In this blog, we will cover a review of 2025 and an outlook for 2026 with respect to the battery storage business and the solar power generation business.

Battery Storage Business for Grid Use in 2025

2025 was a year in which the number of business opportunities for grid-scale battery storage increased sharply. In light of that increase, we will discuss below the important 2025 developments relating to grid-scale battery storage.

1. Rapid Increase in Connection Applications and Insufficiency of Grid Reinforcement

According to Agency for Natural Resources and Energy materials regarding the status of acceptance of grid-scale battery storage, as of June 2025, connection studies reached approximately 143 million kW, and contract applications reached approximately 18 million kW, representing a significant increase within a short period compared to June 2024.

This rapid increase in contract applications is likely the result of a combination of factors, including support measures such as subsidies, revenue opportunity expectations in various markets (wholesale market, capacity market, and balancing market), and policy incentives including long-term decarbonization power source auctions.

At the same time, locally, connection demand has exceeded operational capacity, and relying only on the conventional growth framework of sequential connections is making it difficult to harmonize decarbonization requirements with stable grid operations. Because increasing grid capacity requires time for design, land acquisition, construction and coordination, it has not been easy to resolve grid shortages in the short term.

2. Additional Early Connection Measures (Promotion of Grid Connection through Limited Time Period Charging Restrictions)

In light of such circumstances, the Additional Early Connection Measures were introduced in April 2025. These measures provide a framework in which general transmission and distribution operators, based on grid characteristics and facility capacity, predefine time periods for charging restrictions to avoid congestion, and, on the premise that battery storage operators comply with such restrictions, permit connection without increasing grid capacity. In contrast to the conventional concept of increasing operational capacity through equipment reinforcement, these measures are characterized by circumventing the need for immediate grid capacity increases by accepting operational time constraints.

However, when utilizing the Additional Early Connection Measures, while operators may be able to shorten the time to connection, it is necessary to note that operational flexibility and revenue opportunities may be constrained by the system.

In addition, as an implementation method, because it requires time to create a system that distributes daily control instructions online, for the time being, the system operates on the premise that operators possess systematic safety enabling reliable suspension of charging even in an offline environment. While this is consistent with the purpose of accelerating grid capacity development, it should be noted that this approach increases cost burdens and technical difficulty in proceeding with projects.

3. Related 2025 Developments (Clarification and Strengthening of Licensing Regulations, Implementation of Measures to Increase Connection Rule Effectiveness, and Market Design Progress)

In addition, in 2025, clarification of licensing regulations, implementation of measures to increase the effectiveness of grid connection rules (including measures against speculative reservation), and review of market design also progressed. In other words, the need for horizontal risk evaluation across grid connection, licensing, safety regulation, environmental regulation and markets has become even more apparent.

First, on April 8, 2025, the Ministry of Land, Infrastructure, Transport and Tourism published technical advice regarding the treatment of grid-scale battery storage under the development permission system.

Where a battery storage facility is evaluated as a structure for storing hazardous materials and constitutes a Type I specified structure, development activities for installing such battery storage facility, in principle, require permission pursuant to Article 29 of the City Planning Act. In addition, development activities in urbanization control areas are subject to more stringent review. At the same time, there is also room for battery storage facilities to be classified as facilities serving a public interest that may fall under categories not requiring permission, and a practical point is that evaluation may vary depending on the business scheme, such as whether it is organized as a power generation business and whether retail or specified wholesale business (aggregation) is involved.

From a technical perspective, municipalities are encouraged to operate the development permission system in a manner tailored to local conditions, including through the establishment of review standards, and clarification of procedures for handling such facilities is progressing among municipalities. Accordingly, from the early stage of a project, it is important, from both schedule and cost perspectives, to have prior consultations with municipalities in parallel with the organization of land use and safety aspects of the proposed facility.

In addition, to realize rapid grid connection of grid-scale battery storage while maintaining fairness and efficiency in the grid access process, the following measures have been recommended or further developed at the stage of system design.

First, in connection with the acceptance and examination of connection study applications, mechanisms to prevent obstacles caused by applications with low project feasibility have been proposed and are being made more concrete. For example, from January 2026, at the time of a connection study application, applicants are required to submit documents setting forth the confirmation results of the battery storage installation site registration status, the name of the owner, and the status of follow-up. Through this requirement, projects with low feasibility, such as projects on land where implementation is effectively considered impossible, are expected to be excluded or reduced.

A proposal has also developed into a framework for setting an upper limit on the number of connection studies per business operator. The aim is to prevent operators that submit a large number of applications for the purpose of securing locations from becoming obstacles to examination by general transmission and distribution operators.

In the contract application process, a proposal is also being considered to require submission of documents evidencing the right to use the battery storage installation site, such as registry transcripts of land and copies of lease agreements, in principle within two months from connection approval, with the connection reservation being cancelled where such document submission is not made.

These strengthening measures aim to expedite acceptance processing and to prioritize connection to the grid of projects with high feasibility, and the relevant operations are expected to commence during 2026. In practical terms, they also mean that the legal and practical value of a merely submitted application may differ significantly from that of an application that has actually been accepted for review.
Finally, market reforms have also been implemented, centered on the balancing market, and a new system has taken commenced on March 13, 2026. This point will be described in detail below as a development in 2026.

Outlook for 2026 (Grid Connection and Revenue Assumptions for Grid-Scale Battery Storage; Regulation of Solar Power)

In the renewable energy and battery storage sector in 2026, (i) strengthening of entry regulations for grid connection, including connection study caps and stricter evidence requirements, (ii) changes in the balancing market (primary to tertiary reserve (1)), (iii) review of environmental assessment requirements for solar and wind power projects, and (iv) strengthening of regulations for large-scale solar power, including safety, structural, land-use and community-related requirements, will proceed simultaneously. This will affect project formation and risk allocation in that, while selection at the early stage of development progresses, revenue assumptions in the operational phase will change, and costs and schedules for land, environmental, safety and technical compliance will increase.

The principal issues are discussed below.

1. Reform of the Balancing Market for Battery Storage: Transition to Day-Ahead Trading and Review of Procurement Volume and Price Caps

With respect to primary to tertiary reserve (1) in the balancing market, from March 13, 2026, the system has shifted from a framework centered on weekly products to day-ahead trading. As a result, procurement timing will become closer to supply-demand forecasts and the rationality of the system will increase; however, operators will be required to optimize within shorter timeframes.

In addition, in the 108th System Review Working Group (October 29, 2025) and the 110th System Review Working Group (January 23, 2026), there was discussion that, as a policy for responses from FY2026 onward, the market procurement volume for primary to tertiary reserve (1) will be set at a maximum equivalent to 1 sigma. As a result, particularly for primary and secondary (1), the market capacity will relatively shrink, and revenue models dependent on the balancing market will require conservative reassessment.

Furthermore, regarding the price caps in the balancing market, from March 14, 2026, the price caps for primary, secondary (1), and composite products have been lowered from the previous JPY 19.51 per delta-kW per 30 minutes to JPY 15 per delta-kW per 30 minutes, with the possibility of gradual reductions to JPY 10 or JPY 7.21 per delta-kW per 30 minutes if competitive conditions in the market do not improve. As a result of such reductions in price caps, investment recovery models premised on peak unit prices will need to be reconsidered.

2. Battery Storage: Strengthening of Connection Rules, Connection Study Caps, Deposits and Construction Cost Burdens

As described above, discussions in the Next-Generation Power Grid Working Group have moved from general measures against speculative reservations to more concrete operational discipline. In particular, a framework is expected to begin on or around August 1, 2026 under which an upper limit will be set for the number of connection study applications for grid-scale battery storage per business operator.

The upper limit is not expected to be a uniform nationwide figure. Rather, it is expected to be set by reference to each general transmission and distribution operator area. Based on trial calculations in the relevant materials, the higher of the historical average plus 2 sigma or a minimum of five applications would be used, with example trial figures including Hokkaido 5, Tohoku 6, Tokyo 11, Chubu 5, Hokuriku 8, Kansai 10, Chugoku 5, Shikoku 5 and Kyushu 8, while Okinawa is not expected to be subject to the measure for the time being.

Where the upper limit is exceeded, the contemplated structure is not merely to keep the excess applications in an internal queue. Instead, documents for the excess applications would not be checked, the connection study would not be accepted, and the examination fee would not be notified. After the excess situation is resolved, the applicant would be required to submit a new application.

A further practical issue is the scope of the same business operator. The initial approach appears to focus on the applicant name, address and other information stated in the connection study application. However, because renewable energy and battery storage projects are commonly structured through project-specific SPCs, there may be cases where sponsor relationships, parent companies, beneficial controllers or other substantive relationships become relevant if additional measures are introduced to prevent circumvention.

In addition, for projects for which contract applications are received on or after April 2026, the deposit at the time of contract application has been increased from 5% to 10%, and measures to make installment payment of construction cost contributions stricter, including a minimum 50% first payment, have also begun to apply. These measures increase early-stage financial burdens, but are intended to suppress low-feasibility projects and prevent long-term stagnation of grid capacity reservations.

3. Environmental Assessment: Possible Lowering of Thresholds and the Importance of Transitional Measures

Environmental assessment requirements are also entering a transition period. Under the current national environmental impact assessment framework, solar power projects are subject to mandatory environmental assessment as Class I projects at 40 MW or more, while projects of 30 MW or more and less than 40 MW are treated as Class II projects subject to screening. Wind power projects are subject to Class I treatment at 50 MW or more and Class II treatment at 37.5 MW or more and less than 50 MW.

For solar power projects, discussions are progressing in the direction of lowering the current thresholds. Although some reports have referred to a possible threshold of around 15 MW, government comments have also referred to the possibility of a level around 20 MW, and the final threshold has not yet been fixed. If the threshold is lowered to around 15 MW or 20 MW, a significant number of mid-size solar projects that were previously outside the national environmental assessment process may newly become subject to the preparation of scoping documents, method statements, draft environmental impact statements, final environmental impact statements, and responses to comments from residents and administrative authorities.

For wind power projects, discussions are also being conducted on the possibility of lowering the Class II project threshold, based on concerns that even projects below the current statutory threshold may have significant environmental impacts depending on their location. If the Class II threshold is lowered, projects that were previously outside the statutory assessment process may need to conduct simplified environmental impact evaluation and undergo screening, with the result that a full environmental assessment may be required.

Grid-scale battery storage facilities are not expressly listed as target projects under the current Environmental Impact Assessment Act. Accordingly, installation of a battery storage facility itself will generally not be subject to national environmental assessment. However, if the development of the site constitutes an industrial park development, factory site development or other land development project, the land development component may fall within the scope of the environmental assessment system. For example, a development area of 100 hectares or more may trigger mandatory assessment, while an area of 75 hectares or more and less than 100 hectares may be subject to screening. In addition, although it is not yet common for local ordinances to treat battery storage facilities themselves as target projects, developments in local ordinances, including local examples that expressly address battery storage, should be monitored.

From a practical perspective, the most important point will be the content of transitional measures. For projects already under development, it will be necessary to confirm whether the old framework continues to apply based on the existence of a project plan, the acquisition of permits, commencement of construction, or a certain level of construction progress, or whether the amended framework will newly apply. This point may directly affect development schedules, costs, financing conditions and transaction conditions in project acquisitions.

4. Strengthening of Regulations for Large-Scale Solar Power and Solar Power Safety Regulation

In the Policy Package for Measures Concerning Large-Scale Solar Power Generation Projects adopted by the relevant ministers on December 23, 2025, strengthening of legal regulations for inappropriate cases is discussed, premised on coexistence with local communities. Together with the environmental assessment discussions described above, this policy direction indicates that large-scale solar projects will be evaluated more strictly from environmental, safety, land-use and community perspectives.

With respect to environmental impact assessment, the effectiveness of assessment is expected to be strengthened through the review of target scale, stricter examinations and thorough guidance. Project developers should therefore not treat environmental assessment merely as a formal permitting item, but should integrate it into site selection, land control, community engagement and overall development scheduling from the early stage.

With respect to strengthening safety regulations under the Electricity Business Act, a framework is being developed whereby a third-party organization with expertise in civil engineering and architecture would confirm, before construction, conformity with technical standards regarding structural safety. The relevant discussions also indicate that, where an existing facility undergoes repowering or other modifications affecting structural safety, the new confirmation framework may become relevant.

The recent safety-regulation discussions also point toward stronger involvement of manufacturers, importers, sellers, EPC contractors and other relevant parties in accident investigation and safety assurance. Where cooperation is not provided in connection with a technical-standards conformity order, measures such as recommendations, publication, reporting orders, on-site inspections and orders to provide difficult-to-inspect electrical facilities are being considered. For contracts, this increases the importance of information provision obligations, investigation cooperation clauses, preservation of relevant materials, allocation of remedial responsibilities and post-accident response arrangements.

With respect to applicable Forest Act regulations, the strengthening of regulations, including penalties and public disclosure, came into force in April 2026. Together with environmental assessment and safety regulation, these measures make it necessary to integrate land, environmental, structural, technical and community-related compliance into the development schedule from an early stage.

5. Perovskite Solar Cells and New Technology-Related Safety Issues

In the field of solar power generation, positive future developments have also appeared. One such development is the social implementation of perovskite solar cells. Perovskite solar cells have the characteristics of being lightweight and flexible; they are expected to be installable on building walls and roofs, and in locations with load constraints where installation was difficult with conventional silicon-based solar cells.

At the same time, because they may be used in new forms such as building-integrated, wall-mounted or lightweight sheet-type installations, technical standards and guidelines for safe installation and maintenance will need to be clarified. For projects using such new technology, parties should manage the risk that detailed technical standards and guidelines remain under development, including through EPC specifications, O&M arrangements, insurance conditions and financing assumptions.

In secondary transactions, refinancing and repowering, the importance of technical due diligence will also increase. In addition to legal compliance, parties should carefully confirm whether structural calculation materials, design drawings, geotechnical survey results, maintenance and inspection records, repair history and other technical documents have been properly prepared and transferred, because the absence of such documents may affect future safety judgments, remedial costs and additional confirmation costs.

6. Practical Considerations in 2026

Based on the above, in 2026, in addition to advancing battery storage projects at an early stage, (i) establishing project feasibility before connection application, (ii) managing the number and priority of connection study applications by area and by sponsor group, (iii) implementing revenue models responsive to market system changes, (iv) managing environmental assessment risk and transitional measures, and (v) integrating project schedule development with cost management strategies while incorporating regulatory strengthening will become common challenges across the related legal, investment and development functions.

In addition, system revisions and operational reviews, including connection study caps, price cap settings in the balancing market, environmental assessment thresholds, solar safety regulation and technical standards for new solar technologies, are expected to continue to be implemented in stages going forward. Under such circumstances, increasingly there will be situations in which whether risk evaluation is conducted based on the system's purpose and how operations are conducted in light of that purpose, and whether schemes reflecting such risk evaluation can be constructed from the early stage of a project, will determine the success or failure of that project.

Future blogs will address material developments in system revisions, operational procedures and implementation practices for grid-scale battery storage and solar power generation projects.