COLUMN 05 — Business Models
30MW+ vs 2MW
— Completely Different Battery Business Models by Scale
Grid-scale battery revenue structures differ by scale, but even at the same 50MW, "LDA-type" and "full merchant-type" create entirely different businesses. The combination of scale and strategy determines the nature of the business.
Latest Construction Cost Market — FY2024 Data
METI Stationary Battery System Expansion Study Group (published January 30, 2025):
FY2024 grid-scale battery system price:
5.40,000 yen/kWh
(Approx. 13% decrease from the previous year's 62,000 yen/kWh)
Breakdown:
- Battery cells: 4.10,000 yen/kWh
- PCS: 0.60,000 yen/kWh
- Other: 0.70,000 yen/kWh
- Construction: 1.40,000 yen/kWh(roughly flat)
Total CAPEX estimate:
approx. 68,000 yen/kWh
For large-scale projects over 50MWh, system prices reach
4.90,000 yen/kWh, reflecting economies of scale.
For overseas products without subsidies, cost levels of
20,000-40,000 yen/kWh have also been reported.
Source: METI Stationary Battery System Expansion Study Group, 5th Meeting Materials (January 30, 2025)
According to BloombergNEF, the global average price of lithium-ion battery packs was $115/kWh in 2024, and is projected to decline to $69/kWh by 2030. Battery costs will continue to decrease going forward.
Construction Cost Comparison by Scale
| Item | 50MW/200MWh Class | 2MW/8MWh Class |
|---|
| System unit cost | 49,000-60,000 yen/kWh (significant economies of scale) | 70,000-80,000 yen/kWh (limited economies of scale) |
| Total including construction | 60,000-70,000 yen/kWh | 70,000-80,000 yen/kWh |
| Total construction cost | Approx. 10-12 billion yen | Approx. 500-640 million yen |
| Low-cost overseas estimate | Approx. 10 billion yen (50,000 yen/kWh) | — |
Two Strategies Exist for the 50MW/200MWh Class
For large-scale batteries over 30MW, there are two fundamentally different business models: the LDA (Long-term Decarbonized Power Source Auction) type and the full merchant type that does not bid in the LDA. Even for the same 50MW project, the revenue structure, risk profile, and financing approach differ entirely depending on which model is chosen.
Strategy A: LDA-Type Annual Revenue
In the LDA award model, the 20-year fixed capacity payment serves as the revenue pillar, with approximately 10% of market revenue additionally retained by the operator.
50MW/200MWh Annual Revenue Model (LDA Award):
| Item | Amount |
|---|
| LDA Fixed Capacity Income (based on contract price) | Several hundred million to over 1 billion yen/year |
| Market revenue retained (~10%) | Tens to hundreds of millions yen/year |
| O&M, insurance, management costs, etc. | Minus several hundred million yen/year |
| Estimated IRR | 2-4% (bond-like returns) |
* IRR varies by bid price, connection charges, and operational conditions. Estimates based on KPMG analysis.
LDA-Type Advantages:
- 20-year fixed income makes project finance DSCR structuring easier
- "Predictable, stable cash flow" attractive for infrastructure funds and institutional investors
- CPI-linked adjustments provide inflation hedging
LDA-Type Disadvantages:
- Intense competition with LDA award rates of only 20-24%
- IRR is relatively low at 2-4% (not suitable for investors seeking high returns)
- Approximately 90% of market revenue subject to refund
- Continuous operation of 6+ hours required from Round 3 onward
Strategy B: Full Merchant-Type Annual Revenue
Some 50MW-class projects choose not to bid in the LDA. By avoiding the LDA's 90% refund rule, they pursue a "full merchant" strategy that captures 100% of revenue from three markets: JEPX, balancing market, and capacity market. EPC and energy companies with market trading capabilities are increasingly adopting this strategy.
50MW/200MWh Annual Revenue Model (Full Merchant Type):
| Revenue Item | Annual Amount (Estimate) |
|---|
| JEPX Arbitrage | 1-2 billion yen |
| Balancing Market | 500 million-1.5 billion yen |
| Capacity Market (Main Auction) | 500-700 million yen |
| Total Revenue | 2-4.2 billion yen |
| O&M, insurance, management costs, etc. | Minus 300-500 million yen |
| Aggregator fee (10-15% of revenue) | Minus 200-600 million yen |
| Wheeling charges, RE surcharge, etc. | Minus 200-300 million yen |
| Annual Operating Profit | 1.3-2.8 billion yen |
* Estimates vary significantly by market price and operational strategy. The above are rough estimates including favorable scenarios. There is risk of convergence toward the lower bound due to the Balancing Market price cap reduction (from March 2026).
Full Merchant Decision Points
Advantages:
- 100% of market revenue retained (LDA type retains only about 10%)
- Not bound by LDA Round 3's 6-hour requirement (3-4 hour systems viable)
- Can participate in the capacity market main auction (award rate over 96%)
- Potential to achieve IRR over 10% (vs. 2-4% for LDA type)
Risks:
- Without 20-year fixed income, all market price fluctuation risk is borne by the operator
- Directly impacted by balancing market price cap reduction (March 2026, 19.51 to 15 yen)
- Difficult to structure project finance (uncertain CF forecasts)
- Advanced market trading expertise (or aggregator contract) is essential
Even for the same 50MW project, both strategies can work if grid connection costs are low.
The LDA type offers low IRR but stable income. The full merchant type offers high IRR but with market risk.
The optimal strategy differs depending on the buyer's risk tolerance and market trading capability.
What both have in common: low grid connection costs are the biggest lever for profitability.
2MW/8MWh Class — Full Merchant Annual Revenue
For the 2MW class, stacking revenue from three markets is the core of the business. Since LDA participation is not possible (minimum requirement of 30MW+), these become "full merchant type" that recovers all investment through market revenue.
2MW/8MWh Annual Revenue Model:
| Revenue Item | Annual Amount (Estimate) |
|---|
| JEPX Arbitrage | 30-50 million yen |
| Balancing Market | 10-30 million yen |
| Capacity Market (Tokyo Area 14,812 yen/kW) | Approx. 29.6 million yen |
| Total Revenue | 60-110 million yen |
| O&M, Insurance, etc. | Minus 10-20 million yen |
| Wheeling charges, etc. | Minus several million yen |
| Annual Operating Profit | 40-80 million yen |
Payback period assuming 640 million yen construction cost: 8-16 years(wide range)
* Jonetsu Denryoku estimates annual revenue of approx. 450 million yen assuming full awards, with payback in approx. 1.5 years. However, this may vary significantly after the 2026 price cap reduction.
Biggest Risk for 2MW Class: Regulatory Changes
- Balancing market price cap: from March 2026, reduced from 19.51 yen to 15 yen
- Primary and secondary-1 procurement volumes reduced from 3-sigma to 1-sigma equivalent
- Digital Grid projects "IRR over 10% in most cases," but METI MRI warns that "revenue outlook uncertainty is high"
The full merchant type can target high IRR, but is directly exposed to regulatory changes
Aggregator Selection Determines Revenue
Simultaneous participation in three markets requires advanced operational expertise. Whether for 50MW full merchant or 2MW class, most operators use aggregators (market trading intermediaries).
Major Aggregators:
-
ENERES (KDDI subsidiary): Japan's first aggregator. Track record in all 5 balancing market products.
-
Digital Grid: Plans to expand cumulative storage capacity to 383 MW by July 2028 fiscal year, investing 10 billion yen.
-
PowerX: Manufactures 3MWh per unit "Mega Power." Adopted in joint projects with Tokyu Land and others.
-
Shizen Energy (Shizen Connect): Leverages EMS technology for aggregation services.
Source: Company press releases / pps-net.org
Financing — Choosing Between PF and CF
| Item | Project Finance (PF) | Corporate Finance (CF) |
|---|
| Applicable Scale | Large projects over 10MW | 2MW and smaller projects |
| SPC Formation | GK + TK (Tokumei Kumiai) scheme | Not required (own balance sheet) |
| Advantages | Bankruptcy remoteness, double taxation avoidance, limited sponsor impact | Lower interest rates, simpler procedures |
| Disadvantages | High structuring costs, time-consuming | Balance sheet impact, depends on corporate credit |
| LDA Compatibility | Excellent (20-year fixed income makes DSCR easy) | △ |
| Merchant Compatibility (2MW) | Challenging (CF prediction difficult) | Excellent |
| Merchant Compatibility (50MW) | Challenging (EPC company BS examples exist) | Good (own BS utilization is mainstream) |
For LDA-awarded projects, the SPC structure integrating EPC, O&M, and aggregation contracts can directly apply solar PF expertise, making it easier to gain financial institution understanding. The full merchant type faces high PF structuring hurdles due to the difficulty of forecasting market revenue, making corporate finance the practical option in most cases. For 50MW full merchant projects, EPC and energy companies investing from their own balance sheets are emerging.
Cross-Industry Entry Rush — Key Examples from 2024-2025
Representative Examples of Cross-Industry Entry:
Sumitomo Corporation: Announced investment of
200 billion yen in building a battery network. Largest scale among trading companies.
Kamigumi (port logistics): Building a 13MW/54.84MWh battery station in Kasai City, Hyogo Prefecture. Expanding from logistics to energy infrastructure.
JAPEX (Japan Petroleum Exploration): Ordered EPC from JFE Engineering for its first grid-scale battery. Decarbonization investment by an oil exploration company.
Idemitsu Kosan: Established SPC at former Himeji refinery site, with JGC handling EPC. Repurposing idle assets.
Tokyu Land Corporation: Business development through 4-company partnership with Itochu, PowerX, and Shizen Energy. New territory for a real estate developer.
West Holdings: Battery station business revenue target of
50 billion yen for fiscal year ending August 2028 (approx. 9x increase from 2025).
Source: Company press releases / pps-net.org
Capital is flowing in from outside the traditional power industry because the battery business has a structure where entry is possible with "land + grid access + regulatory understanding." Generation technology itself is not required, and EPC, O&M, and aggregation can all be outsourced.
Subsidies Through GX Transition Bonds
"Grid-scale Battery and Power Storage System Introduction Support Program":
-
Budget scale: 40 billion yen total over 3 years (part of GX Economic Transition Bonds)
-
FY2024 budget: 8.5 billion yen
-
Subsidy rate: Up to 1/2 of introduction costs
-
Eligibility: New installation of battery systems directly connected to the power grid, effective RE utilization through trading in various electricity markets, introduction cost of
141,000 yen or less per kWh of battery capacity
-
Track record: 56 projects adopted from FY2021 supplementary through FY2024, with over 40 billion yen in subsidy grants approved
-
Executing agency: SII (Sustainable open Innovation Initiative)
-
Schedule: FY2025 first call deadline is May 30, 2025
Source: SOLAR JOURNAL / SII https://sii.or.jp/chikudenchi06/
Policy Change Risks and Business Decision Points
Tailwinds:
- Capacity Market clearing prices on upward trend -- 5th round reached record high of 1.85 trillion yen
- Battery cell prices on declining trend -- forecast $69/kWh by 2030
- Continued expansion of GX subsidies
- Market expansion and social awareness from cross-industry entry
Headwinds:
- Balancing market price cap reduction (19.51 to 15 yen, from March 2026)
- LDA Round 3 LiB quota reduction and 6-hour requirement
- Surge in connection review applications and tightened regulations (surge from 95 GW to 143 GW)
- Risk of JEPX spread compression with mass battery deployment
Summary — The Biggest Lever for Success is "Site Selection"
The nature of a battery business is determined not just by "scale" but by "strategy." Even for 50 MW-class projects, the IRR, risk characteristics, and financing methods differ entirely between LDA-type and Full Merchant-type. However, regardless of scale or strategy, one success factor is common -- securing a suitable site with low grid connection costs.
Projects with low connection costs increase award probability for LDA and directly boost IRR for Full Merchant. The value of a suitable site does not depend on strategy.
Related Columns
→ What is the LDA? — Explaining the 20-Year Fixed Revenue Mechanism
-> Three Revenue Sources for Batteries -- JEPX, Balancing Market, Capacity Market
→ Main Auction vs LDA — What's the Difference?
→ Why Grid Connection Costs Vary by 10x
Sources & References:
- METI Stationary Battery System Expansion Study Group, 5th Meeting Materials (January 30, 2025)https://www.meti.go.jp/shingikai/energy_environment/storage_system/pdf/2024_005_03_00.pdf
- METI MRI Materials (August 29, 2024) https://www.meti.go.jp/shingikai/energy_environment/storage_system/pdf/2024_003_03.pdf
- KPMG Decarbonized Power Auction Analysis https://kpmg.com/jp/ja/home/insights/2024/10/decarbonized-power-auction.html
- Agency for Natural Resources and Energy, Price Cap Reduction Decision (January 23, 2026)
- SII Grid-scale Battery Subsidy https://sii.or.jp/chikudenchi06/
- SOLAR JOURNAL https://solarjournal.jp/policy/52628/
- BloombergNEF Battery Pack Price Survey (2024)
- Company press releases (Sumitomo Corporation, Kamigumi, JAPEX, Idemitsu Kosan, Tokyu Land Corporation, West Holdings)