On December 22, 2021, the Organization for Cross-regional Coordination of Transmission Operators, Japan (OCCTO) announced the results of the capacity market Main Auction.

The capacity market was established as a mechanism to pay in advance for existing power generation facilities throughout Japan with the aim of securing supply capacity (kW) four years in the future. The supply of electricity is determined by an auction system four years before the year in which electricity is actually used (the actual demand supply year). 

This is the second auction, to set a contract price for FY2025. The contract price (yen/kW) for FY2020 was considered problematic because it was abnormally high, hovering around the upper limit. There have been growing calls to end or review this system, as it effectively serves as a subsidy for maintaining existing coal-fired and nuclear power plants. The “Task Force for Comprehensive Review of Laws and Regulations for Renewable Energy” established by the Cabinet Secretariat has also pointed out the need to review the capacity market, but this second auction was conducted without reviewing the capacity market’s structure or the system itself.

In response, the Association for Nuclear Power Phase-out and New Energy Policies (e-Shift), a network of environmental organizations, issued a press release on January 12, 2022 pointing out the problems concerning the capacity market. In particular, a major problem highlighted is that 40.98 GW (equivalent to 1/4 of the total) will be supplied at a cost of about 127.3 billion yen to coal-fired power plants. Additionally, the press release points out that 9.68 GW of this amount falls under inefficient coal-fired power generation, which is inconsistent with the Japanese government’s “fade-out of inefficient coal-fired power generation,” criticizing this as nothing more than an incentive to maintain coal-fired power generation.

e-Shift recommends that major reforms, even a complete overhaul, should be implemented before the actual payments in the capacity market begin in FY2024. These reforms include: (1) the introduction of carbon standards, (2) separation of ownership of power generation and transmission, (3) reconsideration of strategic reserve capacity and other system-level changes, and (4) a system design that encourages investment in future technologies such as Demand Side Management and storage batteries.

Prolonging the life of coal-fired and nuclear power plants through the capacity market will hamper the transition to renewable energy as the main power source in Japan. Moreover,  power suppliers that promote renewable energy will also be required to pay part of the costs of a capacity market that subsidizes coal-fired and nuclear power plants, and consumers will ultimately bear the burden of this illogical system through higher electricity bills.

Reference:

【e-Shift】Press Release: “Announcing the Results of the Capacity Market Main Auction: Eliminate the System of Immense Sums of Money Flowing to Preserving Coal-Fired and Nuclear Power Plants” (Japanese)