Slow growth in Grid-Scale Energy Storage is limiting Japan’s Energy Transition

Japan has Asia’s second largest solar fleet, but lack of adequate energy storage has limited the ability of solar and wind to offset imported LNG as the dominant energy source.

Over the past 15 years, grid-scale battery and energy storage have lagged Japan’s growth of solar and wind, and that’s becoming a problem. The country’s grid storage capacity was just 620 megawatts at the end of 2025, according to the Institute for Energy Economics and Financial Analysis (IEEFA). That is just one-tenth of the United Kingdom’s and Australia’s levels. But that might soon change.

“The deployment of BESS in Japan started later than in many other advanced economies,” Mika Kudo, a principal researcher with the Tokyo-based Renewable Energy Institute (REI), told Gas Outlook. “Although installed capacity is still relatively limited, we believe there has been solid progress in terms of growing investment interest.”

According to a recent REI report, new policies, subsidies, and growing interest from investors could lead to an expansion of grid-scale battery storage in Japan. But doing that will require clear frameworks that streamline the planning process and cost analysis that allow for stable long-term returns. Only then can battery storage reduce the need for thermal power at times when solar and wind can’t produce energy.

“Because government subsidies are available, battery system costs have declined, and current market conditions—particularly in the balancing market—have made these projects commercially attractive,” added Kudo.

Batteries could reduce LNG imports

With limited geography and a constrained grid, the archipelago nation is starting to experience challenges from an inability to handle solar and wind intermittency, which are adding costs to the grid. The country has long been reliant on fossil fuels due to its near-total lack of oil, gas, or coal reserves. Solar and wind are plentiful, but a challenging geography – including a grid with limited capacity to transport power over long distances – has made tapping into both sources slow.

In recent years, renewable intermittency has become a bigger issue for grid management and at times has led to fluctuations in power availability. For critics of solar and wind, this has become a major talking point against adding more renewables to the grid.

“In the spring, Tokyo had to curtail renewable energy despite high import prices for LNG and oil,” Michiyo Miyamoto, a Japan energy analyst with IEEFA, told Gas Outlook. “Japan has renewable energy available but cannot always use it efficiently because the power system is not flexible.”

According to analysts, building more grid-scale storage could enable the addition of cheaper solar and wind, reducing the need for expensive peaker gas-fired power plants and costly fossil fuel subsidies.

“Well-deployed grid-scale battery storage could materially reduce Japan’s reliance on LNG, particularly when paired with renewable generation growth,” said Isaac Pang, an analyst with the Australasian Centre for Corporate Accountability, to Gas Outlook.

LNG and energy security

Until recently, Japan’s major utilities, such as JERA, Kansai Electric, and Chubu Electric, have focused on expanding baseload power. That means coal and LNG thermal plants are the focus of investments, not grid-scale storage. One reason – efforts to ensure existing investments remain viable and profitable.

“Many incumbent Japanese utilities continue to own and operate substantial coal, LNG, and nuclear generation portfolios,” said Pang. “They may therefore be reluctant to embrace increased energy storage because rapid renewable and storage deployment could reduce the utilisation and profitability of some thermal assets.”

However, Japan’s dependence on imported LNG – historically the largest consumer of the fuel in the world – has become an economic and financial issue since Russia’s 2022 invasion of Ukraine caused a global spike in LNG prices.

Over the past four years, Japan has had to pay far more for imported fossil fuels. The recent and ongoing Hormuz crisis has further impacted Japan, which gets 9.8 percent of its LNG from countries in the Persian Gulf. According to REI, the country has spent over $95.2 billion on energy subsidies for imported oil and gas, and Japanese consumers are paying some of the highest electricity rates in the world.

“LNG, oil prices, and electricity prices are going up,” said Miyamoto. “Japan imports most of its fossil fuels, and for the country reliant on imports, battery storage is very important.”

Both the Ukraine and Hormuz conflicts have impacted the Japanese economy heavily and have resulted in the weakest Japanese yen in four decades. To many, this only accentuates the need to reduce reliance on imported LNG to ensure future economic growth.

“Batteries can absorb surplus renewable electricity that would otherwise be curtailed and discharge it during periods of higher demand, directly displacing LNG-fired power generation,” said Pang.

Expanding the Battery Storage Market

In the past year, Japan’s Ministry of Economy, Trade and Industry (METI) has implemented new regulations aimed at expanding battery storage. These include subsidies covering 50%-66% of installation costs for battery systems above 10 megawatts, depending on discharge times, and legal classification as energy businesses, allowing them to access additional funds via Japan’s Long-Term Decarbonization Electricity Capacity Auction.

The result has been an increase in projects, including a 48 megawatt (MW) project led by KEPCO and a 240 MW installation at the Kita Toyotomi Substation in Hokkaido. Last year. $2.6 billion was committed by investors to battery storage. It’s a strong start, but much, much more needs to be done, as many projects remain at the planning or design phase. According to IEEFA, there are 28.7 GW of battery storage under contract application in Japan.

To accelerate the industry, REI would like to see explicit targets for battery storage in the upcoming Strategic Energy Plan, standardization of grid connection procedures, and new balancing market rules that preserve investment predictability.

“There is still room for additional policy action,” said Kudo.

Over time, battery storage can play a bigger role in improving Japan’s energy security, says Miyamoto, but only if it’s implemented properly. “Battery storage should be seen as part of a wider flexibility strategy, alongside renewable energy, transmission investment, and demand response,” argued Miyamoto. “These measures can reduce Japan’s dependence on imported fossil fuels and LNG over time.”