What Is Japan's Capacity Market?

A mechanism to secure Japan's power supply four years in advance

Securing Capacity Before It's Needed

In electricity markets, ensuring adequate supply capacity (measured in kW) is just as important as getting the price right. Even the cheapest power plant is useless if it cannot run when demand peaks. Japan's capacity market was created in 2020 to address exactly this problem, administered by the Organization for Cross-regional Coordination of Transmission Operators (OCCTO).

The mechanism is straightforward: an auction is held four years before the target delivery year to procure future supply capacity in bulk. Generators that win the auction are obligated to provide capacity during the delivery year and receive capacity payments in return. The costs are recovered through a capacity charge (youryou kyoshutsukin) paid by retail electricity providers — and ultimately passed on to electricity consumers.

Five Auctions: What the Data Tells Us

The first auction in FY2020 set a clearing price of ¥14,137/kW, sending shockwaves through the industry. The following year saw a dramatic drop to ¥3,109/kW, raising concerns about price volatility. Since then, rising fuel and maintenance costs have pushed prices steadily higher. The fifth auction (FY2024, for delivery year FY2028) recorded a post-transitional-measure average of ¥11,134/kW — an all-time high — with total contracted value reaching approximately ¥1.85 trillion.

The key drivers behind rising prices are: (1) increasing maintenance costs for aging thermal generators, (2) the gradual phase-out of the FIT transitional exemption that had suppressed effective prices, and (3) market segmentation in constrained areas. In Hokkaido, Tohoku, and Tokyo, clearing prices hit the auction cap (1.5× NetCONE), highlighting regional supply shortfalls.

What to Watch Going Forward

Capacity charges officially began flowing to retail providers in FY2024, creating new cost pressures across the sector — particularly for new entrants. Key developments to follow include: the expansion of battery storage and demand response (DR) participation; integration with the new Long-term Decarbonization Auction; and ongoing debates about whether the four-year-forward procurement window remains appropriate. As Japan accelerates its energy transition, the capacity market will remain a central mechanism for keeping the lights on.

Source: OCCTO auction results (1st–5th auctions) | Data as of March 2026