future.
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