Japan: An Electricity Market in Full Transformation
Between Rebalancing, Transparency, and the Energy Transition
-
by Yasmine Chaker - Article
- Publié le 23/01/2026
Ensuring security of supply, market liberalization, and a rapid energy transition: this is the complex equation Japan has been trying to solve since it began gradually opening its electricity market in 2016. Nearly ten years later, the archipelago is entering a decisive new phase. Regulatory changes, climate-driven volatility, surging digital demand, and slower-than-expected renewable deployment are all reshaping Japan’s power ecosystem in profound ways.
In this shifting landscape, ENGIE and in particular International Supply & Energy Management, is strengthening its role as an expert partner, supporting market professionalization, securing supply strategies, and enabling the integration of low-carbon solutions.
A Market Opening Up and Gaining Professionalism
When Japan embarked on its electricity market liberalization, the process was deliberately gradual. “We watched the market evolve from a very closed structure into a living, increasingly international ecosystem,” observes Hiromi Moro, Head of Japan Power at ENGIE International Supply & Energy Management. The arrival of new players, international traders, foreign utilities and alternative suppliers has driven a rise in market expertise and improved liquidity, particularly in derivatives markets.
But liberalization also exposed the vulnerabilities of a system now facing unfamiliar pressures. Climate change has disrupted traditional reference points: seasonal patterns that once guided planning have become far more unpredictable.
Meanwhile, electricity demand is slowly decoupling from demographic trends. “The drivers of electricity demand have fundamentally shifted: it’s no longer shaped by households, but by the rapid expansion of data centers and AI,” notes Hiromi Moro, a defining feature in a country where data centers and AI infrastructure now represent a growing share of consumption.
Despite a declining population and rising efficiency, overall demand is projected to increase by 22% between 2022 and 2040.
A Moving Regulatory Landscape: More Security… but Less Liquidity?
Japan’s Ministry of Economy, Trade and Industry (METI) is preparing a major shift in market design. Retailers may soon be required to hedge a significant portion of their future demand through long-term commitments.
- Objective: strengthen system resilience.
- Possible outcome: reduced liquidity on spot markets, which are traditionally used for day-to-day position adjustments.
At the same time, the European Energy Exchange (EEX) and the Japan Exchange Group have introduced new regional and long-term futures products, paving the way for more tailored hedging strategies. Provided liquidity is not spread too thin.
Another critical issue is transparency. Japan now publishes more generation data, but market participants are calling for alignment with European standards, where real-time dispatch data enables more efficient and competitive short-term trading. Data transparency is an important key for many market players, as the incumbent utilities still owns 70-75% of the generation assets in Japan.
March 2026: A Strategic Turning Point
The year 2026 could become a true before-and-after moment. In March, long-standing contracts between JERA, Japan’s largest power producer and two major retailers, TEPCO Energy Partner and Chubu Miraizu, will expire. These agreements represent substantial physical volumes.
Their termination could potentially redirect large energy flows toward the open market, significantly boosting trading activity and accelerating Japan’s integration into international market standards.
For retailers, this will require a deep overhaul of sourcing strategies. For international players like ENGIE, it represents a major opportunity to bring expertise, risk-management tools, and analytical capabilities.
Energy Transition: Renewables Delayed, Nuclear Rising, Gas Still Essential
Despite Japan’s clear ambition for carbon neutrality, several flagship offshore wind projects have been cancelled or delayed. In a country where geographic and seismic constraints limit certain generation options, the energy transition is progressing, but at its own pace, carefully balancing with supply security.
Japan’s official generation mix targets reflect this rebalancing. Renewables are expected to grow steadily, while nuclear power has been reaffirmed as a strategic pillar to ensure energy security, support decarbonization, and reduce reliance on imported fossil fuels. The gradual restart of nuclear capacity illustrates this shift and is set to play a key role in meeting long-term climate and supply objectives.
In this context, natural gas continues to act as a critical flexibility and balancing source. Globally, new LNG projects expected in the late 2020s could ease supply constraints, creating both optimization opportunities and renewed price-volatility risks for Japan.