1. Policy Background: Why BESS Needs "Storage-Type Operation"
Japan's power system faces structural transformation pressures. As variable renewable energy—solar and wind—expands rapidly, demand for adjustment capacity has surged, while the retirement of conventional thermal units has tightened supply. Against this backdrop, BESS has emerged as a critical decarbonized adjustment resource, making its institutional role in system operations an urgent priority for formalization.
OCCTO's document submitted at the 105th Committee (January 28, 2025) represents a systematic response to this institutional gap. The core problem is that BESS and pumped hydro share the same fundamental characteristic—bidirectional charge/discharge capability requiring kWh management—yet pumped hydro has a well-established reservoir level management framework while BESS lacks an equivalent operational framework.
The Long-Term Decarbonization Power Source Auction (FY2023) results made this problem acute: BESS secured 1,092 MW of capacity (out of 4,559 MW bid, a 24% award rate), with supply provision scheduled to begin in FY2027. How this new BESS fleet will coordinate with TSO under the surplus utilization contract framework has become a pressing institutional design challenge.
2. Core Design Logic of "Storage-Type Operation"
The essence of "Storage-Type Operation" is elevating TSO's visibility of storage resources from the "kW level" to the "kWh level."
Under the current surplus utilization contract framework, adjustment capacity providers must submit advance plans for each 30-minute slot—including discharge schedule values (upper/lower limits) and charge schedule values (upper/lower limits). TSO dispatches within these surplus ranges according to merit order, but does not directly monitor the BESS's current state of charge (SOC).
The reform introduced by Storage-Type Operation is that TSO obtains real-time data on BESS power output (kW) and available discharge kWh via dedicated online lines. This mirrors the real-time reservoir level monitoring for pumped hydro.
The institutional significance of this design can be understood from three perspectives. First, improved dispatch precision: With real-time kWh visibility, TSO can avoid adjustment capacity failures caused by insufficient SOC, enhancing the reliability of system frequency regulation. Second, cross-slot optimization potential: TSO can coordinate BESS charge/discharge sequences across an entire day, improving overall adjustment capacity efficiency. Third, infrastructure for the Next-Generation Central Dispatch System (SCUC): The next-generation system will introduce SCUC, and the real-time kWh monitoring infrastructure established by Storage-Type Operation is a prerequisite for SCUC implementation.
3. Eligibility Criteria: Practical Implications of the 10MW Threshold and Dedicated Line Requirement
| BESS Category | Capacity Requirement | Connection Requirement | Applicability |
|---|---|---|---|
| Long-Term Decarbonization Auction winners | 10 MW or more | Dedicated online line | Applicable |
| Capacity Market main/additional auction winners (stable power source) | 10 MW or more | Dedicated online line | Applicable |
| Other BESS (not in above categories) | 10 MW or more | Dedicated online line | Individual negotiation |
Design logic of the 10 MW threshold: 10 MW corresponds to the equipment capacity requirement in the Long-Term Decarbonization Power Source Auction (10 MW or more for BESS, versus 100 MW or more for thermal), and significantly exceeds the expected capacity requirement for stable power sources in the Capacity Market (1,000 kW or more). OCCTO notes that while individual BESS units have smaller kW and kWh capacity than pumped hydro, their numbers are expected to grow substantially.
Cost implications of the dedicated line requirement: Dedicated lines directly connect the TSO's central dispatch system to the power source, offering low transmission latency and high reliability, but requiring long installation periods and high costs. The requirement for dedicated line connectivity as a prerequisite for Storage-Type Operation means operators must bear substantial communication infrastructure costs.
4. Surplus Utilization Contract Constraints: What Operators Must Know
Page 17 of the OCCTO document explicitly lists constraints that are not permitted under surplus utilization contracts—critical information for BESS operators designing SOC management strategies.
C-rate limitations: Restrictions on charge/discharge current magnitude are not permitted as exemption conditions. Operators must reflect C-rate limitations in their bid capacity.
Depth of Discharge (DoD) limitations: Similarly not permitted as exemption conditions. Must be reflected in bid capacity.
Full charge maintenance constraints: Even if operators require maintaining full charge, situations will arise where TSO needs to discharge after the maintainable period expires. This constraint is not permitted. Operators must design SOC management strategies that accommodate TSO discharge commands at any time.
Cycle count limitations: In principle, operations exceeding one cycle per day are not conducted, though temporary exceptions may occur within the total cycle count limit for the contract period. Operators must appropriately reflect cycle count limitations in bid capacity, considering battery degradation costs.
5. Implementation Timeline and Operator Impact
The most critical risk point is that depending on the development status of the next-generation central dispatch system, Storage-Type Operation may not be applicable for a certain period. OCCTO has explicitly stated that if next-generation system development is delayed, it will work with TSO to consider interim measures.
For operators, this means: at the FY2027 supply provision start, the Storage-Type Operation institutional framework may not be fully in place; operators must prepare both "Storage-Type Operation compatible" and "continuation of current surplus utilization contract framework" operational scenarios; and given typical dedicated line installation periods (1-2 years), operators need to initiate connection work during FY2025.
6. Relationship with the Simultaneous Market: Future Institutional Uncertainty
Page 29 of the document cites discussions from the 12th Study Group on the Future of Simultaneous Markets (September 2024), noting that for large-scale pumped hydro and BESS, "it should be pursued to actively operate them within the simultaneous market."
The Simultaneous Market is a next-generation power market reform being advanced by METI, aiming to integrate adjustment capacity procurement with power source operation optimization. The OCCTO document's footnote explicitly states: "The introduction of a 'simultaneous market' for optimizing adjustment capacity procurement and power source operation is also being studied, and depending on the direction of those discussions, the future of Storage-Type Operation itself may change." This is an institutional uncertainty that operators must factor into long-term investment planning.
7. Practical Recommendations for Operators
Short-term (FY2025-2026): Confirm whether your BESS meets Storage-Type Operation eligibility criteria (10 MW or more, dedicated line connection). If eligible, immediately begin feasibility assessment for dedicated line connection work and negotiate installation schedules with the local TSO.
Medium-term (around FY2027): Develop SOC management systems that enable TSO to obtain real-time available discharge kWh data. Design bid capacity calculation methods that comply with "not permitted constraint" requirements, appropriately reflecting C-rate, DoD, cycle count, and other battery characteristics in bid capacity.
Long-term (FY2028 and beyond): Continuously monitor developments in Simultaneous Market institutional design and assess potential changes to the Storage-Type Operation framework after Simultaneous Market introduction. Incorporate next-generation central dispatch system development delay scenarios into financial models.
