The reason ORIX Group, one of Japan’s leading renewable energy operators, has entered the market for battery storage can be simply stated, but hides a big ambition: to turn unreliable renewables into a steady, 24-hour a day power source.
The trouble with solar and wind farms is that their output varies with the weather: in sunny or windy conditions they can produce too much energy for the electricity grid to absorb, so it goes to waste; at other times, for example during the night, they generate nothing at all.
Batteries have long been seen as a potential solution to this ‘intermittency’ problem. Traditionally, operators have installed batteries right next to renewable power sources or on the premises of electricity consumers, with the aim of stabilizing individual facilities.
As batteries have become larger, more efficient and cheaper, however, a different solution has become feasible: large-scale battery storage installations that can help stabilize the entire power system by storing electricity when there is a surplus and discharging it when there is a shortage.
With more and more wind and solar farms being connected to Japan’s national grid, the need to balance supply and demand – often in real time – is becoming a critical requirement.
As Taro Suemitsu, Senior Manager in the Electric Power Business Department of ORIX’s Energy and Eco Services Segment says: “Battery storage can manage both time shifts from daytime to nighttime and real-time supply and demand adjustments on a second-by-second basis. Battery storage does not generate electricity on its own, but plays a crucial role in stabilizing the inherently unstable nature of renewable energy sources.”
First mover advantage
Given its experience in building and running renewable energy projects such as solar energy, ORIX was quick to understand this need and decided to enter the battery storage plant business in 2022.
Its first facility, the Kinokawa Energy Storage Plant in Wakayama prefecture, started operations last December. With 64 lithium-ion storage battery containers installed across approximately 8,000 square meters, Kinokawa has a rated output of 48 Megawatts (MW) and a rated capacity of 113 Megawatt hours (MWh). This makes it one of the largest battery storage plants in Japan to date, according to ORIX’s own figures.
Already, however, the group is building an even larger one. The Maibara-Koto Energy Storage Plant, in Shiga prefecture, will have a rated output of 134MW and a rated capacity of 548MWh when it begins operations in 2027.
To make such large grid-connected storage facilities economically viable required not only more affordable batteries, but also further deregulation of Japanese electricity markets, Mr Suemitsu notes. In 2024, two new electricity markets—the capacity market and the balancing market—became fully operational, complimenting the volume-based wholesale market liberalized in 2005. This has enabled power trading that leverages the strengths of battery storage, such as discharging during peak demand periods and executing precise output control down to the second
Battery storage plants can utilize these new markets, and it is these changes in the underlying market structure that are attracting new players such as ORIX into the power storage and power trading businesses.
And early challenges
Being first in the market was not always easy, however. Mr Suemitsu and his colleague Masato Nakata, Senior Manager in the Business Development Department of the Energy and Eco Services Division, remember that when they launched the Kinokawa project in 2022, the regulatory landscape was still very unclear.
On top of that, they needed to secure suitable land and win over local governments and communities. “Battery storage facilities were unknown at that time’, says Mr Nakata. “We held many informational sessions for local residents and officials. And still, we were constantly asked if we were installing solar panels.”
It helped significantly that Kinokawa was structured as a joint venture with Kansai Electric Power (KEPCO), the country’s second-largest utility and the supplier for the Kansai area, including Wakayama. KEPCO had been actively engaged in new demand response initiatives and virtual power plants (VPP) for grid balancing. Given the alignment of both companies' interests, they decided to jointly develop the project.
There were some fraught times during the execution of the project given the supply chain disruptions from the pandemic and the Ukraine war; and the fact that under government rules the installation of battery containers had to be completed within one financial year in order to benefit from subsidies. “There were multiple times when we seriously considered calling off this project”, Mr Suemitsu recalls. “But the presence of our joint venture partner kept us motivated. This created a dynamic where we pulled each other forward, helping to keep the project moving.”
Following December’s launch, the two 50/50 partners will focus on their respective strengths. ORIX, through its ORIX Renewable Energy Management subsidiary, originally established to maintain solar plants, will handle the security management and maintenance of the assets over their 20-year or so lifespan. Meanwhile, KEPCO has established a subsidiary called E-FLOW, which is responsible for managing electricity trading.
Forward with Purpose
Having set many precedents, the Maibara project should be easier, Mr Nakata notes. It will also operate under a different business model, Mr Suemitsu points out. ORIX won the contract to build Maibara as part of Japan’s first Long-Term Decarbonization Power Auction, which provides long-term revenue stability similar to the original Feed-in Tariff (FIT) system for solar energy.
“To put it simply, it is structured to trade some upside potential for downside protection”, he says. “This makes it fundamentally different from Kinokawa in terms of risk and revenue structure.”
Gaining experience of new mechanisms and securing battery storage assets is crucial for ORIX as it seeks to optimize its current roughly 1 Gigawatt renewables portfolio before the original FIT contracts expire in the early 2030s.
But seeing firms like ORIX pioneer new markets such as battery storage is also critical for Japan as it seeks to meet its 2050 net zero goal. It is just one more way in which ORIX is “Finding Paths. Making Impact”.
