✅ Roughly speaking
Introduction
This time, we will explain the legal practices involved in the grid storage battery business.
In Japan in 2025, with the rapid expansion of renewable energy, the introduction of grid storage batteries and legal risk management have become important themes that will determine the competitiveness of companies.
While storage batteries are becoming essential for absorbing fluctuations in renewable energy output and maintaining a supply-demand balance, legal and administrative issues are becoming apparent, including a sharp increase in connection applications, the risk of fluctuations in construction costs, and increasingly complicated administrative procedures such as converting agricultural land and obtaining development permits.
We will provide a systematic explanation of the latest market trends, practical aspects of connection considerations and contract procedures, government responses, the structure of the subsidy system, and even the future direction of legal practice.
Relationship between renewable energy sources and grid storage batteries
The output of renewable energy (mainly solar and wind power) fluctuates greatly depending on the weather and season.
To absorb these fluctuations and maintain a balance between supply and demand, it is essential to stabilize the grid using storage batteries.
In particular, power system operators are placing increasing emphasis on storage batteries as a means of frequency adjustment and supply-demand adjustment as the proportion of renewable energy increases.
In recent years, hybrid systems that combine renewable energy generation with storage batteries have become widespread, and business models that avoid output control are expanding.
Furthermore, schemes are being developed that allow storage batteries to be used independently as energy storage stations to generate revenue in the capacity market, adjustment power market, and wholesale electricity market.
For example, in the supply and demand balancing market run by the Organization for Cross-regional Coordination of Transmission Operators (OCCTO), storage batteries can provide balancing power through hourly bidding and earn revenue.
This has dramatically improved the economic viability of storage batteries in areas with many renewable energy sources.
In order to achieve the renewable energy ratio target (36-38%) by 2030, the introduction of storage batteries is positioned as a "receptacle" for renewable energy.
As a new source of revenue after the end of the FIT/FIP system, the battery storage business is becoming a strategic option for both power generation companies and investors.
Current environment and regional characteristics of the storage battery market
In Japan's storage battery market, the supply and demand structure and control conditions vary greatly from region to region.
In Kyushu in particular, the rate of solar power generation installation is about twice the national average, and output control has become the norm.
In fiscal 2024, the control rate was set at 6.1% and the control volume was set at 1.04 billion kWh, the highest level ever recorded.
This has led to a rapid increase in power generation businesses incorporating battery storage.
Similar control risks are also becoming apparent in Hokkaido and Tohoku due to transmission capacity constraints.
Between the Kyushu, Shikoku, Chugoku, and Chubu areas, "wide-area simultaneous suppression" has been confirmed, where output suppression occurs in multiple regions at the same time due to limitations on interconnection line capacity.
In these regions, the installation of grid-connected batteries is becoming a prerequisite for renewable energy development.
Meanwhile, in the Kanto and Kansai regions, the battery storage business is developing near demand areas.
It is being increasingly adopted for peak shifting during grid congestion and as an emergency backup, particularly in factories, data centers, and logistics facilities.
In addition, subsidy programs by local governments and demonstrations of regional microgrids are progressing, and market potential is clearly differentiated by region.
Status of connection application
According to statistics from OCCTO and individual electric power companies, the number of applications for connection consideration in fiscal 2024 reached a record high of 9,544 (approximately six times the number from the previous year).
In terms of capacity, it will be approximately 95 million kW (as of March 2025) , the largest ever combined renewable energy and storage batteries.
The surge is due to investors rushing to secure rights following the expansion of carbon-neutral energy auctions and subsidy schemes.
However, there are many applications for "empty reservations" or for the purpose of resale, and there are a number of cases where it is difficult to distinguish them from applications for actual use.
Therefore, from fiscal 2025 onwards, the Ministry of Economy, Trade and Industry plans to require applicants for connection studies to submit a security deposit and land rights confirmation documents, and to set a limit on the number of applications.
These strengthened regulations are expected to give priority to projects with real business potential, eliminating speculative acquisition of connection rights.
In addition, the disclosure of "construction cost estimates" and "information on congested areas" at the application stage is also progressing, requiring investment decisions that take into account risks from the early stages of development.
Going forward, ensuring transparency from connection consideration to contract signing is expected to directly lead to increased trust in the industry as a whole.
Points to note regarding acquisition of rights and contracts for power storage plants
Below, we will explain the most important aspects of "acquiring rights" and "contractual practices" when advancing the energy storage business.
Rather than simply explaining the procedure, we will delve into the issues and legal issues that arise in actual contract and negotiation situations, and explain the points to note for each item.
System and operational process for connection consideration and connection contract application
The connection review and contract application process is the most important step that forms the basis of the development schedule.
By applying to the power company to consider connecting to the grid, you will be provided with information such as the grid's ability to accept the electricity, an estimate of the construction costs, and the necessary equipment requirements.
Once this response is received, development will progress significantly, but because the validity period is short, generally one year, it is necessary to move quickly to the next contract application stage.
After receiving the above response, the determination of design conditions, environmental impact studies, and preparation for permits and licenses will be carried out in parallel.
If these are delayed, the validity period will expire and you will have to reapply, which will directly delay the entire project.
When applying for a connection contract, you will be required to pay a security deposit, but this security deposit is not simply a "reservation fee" but is positioned as a guarantee that shows your intention to realize the project.
Therefore, it is essential to clearly state the conditions for the return of the deposit, and specify the events under which the deposit will be returned, such as "failure to obtain administrative approval," "significant increase in construction cost estimate," or "withdrawal of consent for grid connection."
Additionally, once construction orders have been placed, it becomes difficult to change specifications, so the key to risk management is to clarify in the contract the approval process at the time the design is finalized and the allocation of costs when changes occur.
Practical checklist for rights transfer and contract negotiations
Due diligence on connection rights and land use rights
When transferring connection rights or land use rights, the first thing you should check is the authenticity and current validity of the "Connection Consideration Response Form."
It is necessary to carefully examine whether the capacity, location, and validity period stated in the response document are consistent with the latest grid information, and whether the grid constraints have been changed since it was issued.
Furthermore, the rights to the target land are also important, and we will comprehensively consider the owner on the land registry, the status of the surface rights and leasehold rights, the zoning and building coverage ratio restrictions, and whether the land can be converted under the Agricultural Land Act.
In the case of agricultural land, the possibility of conversion and the procedures for obtaining non-agricultural land certification vary depending on the zoning, so prior consultation is essential.
In addition, since each local government has different judgments regarding whether a battery container is considered a "building," it is necessary to check whether building confirmation or development permission is required based on the structure, foundation, and installation area.
Mandatory/recommended clauses in the contract
The representation and warranty clause reduces the risk of the contract being invalid in the future by guaranteeing that the application is genuine and not false, and that the land rights and permits obtained are legal.
The price and settlement clause clearly states the rules for sharing construction costs in the event of fluctuations, avoiding unexpected cost increases.
Preconditions and termination clauses are used to manage risks that are dependent on external factors such as subsidies, auction results, and approvals and licenses, and provide for provisions that allow for termination and liquidation depending on the success or failure of the contract.
The return clause specifically defines the circumstances under which the deposit or advance payment will be returned.
The damages clause for breach of representations and warranties clarifies the mechanism that allows for both contract termination and compensation for damages when a breach is discovered.
Timing management and schedule clauses clearly specify deadline management for each milestone and procedures for dealing with delays, making process management visible when multiple stakeholders are involved.
In addition, it is essential to clearly state important practical matters such as performance guarantees, operational responsibility, and revenue distribution in the aggregator contract to prevent any problems.
Actual risk patterns and avoidance measures
The most common risks and problems in battery development are the acquisition of connection rights for the purpose of seizing or reselling.
In order to verify the actual status of the business entity at the early stage of the transaction, we require the presentation of past project performance and financial documents to confirm the genuine business intentions.
Regarding the risk of increases in construction costs, it is necessary to include renegotiation clauses and cancellation provisions at the time of signing the contract, and to put in place a system that allows for automatic settlement if the fluctuation exceeds a certain percentage.
Delays in licensing procedures frequently occur due to differences in the response of local governments, so it is necessary to document submitted documents and consultation history to prevent delays due to changes in examiners.
Furthermore, in the operational phase, there are increasing risks of breaching aggregator contracts and cyber risks, so we believe it is important to prepare emergency response manuals and clarify the allocation of damages.
Future policy and market trends and risk management at the time of implementation
In fiscal 2026, the target capacity of storage batteries in the long-term decarbonized power source auction is scheduled to expand to 2.0 GW, and the application ratio is expected to reach approximately 4.5 times.
The target for domestic battery installation in 2030 is 14.1 to 23.8 GWh.
These statistics confirm the rapid growth of the battery storage market and are essential for understanding the system design and market trends described below.
Given this background, this chapter analyzes the latest policy trends and the direction of market growth, and systematically organizes the associated practical risk management responses at the investment, contract, and operation stages.
Key policy and market trends
Through the long-term decarbonized power source auction, the government is establishing a system to support the introduction of storage batteries with the aim of ensuring a stable supply of decarbonized power sources.
In fiscal 2025, 1.37 GW (1.37 million kW) of capacity was allocated, with the total number of applications reaching 6.96 million kW, highlighting the high level of competition.
The successful bidder will receive a fixed income for 20 years, making it easier to arrange project finance and giving them an advantage in terms of bank loan credit.
The government is tightening the system, including imposing a cap on applications and making it mandatory to submit land registry and land survey documents, in order to prevent unauthorized seizures and resale of rights.
While these system reforms raise the barriers to entry for investors, they also work to concentrate funds on truly viable businesses.
In addition, measures to address regional grid congestion and reviews of non-farm type connections are also underway, and it is important to note that the system implementation differs depending on the development region.
The government is currently implementing policies aimed at strengthening wide-area interconnections and expanding the balancing power market, thereby increasing the system value of storage batteries.
Future implementation and O&M (operation and maintenance) risks
As mentioned above, the target for the domestic introduction of storage batteries is set at 14.1 to 23.8 GWh in 2030, and the market is expected to expand approximately 18 times from 4.17 billion yen in 2022 to 75.8 billion yen.
However, while the introduction of these systems is progressing rapidly, there is a serious shortage of specialized personnel at each stage of the process: design, construction, and O&M.
Among O&M costs, items such as regular inspections, repair and replacement of battery modules, remote monitoring, and performance degradation diagnosis are driving up costs.
To address this, technologies such as preventive maintenance using AI and operation optimization using digital twins are being introduced, and there is a growing movement to achieve both cost reduction and life extension.
On the other hand, the more outsourced management is, the more ambiguous the division of responsibilities in the event of an emergency or trouble, making it necessary to strictly define contractual SLAs (service level agreements) and reporting systems.
It is advisable that operation manuals and maintenance contracts clearly state monitoring obligations, initial responses when abnormalities are detected, reporting deadlines, and the scope of costs to be covered.
In particular, we believe that it is essential in practice to link risk response in the event of a disaster or power outage with business continuity plans and to secure communication routes with local governments and fire departments.
Important points to note regarding investment contracts and management practices
At the investment contract stage, it is important to understand the latest market systems and subsidy schemes.
In particular, in capacity markets and long-term decarbonized power source auctions, bidding conditions, equipment certification, and performance obligations after winning the bid are set strict, and there is a risk that security deposits will be confiscated or bidding eligibility will be suspended if the conditions are not met.
Investors need to design their business schemes flexibly so that they can respond quickly to changes in laws, regulations, and systems.
When negotiating a contract, it is important to confirm the contents of the representations and warranties and MAC (material adverse effect) clauses required by the financing party (banks and investors), and to clarify to what extent external risks such as policy changes, system reforms, and fuel price fluctuations could constitute grounds for termination.
In addition, when it comes to risk management during operation, it is important to ensure that contracts cover responses to cost increases and technology updates.
If construction contributions or maintenance costs increase, periodic reviews based on the settlement clause must be conducted and a system established to ensure fair allocation of costs.
In addition, by clearly defining the renegotiation process and deadlines in preparation for the emergence of new technical requirements, such as non-farm connections and grid expansion, it will be possible to prevent discrepancies between the parties.
Finally, we believe that the key to long-term stable operations is to regularly reevaluate the entire revenue model and diversify risks by reviewing aggregator contracts and participating in multiple markets.
Subsidies and support systems and practical solutions for implementation
Subsidy systems are the most effective policy tool for reducing the initial investment burden of introducing storage batteries.
Support schemes from the Ministry of Economy, Trade and Industry and the Ministry of the Environment provide subsidies of up to 4 billion yen for large-scale projects of over 10 MW, and it is expected that similar subsidies will continue to be provided in the future.
This will reduce the initial investment by approximately 30% and increase the profitability of the project.
In particular, a business model that combines long-term decarbonized power source auctions with subsidies to achieve both stable income and reduced initial costs is becoming popular.
However, the application process for subsidies is extremely complicated, and even after approval, there are many obligations, such as submitting reports and responding to audits.
There is a risk that incomplete documentation or delays in progress reports will result in the application being rejected or the application being ordered to be returned, and because the system changes frequently, it is important for the legal and accounting departments to work together and continue to check the latest notices.
In addition, it is important to understand that "adoption does not mean funding is confirmed" and that the subsidy is only officially secured once the grant decision notice is received, and to reflect this in your actual cash flow plan.
Subsidies are an effective tool for reducing business risk, but I personally believe that a financial plan that does not rely too heavily on the system is necessary.
Development process and administrative procedures
It is no exaggeration to say that the success or failure of a battery storage business depends on understanding the laws and regulations from the planning stage and the accuracy of government responses.
Below, we will explain the practical and legal procedures that should be taken into consideration at each phase from planning to the start of operation.
First, in site selection , both grid connection possibility and land use restrictions are evaluated simultaneously.
In areas with congested grids, the key to success is to apply for connection early, compare multiple potential locations, and identify the best one. I truly believe this is important.
Once you submit an application for connection consideration, the electric power company will issue a response letter clarifying the construction costs and technical restrictions.
Based on this information, we estimate the total project costs and profitability and make an investment decision.
The next step is to conduct due diligence on the land , checking the rights on the land registry, the status of easements, surface rights, and leasehold rights, land use and usage restrictions, and whether the land can be converted to agricultural use.
If agricultural land is involved, permission for conversion is required in accordance with Articles 4 and 5 of the Agricultural Land Act. Personally, I have the impression that there are a surprisingly large number of cases that require conversion to agricultural use.
If the agricultural land is classified as Type 2 or Type 3 agricultural land, it can be converted to other uses, but if it is designated as high-quality agricultural land, conversion is not permitted in principle.
It is important to hold early discussions with your local agricultural committee and consider the possibility of obtaining a non-agricultural land certificate.
Careful consideration is also required from the perspective of the City Planning Act, Building Standards Act, and Fire Service Act .
If the battery container has a foundation or is treated as a permanent installation, it may be considered a "building" and development permission and building confirmation will be required.
In addition, there are cases where the Fire Service Act requires the installation of fire and disaster prevention equipment, and regulations on the handling of hazardous materials may apply, so if you fail to check these things, you may be subject to corrective orders or penalties later on.
Once construction begins , we must fulfill obligations under the Electricity Business Act and safety regulations, such as construction safety management, supervision by a chief electrical engineer, and keeping trial operation records.
When I was working for a power generation company, I remember having a lot of trouble securing chief engineers, and I think some of our readers may also be struggling with how to secure chief engineers.
In the O&M contract, it is important to clearly state safety responsibilities, accident response and reporting systems, and define the chain of command in the event of an abnormality.
Once operations begin, it is recommended that additional revenue be secured by utilizing systems such as capacity markets and decarbonized power source auctions.
Finally, cooperation with the government and local community is essential for stable long-term operation.
Based on the renewable energy introduction guidelines and landscape ordinances formulated by each local government, we will promote social consensus by holding explanatory meetings for local residents and publishing environmental consideration documents.
This will help us gain the trust of local communities and ensure sustainable business operations.
The battery storage project appears to be a fairly difficult undertaking, requiring comprehensive strength from legal, technical, and administrative departments in close cooperation.
Summary and Future Outlook
As stated above, we have organized the practical aspects of the grid storage battery business from four perspectives: systems, contracts, administration, and markets.
Especially from 2025 onwards, as grid congestion and system reforms become more frequent, the key to competitiveness will be not just the introduction of technology but also the prevention and management of legal risks.
During the development stage, a practical line of defense is to clarify the timeline from connection consideration to grid connection approval, and to limit risks through rights transfer and deposit return clauses.
During the operation stage, comprehensive management is essential, including refining O&M contracts and SLAs, responding to cyber risks, and regional collaboration.
In the future, the market value of storage batteries is expected to increase, primarily due to long-term decarbonized power source auctions and capacity markets, while uncertainty due to fluctuations in subsidies and regulations is also expected to increase.
I believe that operators should not just focus on profitability in a single year, but should also place emphasis on structural design and contract governance with an eye to the next 10 or 20 years.
In particular, there will be a need for a system that monitors factors such as updates to administrative guidelines and guidelines, changes to technical standards (JIS, IEC, etc.), and strengthened environmental impact assessments, and quickly formulates internal response policies.
In conclusion, the success of the battery storage business depends on balancing legal and technical issues.
We believe that playing a part in the social infrastructure that supports the coexistence of renewable energy and power adjustment capacity through appropriate rights design and contract management will be the core of improving corporate value in the future.
In future legal practice, it will likely become important, or even essential, for lawyers to be involved from the early stages of contract scheme design and to provide support in comprehensively organizing business concepts, licensing plans, and funding schemes.
In particular, in frameworks involving multiple parties, such as connection contracts and aggregator contracts, clarifying the priority of rights, scope of responsibility, and conditions for risk transfer will help prevent subsequent problems.
In addition, having legal staff accompany the company to administrative consultations and local information sessions, and fulfilling their legal responsibility, also seems to contribute to ensuring the trust of the company.
We believe that building such a legally-led support system will be the role of lawyers in the energy business going forward.
As someone involved in practical work in the renewable energy and ESG fields, I will be closely watching the development of this battery storage business and will use what I learn to advise companies.
comment