Japan’s emerging large-scale grid energy storage market now has its first-ever dedicated investment fund, co-managed by Gore Street Capital, which launched the UK-based Gore Street Energy Storage Fund in 2018.
Gore Street announced on December 4 that it had been selected to manage the new fund alongside Japanese entrepreneur Itochu.
This is a public-private partnership initiated by the Tokyo Metropolitan Government (TMG), which selected and appointed the pair through a competitive tender. Both parties will be responsible for the fund’s technical and economic decisions.
·TMG will provide an initial 2 billion yen ($13.63 million) investment. Itochu will also provide funding, while other private investors are being sought to participate. The investment focus will be on projects in the Kanto region, which includes the Tokyo metropolitan area and six surrounding prefectures.
Gore Street said a large part of the new investment fund's remit is to establish a new "green financing model" in Japan for investing in large-scale battery energy storage system (BESS) assets.
Its partner Itochu is active in a variety of sectors, including raw materials, machinery, metals, fashion labels, real estate, food, insurance and financial services to energy, and has sold about 55,000 home battery energy storage systems in Japan as of the beginning of this year, making it one of the market leaders.
Itochu has already entered the large-scale BESS field. In June this year, the company announced the launch of its first 11MW / 23MWh project in Osaka Prefecture in western Japan in partnership with Osaka Gas. The company also announced a large-scale BESS project in Japan in September last year in partnership with Australian developer Akaysha Energy.
The fundamental need for energy storage in Japan
Japan, like the UK, is an island nation relatively unconnected to its neighbours. This means it needs to balance and manage fluctuations within its own grid network, and energy storage is a key technology to achieve this, especially as such fluctuations will increase as the share of renewable energy increases.
Like the UK, Japan sees the de-monopoly of the electricity market as an important means of achieving greater competition in supply and services. However, unlike the UK, energy storage has yet to take off in Japan.
This is partly because historically Japan's power sector has been a series of local monopolies managed by powerful power generation companies that own and operate the grids in their respective regions. There are a variety of competitive market opportunities in the UK for ancillary services such as frequency response.
Japan's efforts to de-monopoly markets and eliminate these monopolies are still in their early stages. Meanwhile, efforts over the past year or so to create a favorable market for energy storage have gained significant momentum but are still in their relatively early stages.
Barriers are being removed
Writing in our quarterly PV Tech Power (Volume 34) earlier this year, Rystad Energy analyst Chris Wilkinson said Japan needed a “fully developed” BESS industry so that developers could “avoid curtailment, earn revenues and further promote the development of not only solar but all renewables”.
As Itochu’s involvement in the sector, and similar moves by other major players in Japan’s corporate world, such as financial services group Orix and oil company Idemitsu, suggest, the market is gradually developing. Technology providers NGK, Sumitomo Electric Industries, CATL and Gotion have also been involved in recent market entries or expansions.
Last year, Japan introduced regulations enabling energy storage to participate in bulk energy trading via the JEPX power exchange’s spot market, providing potential revenue opportunities for BESS and leading to solar developer Pacifico Energy putting the first BESS unit into operation on the JEPX in mid-2023.
Meanwhile, the ancillary services market – the opportunity that opened the door to the UK market for Gore Street and others in 2016 – is set to launch next year.
The government has also launched a grant program providing initial funding of around $100 million to directly support battery energy storage projects over 10MW, covering up to half of their construction costs, while there is also a new carbon-neutral electricity supply capacity market that enables BESS with a duration of more than three hours to participate and obtain 20-year contracts.
Gore Street has one of the most extensive BESS portfolios in the world. The company has about 1GW of operating assets in the UK, and also has assets in Ireland, Germany and the ERCOT market in Texas, as well as a 200MW/400MWh asset under construction in California’s CAISO market.
Gore Street CEO Alex O’Cinneide recently told the specialist podcast Redefining Energy that the Gore Street Energy Storage Fund’s assets earned an average of about £19 ($24) per megawatt-hour (MW) over the past year. O’Cinneide said that by investing in different markets, higher revenues can be achieved, with an average of about £6 per MWh for the UK market over the same period.
O’Cinneide, who was selected this year by the judging panel for the Outstanding Contribution Award at the Energy Storage Awards hosted by our publisher Solar Media, said in a statement today that this international experience and foundation as an early player in the UK market will be an advantage in the new Tokyo Metropolitan Government Fund.
“We have developed a specialist platform that provides all the technical expertise required to successfully monetise energy storage assets throughout their life cycle, from acquisition and construction, asset management and commercialisation, all the way to decommissioning and recycling,” the CEO said.
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