Japan’s third Long-term Decarbonized Power Source Auction (LTDA) results

On May 13, 2026, the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) published the results of the 3rd long-term decarbonized power source auction: LTDA Results

The results show a small reduction in the capacity awarded to energy storage projects compared to the previous year's auction. This follows stricter requirements being introduced for battery energy storage system (BESS) projects, including, among others, country of origin limitations on BESS equipment and longer duration performance requirements. At the same time, LNG projects have been awarded much greater quantities of capacity, indicating an increased role for such projects in Japan's energy transition process. Prices bid by successful projects also increased generally, reflecting the introduction of measures to accommodate various increased costs to bring projects into operation in Japan. 

This client alert provides an overview of the results and practical implications for the next auction, focusing on issues considered particularly important for BESS developers.

Background

Japan's LTDA is a government support scheme, introduced to expand generating capacity in priority target areas set by the Japanese government. Under the scheme, annual auctions are held, for developers to bid for financial support to develop energy projects on a reverse auction basis (i.e. lowest prices win). Successful bidders typically receive fixed payments from OCCTO over a 20 year period. However, they then must return approximately 90% of the "other market profit" (tashijou shueki) – the profit made by their projects in other markets such as the JEPX market (wholesale electricity market)¹,  or through individual power purchase agreements – to OCCTO. 

The scheme seeks to enhance the bankability of new projects, by providing a guaranteed income stream for at least 20 years. This is seen as particularly helpful for merchant BESS projects, which would otherwise face the difficulty of unpredictable long term electricity market prices. At the same time, the requirement to return approximately 90% of "the other market profit," means successful bidders are subject to limits on project profitability. The scheme is therefore seen as providing stable returns, but not at a level that allows developers to enjoy large profits.

The scheme is run annually, based on the Japanese financial year (i.e. April to March). The capacity on offer in each project category is released in September each year, with bidders being subject to a number of submission deadlines, with the initial bid deadline typically falling around October. Results are then announced within April or May of the following year².  Successful bidders must bring their projects into operation within a prescribed deadline, typically within four years, starting from the execution date of the capacity reservation agreement³, for BESS projects. They face penalties if the projects are not generally available for operation throughout the 20-year period in which the support is provided. 

Overview of the 3rd LTDA Results

Key features of the 3rd LTDA Results

Highlights of the 3rd LTDA results included: 

• whilst total capacity awarded to decarbonized power sources decreased compared to previous auctions, the aggregate contract prices increased significantly, reflecting the introduction of measures to recognize various increased costs to develop energy projects;
• total contracted volume of dedicated LNG-fired thermal power increased significantly compared to the 2nd LTDA (by approximately 2.3x), reaching 3.038GW; and
• eligible storage technologies became more diversified, including BESS and long-duration energy storage (LDES).⁴

The LTDA scheme includes dedicated LNG fired power sources, as LNG is seen as having a lower carbon intensity than coal and oil. It is also viewed as a key transition form of generation, to firm up power supply in conjunction with renewable energy sources. 

Practical implications for the next auction

The 3rd LTDA results indicate the following trends for future auctions: 

• eligible storage technologies are expected to continue trending toward greater technological diversification (i.e. different energy storage types) rather than likely increases in the future capacity amounts awarded to any particular technology. To date, there is no evidence to suggest increases in future auctions in the capacity that will be offered for lithium-ion batteries;
• in light of rising geopolitical risks, diversification and selection of procurement sources for lithium-ion batteries is expected to remain a strict requirement; the official council of Ministry of Economy, Trade and Industry (METI) is currently considering giving preferential treatment in the next auction to lithium-ion battery storage projects using cells manufactured by suppliers certified under the Economic Security Promotion Act⁵.  (See METI discussion paper (only in Japanese) “Long-term Decarbonization Power Source Auction” dated March 4, 2026, p.11);
• heightened geopolitical risks, including Japan's need for energy resilience, may also lead to an increase in the overall volume offered for bidding in the next auction. However, a policy emphasis on limiting increases in public expenses associated with rising construction costs and material prices for power sources, may conversely result in future decreases in offered capacity; and
• as the Japanese government appears to view the Middle East conflict as having limited impact on near-term LNG supply and demand (including due to Japan's long term LNG supply arrangements with other regions)⁶,  increased reliance on dedicated LNG-fired thermal power plants for balancing capacity is likely to continue.

Detailed Analysis of the 3rd LTDA Results

Contracted capacity and contract value 

The 3rd LTDA awarded a total of 4.261 GW of capacity to decarbonized power sources. This was a reduction compared to the 5.03 GW granted to those sources in the 2nd LTDA. However, the total capacity payment amount that will be paid to the successful bidders for that 4.261 GW of capacity over the 20 year support period is approximately 37% more than the corresponding amount in the 2nd LTDA.   

The increase in support payments reflects the higher anticipated costs to bring projects awarded in the 3rd LTDA into operation. The requirement for BESS projects to have a 6-hour duration⁷ is also seen as leading to higher project costs, due to the greater investment required to develop such long duration projects, compared to the shorter duration BESS projects that were permitted in the first and 2nd LTDA rounds. 

It is estimated that after offsetting approximately 90% of the "other market profit" that developers will pay to OCCTO under the scheme, the net amount that will be paid by OCCTO in annual capacity payments will be approximately JPY 342.0 billion (which is significantly higher than the JPY 94.5 billion estimated in the 2nd LTDA). 

Key points

Key points to note from the auction results include:

• the total capacity awarded to decarbonized power sources was 4.261 GW, which fell short of the tender volume of 5 GW. By contrast (and noting this includes power sources other than batteries), the total contract amount was JPY 474.8 billion (or approximately USD 3 billion) with a net amount of JPY 342.0 billion after estimated refund, both substantially higher than the prior year; amount of JPY 346.4 billion, particularly when considering that a higher amount of capacity was awarded in the 2nd LTDA; and
• the increase in the contract price is considered to be the result of the auction scheme design intended to address factors such as inflation and a more challenging investment environment.

Battery storage

BESS and forms of energy storage continued to receive a substantial level of support in the 3rd LTDA, with a total of 1.251 GW of capacity being awarded as follows: 

• Lithium-ion battery storage: 0.551 GW
• Non-lithium battery storage and LDES: 0.70 GW

All the above battery storage and LDES must have capability to sustain continuous operation for six or more hours at least once per day (which was a requirement for battery storage to participate in the 3rd LTDA). In contrast, the 2nd LTDA awarded a slightly greater total storage capacity (1.37 GW) as follows:

• Battery storage (3–6 hours)⁸: 0.961 GW
• Battery storage (6 hours or more): 0.409 GW

Key points

Key points in relation to storage awards in the 3rd LTDA include:

• while the overall volume remained largely unchanged between the previous and current auctions, the 3rd LTDA appears to have prioritized technological diversification rather than simply greater capacity. In particular, lithium-ion battery storage and other technologies were categorized separately, with upper limits set for each category; and
• non-lithium battery storage (e.g., NAS batteries and redox flow batteries) and LDES exceeded lithium-ion battery storage on a capacity basis.

LNG fired generation 

Over the course of the three LTDA rounds to date, dedicated LNG fired generation has received substantial capacity awards. This reflects the Japanese government's view that LNG is a key firming fuel source, as well as Japan's position as a key offtake partner for LNG projects in the region. Japan also holds substantial domestic LNG reserves, giving it a degree of security when prioritizing LNG generation sources.  

The 3rd LTDA awarded 3.038 GW of capacity to LNG projects. This is a substantial increase to the 1.315 GW of capacity awarded in the 2nd LTDA. 

Annual payments for LNG capacity awarded in the 3rd LTDA are forecast to be JPY 144.4 billion (compared to the JPY 45.6 billion annual amount under the 2nd LTDA). The net amount after offsetting approximately 90% of the "other market profit" to be paid to OCCTO each year under the scheme is expected to be JPY 81.0 billion (compared to the JPY -5.2 billion annual amount under the 2nd LTDA).

Key points

Key points in relation to LNG fired generation include:

• dedicated LNG-fired thermal power, which can be constructed relatively quickly, is positioned as a transitional measure toward decarbonization under Japan’s 7th Strategic Energy Plan.⁹ It is eligible for the long-term decarbonized power source auction subject to various conditions including commencing decarbonization measures (e.g., bidding into this auction scheme for retrofits) 10 years after the start of capacity provision; 
• from the perspective of scheme designers, the increase in dedicated LNG-fired thermal power suggests that, at least for the time being, it remains an effective means of securing balancing capability (as effective as, or more effective than, BESS). As development of the framework of the co-optimization market (simultaneous market or douji shijou) for procuring balancing capability has not yet been completed, it would be reasonable to assume that dedicated LNG-fired thermal power will continue to be an effective means of securing balancing capability in the short term (rather than BESS); and
• based on available information, the situation in the Middle East has not significantly constrained the expansion of dedicated LNG-fired thermal power.¹⁰  According to the Japanese government, Japan’s overall LNG inventories remain sufficient at approximately 4 million tons, and near-term supply and demand impacts are considered limited. While LNG prices have increased compared to February 2026, no significant surge has been observed at the time writing. 

We will continue to monitor developments in the Japanese energy sector, and to provide updates on further developments. 

Please click here to see appendix 1 and 2.