COLUMN 08 — Pricing & Transactions
How Development Rights Are Priced
— What Are You Paying For?
The amount paid when acquiring battery development rights is split into "land cost" and "rights cost." The reasonableness of the "rights cost" in particular must be evaluated with completely different logic than solar FIT ID resale. This article explains the elements that constitute development rights pricing and the framework for their evaluation.
Components of the Development Rights Package
"Development rights" is not a legally defined term; in practice, it refers to a package of the following elements traded as a bundle.
4 Components of the Development Rights Package:
(1) Project site (land ownership or leasehold rights)
The land itself where the battery will be installed. Evaluated as a real estate transaction.
(2) Connection review response document
The document issued by the transmission and distribution operator confirming grid connection conditions. The core of development rights.
(3) Confirmed construction cost contribution amount
The confirmed cost required for grid-side construction. This constitutes part of CAPEX.
(4) Various investigation and permit deliverables
Geological surveys, boundary surveys, environmental assessments, agricultural land conversion permits, development permits, etc.
Of these, (1) the land can be evaluated as a standard real estate transaction. The challenge is how to evaluate the value tied to (2)-(4), particularly (2) the "connection review response document."
Land and Rights Are Valued Separately
In development rights transactions, it is common practice to contract land and rights separately. This is because tax treatment differs and the sources of value for each are different.
| Component | Basis for Valuation | Contract Type |
|---|
| Land | Market price as real estate
(assessed value, comparable transactions, etc.) | Real estate purchase agreement
(Real Estate Brokerage Act applies) |
| Rights | Economic value of connection review response
(savings on interconnection costs, etc.) | Rights transfer agreement
("assignment of position" under Civil Code) |
The Value of Rights is Determined by "What You Can Skip"
The value of the "rights portion" of development rights is determined by the time, cost, and risk the buyer can save by holding these rights.
Key costs and risks avoided by acquiring development rights:
(1) Site selection costs
Grid available capacity, distance from transmission equipment, land regulatory restrictions, landowner cooperation. Finding land that simultaneously satisfies all these conditions is inherently difficult. Desktop screening alone takes several months; including on-site investigation of candidate sites requires over six months.
(2) Connection review time and sunk costs
The application fee for a connection review is approximately 200,000 yen per case, but results of "not feasible" or "construction costs several times the estimate" are not uncommon. In such cases, the review fee and months of time become sunk costs. If reviewing multiple sites in parallel, sunk costs increase further.
(3) Elimination of connection charge uncertainty
Until the connection review response is issued, grid construction costs are unknown. Even for the same 50MW project, costs can vary from several hundred million to several billion yen. Projects with obtained responses hold extremely high value as "cost-confirmed" assets.
(4) Securing speed of market entry
The entire process from site selection to connection review application to response to construction application takes 1-2 years or more. Acquiring development rights lets you skip this entire process. Time itself has value for meeting LDA bidding timing or subsidy application schedules.
5 Variables That Affect Price
| Variable | Impact on Price | Reason |
|---|
| Low construction cost contribution | Largest price-determining factor | Low construction costs = CAPEX compression = IRR improvement. Directly linked to economic value for buyers |
| Voltage class | Extra-high (66kV+) is highly valued | Extra-high-voltage connection can support large-scale projects (30MW+) and enables LDA bidding. High scarcity |
| Area | Correlated with capacity market prices | Hokkaido, Tohoku, and Tokyo areas have higher capacity market clearing prices and profitability |
| Remaining validity of response document | Closer expiration = lower price | Less time until construction application deadline increases schedule risk for buyers |
| Legal status of land | Permits obtained = higher value | If agricultural land conversion and development permits are already obtained, uncertainty of additional procedures is eliminated |
The Fundamental Difference from Solar FIT "ID Resale"
If you try to understand battery development rights transactions using the same framework as solar FIT-era "ID resale," you will miss the essential differences.
Fundamental difference between solar FIT ID resale and battery development rights
Solar FIT ID resale:
- The FIT certification ID itself had economic value (20-year fixed purchase price was confirmed)
- Obtaining IDs was easy through paperwork alone
- Grid connection review could be postponed
- As a result, speculative "ID acquisition then high-price resale" became rampant
Battery development rights:
- No fixed-price system like FIT/FIP exists. LDA award is a separate process
- Obtaining a connection review response requires actual technical review and several months
- Even after obtaining a response, if construction cost contributions are high, business viability does not hold
- The source of value is "low construction costs" = technically and geographically superior projects
In other words, battery development rights are not "paper rights" but "technically verified prerequisites for commercialization."
Speculative Reservation Problem and Regulatory Tightening
From 2024 to 2025, speculative connection review applications (so-called "reservation hoarding") surged, reaching an abnormal application volume of 143GW (end of June 2025). In response, METI is advancing regulatory tightening from FY2025 onward.
Key elements of regulatory tightening:
- Caps on connection review applications
- Mandatory security deposits
- Mandatory submission of land registry and survey documents
- Increased security deposit amounts at contract application
Source: METI 53rd Grid WG materials (December 2, 2024)
This regulatory tightening effectively raises the "cost of obtaining connection review responses." Going forward, obtaining new responses will become increasingly difficult and costly, meaning the scarcity of already-obtained responses -- and their market value -- will trend upward.
Criteria for Judging "Expensive" or "Cheap"
Whether development rights pricing is "expensive" or "cheap" is judged by the following comparisons:
Comparison 1: Cost of developing from scratch in-house
Time, personnel costs, and sunk costs for site selection, connection review, response acquisition, and land securing. If you conduct 3 connection reviews and only 1 achieves business viability, you need to include the cost of unsuccessful attempts in the comparison.
Comparison 2: Savings on grid construction costs
If a project has grid construction costs at 1/5 to 1/10 of market rates, the cost advantage from that difference alone amounts to several hundred million to over a billion yen. This advantage corresponds to the "embedded gain" of the rights.
Comparison 3: Impact on IRR
Calculate IRR on total investment including development rights acquisition costs, and determine whether it exceeds the target IRR. A rough guideline is 3%+ for LDA-type and 8%+ for full merchant-type.
Summary — Development Rights Price is the Cost of "Low Construction Costs"
The amount paid for the "rights portion" of development rights is essentially compensation for having secured a project with low interconnection costs. In the battery business, construction costs (batteries, PCS, etc.) are largely determined by market prices, but grid construction costs vary by orders of magnitude depending on the project.
A project with 200 million yen in construction costs versus one with 2 billion yen produces a decisive difference in 20-year IRR. That a portion of this difference is reflected in the development rights price is a natural consequence based on economic rationality.
Sources & References:
- METI 53rd Grid WG materials (December 2, 2024)
- 4th Next-Generation Power Grid WG materials (September 24, 2025)
- METI Stationary Battery System Expansion Study Group, 5th Meeting Materials (January 30, 2025)
- OCCTO Capacity Market Main Auction Clearing Results (all rounds)
- OCCTO "Flow of Grid Access for Power Generation Facilities"