New research: Grid-scale batteries untapped opportunity for Japan’s major electric utilities

New ACCR research finds there is commercial benefit for Japan’s major electric utilities to increase investment in grid-scale battery storage.

Future-proofing Japanese utilities: The case for grid-scale battery investment shows that with price and technological barriers tumbling, the strategic deployment of grid-scale batteries also offers utilities a long-term revenue stream and supports a much-needed evolution of business models.

Japan’s regional electric power companies (EPCOs) and largest wholesale generator (J-POWER) appear increasingly misaligned with the country’s recent efforts to decarbonise its energy system. The utilities’ business models are built around centralised baseload demand, whereas renewables and decentralised supply have become progressively important to the grid.

With rising rates of curtailment – wasted renewable energy – in Japan, grid-scale batteries can provide more energy storage capacity and the flexibility to deploy it when needed.

The utilities covered in the research have a competitive advantage in the battery market, as they own most generation assets and grid infrastructure while having regional operational expertise. However, they need to act now to secure first-mover advantage.

Key findings

• Batteries are already capable of commercial viability in Japan – There are opportunities to earn above a 10% internal rate of return (IRR) via multiple revenue streams – capacity payments, energy arbitrage and ancillary services payments – supported by government subsidies.
• Battery costs are plummeting – The global levelised cost of electricity (LCOE) for battery storage dropped from US$300/MWh in 2018 to US$104/MWh in 2024. BloombergNEF (BNEF) analysis expects this to halve again by 2035. The cost of building and operating new batteries will soon be cheaper than the cost of running existing LNG plants in Japan.
• Deploying batteries will help Japan make the most of its growing wind and solar energy – Existing storage capacity, primarily provided by pumped hydro, is no longer sufficient as renewable generation grows. Market forecasts suggest a significant scale up of batteries, with BNEF estimating a tenfold increase in storage volume from 2023.

Commenting on the report, Martin Norman, Investor Engagement Lead, ACCR, said:

“Our report shows that an important window is now open for Japanese utilities on battery investment. The conditions for battery investment are favourable and with such a strong business case it is only a matter of time before there is broader commercial uptake.

“However, time is of the essence, making it crucial that investors engage with Japan’s electric utilities to ensure they are acting to guarantee a first-mover advantage.

“Electric utility companies in Japan, many of which are highly leveraged, remain focused on centralised baseload despite operating in a grid increasingly reliant on renewable energy supply. Investors are eager for more prudent capital allocation. The low cost of batteries, and their ability to contribute to Japan’s energy transition, offers big wins – if companies move now.

“Japan’s electricity utility companies must be considering grid-scale batteries in their decarbonisation and capital allocation decisions. If they aren’t, the question is, why not?”