Where does the balancing power that the market failed to buy come from?

← Back to the entry point (all 19 questions)

From outside the market. Thermal headroom and bilateral pumped-storage contracts fill the gap.

In the balancing market, bids frequently fall short of the volume tendered. Immediately after all five products came into place in April 2024, bids failed to reach the tendered volume, and the following month day-ahead supplementary procurement was temporarily suspended for some products. Even so, no blackout occurred. The shortfall comes from somewhere else.

Two pockets outside the market

The first isthermal headroom. Generators submit their generation plans a day ahead, and some output is left unused by those plans. The network companies hold contracts with thermal and other plants to use that headroom on the day (headroom utilisation contracts), settling by energy (kWh) for what is actually used. No standby fee is paid. When the Agency for Natural Resources and Energy converts this cost into the market's own unit, January 2026 came to the equivalent of ¥0.93 per kW per 30 minutes — less than a third of the ¥3.15 average clearing price in the market (composite product) that same month (Material 8, 13 May 2026; the units differ, so this is an indicative comparison).

The second isbilateral pumped-storage contracts. The network companies have secured capacity outside the market by contracting directly with existing pumped storage (the FY2026 plans total 2.66 GW across five companies — see 47-2). In Hokkaido and Tokyo, however, these bilateral pumped-storage contracts ended at the close of March 2026 (same Material 8). The floor outside the market is gradually being brought back inside it.

← scroll sideways →

Fig. 1 — What the market cannot supply is filled by two purses outside it. Sources: Agency for Natural Resources and Energy, "On the Balancing Market," Material 8 (13 May 2026); 47-2.

The state itself says "both, for the time being"

At a May 2025 advisory council, the Agency for Natural Resources and Energy concluded that minimising the cost of procuring balancing power requires, for the time being, using procurement routes outside the market — headroom-utilisation resources and bilateral pumped-storage contracts — alongside it. The market is the entrance; the floor sits outside it. That is the shape of Japan today.

Procurement costs are falling

← scroll sideways →

Fig. 2 — Procurement costs fell from ¥23.6bn in April 2024 to ¥12.8bn in September 2025. The materials attribute this to applying a reduction coefficient to tendered volume (June 2024) and to deducting volume secured outside the market from the tender (June 2025).

The cost of buying through the market fell from ¥23.6bn per month in April 2024 to ¥12.8bn in September 2025. The materials give two reasons: a reduction coefficient applied to tendered volume (June 2024), and the deduction of volume secured outside the market from the tender (June 2025). The market did not shrink; rather, the floor outside it was written in, and the volume bought through the market was reduced.

How this differs from abroad

Britain's within-day balancing (the Balancing Mechanism) and Germany's balancing procurement (auctions on regelleistung.net, run jointly by the four TSOs) are both market mechanisms. Japan's arrangement — filling what the market cannot buy with thermal headroom and bilateral pumped-storage contracts — is a Japanese design. This difference is the substance of the design gap described in 47-4: Japan has a floor outside the market.

How an investor should read this

A floor outside the market is one of the conditions under which the grid keeps running even as the price ceiling comes down. Conversely, areas where battery bids have thickened are starting to move back to market procurement (the bilateral pumped-storage contracts in Hokkaido and Tokyo have ended). Thermal headroom settles on a kWh basis and converts to the equivalent of ¥0.93 in ΔkW terms (January 2026). Because the units differ, it cannot be compared directly with bid levels. The floor under a battery's own bid is not that outside-market unit price but what it can earn in the wholesale market (47-4).

The questions in this series

I. Why the grid ran without batteries in the past

II. Why thermal, nuclear and pumped storage are not enough

48-6Can't thermal just do the balancing?
48-7If nuclear grows, do we stop needing batteries?
48-8Wouldn't more pumped storage be enough?
48-9Where does the balancing power that the market failed to buy come from? (this article)

III. Where demand and the generation mix are heading

IV. The money, and what the state really wants

The one question beyond the 1848-20 What do you pay, and what comes back?The answer differs by project, so we have built a calculator whose dials are made only from published figures. You can move unit price, clearing rate, seat fee, arbitrage spread and construction cost yourself.

Sources

Federation of Electric Power Networks, "Headroom Utilisation Guide," 2nd ed., 1 December 2023; "Headroom Operating Rules," 1 December 2023 (headroom utilisation contracts, kWh settlement)
Agency for Natural Resources and Energy, "On the Balancing Market," 1st Stable Electricity Supply WG, Material 8, 13 May 2026 (January 2026: average headroom unit price ¥0.93/kW per 30 min; composite product average clearing price ¥3.15; bilateral pumped-storage contracts in Hokkaido and Tokyo ended at the close of March 2026)
Agency for Natural Resources and Energy, 103rd Working Group on Institutional Design, 28 May 2025 (procurement routes outside the market needed alongside it for the time being)
Agency for Natural Resources and Energy, 108th Working Group on Institutional Design, Material 4, 29 October 2025 (monthly trend in procurement cost)
OCCTO, 54th Balancing Market Subcommittee, Material 4, 4 March 2025 (day-ahead supplementary procurement for secondary II and tertiary I temporarily suspended from May 2024)
NESO Balancing Mechanism; regelleistung.net (jointly run by Germany's four TSOs; procurement by auction)

Supervised by

Shinya Nakashima(Representative Director, Science X Inc.; Ph.D. in Engineering)

Works on the development, sale and technical due diligence of grid-scale battery storage plants. This column is written and supervised on the basis of hands-on transaction and evaluation practice.