Since EPRX (Japan's Balancing Market) introduced the Composite Product in April 2024, it has become the highest-volume product in the market, with Q1 2026 cleared volume reaching 168,016 MW — surpassing Tertiary Reserve I's 154,997 MW. Yet the Composite Product's settlement mechanism is far more complex than standalone products: it employs a cost-minimization optimization algorithm that simultaneously considers procurement requirements and bid prices across multiple products. This article provides a complete explanation of the Composite Product settlement logic, grounded in the EPRX Trading Rules Supplementary Volume on Composite Settlement.
1. Definition and Constituent Products
Under Article 72 of the EPRX Trading Rules Supplementary Volume, the Composite Product is a bundled bid product combining four products: Primary Reserve (FCR, within 10 seconds), Secondary Reserve I (S-FRR automatic, within 5 minutes), Secondary Reserve II (S-FRR manual, within 5 minutes), and Tertiary Reserve I (FRR manual, within 15 minutes). Note that Tertiary Reserve II is not included and continues to trade as a standalone product in the day-ahead market.
2. Bundled Bid (内数入札): The Core Concept
The Composite Product uses a "bundled bid" (内数入札) approach. When a bidder submits a Composite Product bid, they may also submit separate standalone bids for each constituent product — but the Composite Product bid volume is "included within" (内数) the standalone bid volume. The EPRX system ensures that the sum of composite and standalone cleared volumes for the same resource does not exceed its actual available capacity.
For BESS operators, this means they can participate in both the Composite Product market and standalone product markets simultaneously. The system automatically selects the combination that minimizes total market cost — operators do not need to pre-decide which market to enter.
3. Cost-Minimization Settlement Algorithm
Under Article 32 of the EPRX Trading Rules Supplementary Volume, Composite Product settlement uses the "cost minimization" principle: subject to satisfying each product's procurement requirement (調達必要量, as announced by OCCTO), the algorithm minimizes the total sum of all clearing costs. The settlement algorithm operates as follows:
- Collect all bids: The system collects all Composite Product bids (including ΔkW volumes and prices for each constituent product) and all standalone product bids.
- Formulate the LP problem: Construct a linear programming problem with "minimize total clearing cost" as the objective and "cleared volume per product ≥ procurement requirement" as constraints.
- Solve for the optimal combination: Simultaneously evaluate all-composite, all-standalone, and mixed clearing scenarios; select the minimum-cost solution.
- Determine composite ΔkW cleared volumes: For each cleared Composite Product bid, determine the ΔkW cleared volume for each constituent product.
- Notify clearing results: Per Article 33, notify each bidder of their composite ΔkW cleared volumes and the clearing unit price for each constituent product.
4. Non-Simultaneity and Capacity Efficiency
A key characteristic of the Composite Product is "non-simultaneity" (不等時性). Since Primary Reserve responds within 10 seconds, Secondary within 5 minutes, and Tertiary within 15 minutes, all four products will never simultaneously reach their maximum demand at any given instant. A BESS resource can therefore satisfy multiple balancing reserve requirements simultaneously with a relatively smaller total capacity — this is precisely why the Composite Product is particularly attractive for BESS operators.
5. Competition Between Composite and Standalone Products
The cost-minimization algorithm creates a competitive relationship between composite and standalone products. The algorithm compares total costs across three scenarios: all-composite clearing (Scenario A), all-standalone clearing (Scenario B), and mixed clearing (Scenario C). In practice, Scenario C (mixed clearing) is most common — for example, Tertiary Reserve I requirements may be met by composite product clearing while Primary Reserve requirements are supplemented by standalone bids, depending on which combination yields the lowest total cost.
6. Implications for BESS Investment Strategy
1. Composite bids improve clearing probability: Because the cost-minimization algorithm simultaneously considers composite and standalone bids, composite bids are in most cases more likely to clear, as they provide the algorithm with greater optimization flexibility.
2. Non-simultaneity reduces required capacity: BESS operators do not need to reserve full capacity for each balancing product separately. By leveraging non-simultaneity, a relatively smaller total capacity can simultaneously participate in multiple balancing markets, improving capital efficiency.
3. Regional area selection is critical: Composite Product clearing prices vary significantly across regions. Chubu's intense competition (fill rate 285%) drives clearing prices down (¥1.86/ΔkW), while Kyushu (¥3.1) and Tohoku offer higher returns. New BESS project siting decisions should fully account for regional price differentials.
4. Triple-revenue stacking strategy: The Composite Product's stable revenue band (¥2.1–¥3.5/ΔkW) serves as BESS base revenue, layered with JEPX spot arbitrage and Capacity Market T-4 auction revenues to form a triple-revenue structure that substantially enhances overall BESS IRR.
