“A multi-stream revenue stacking model” made it possible for Pacifico Energy to self-fund a new grid-scale battery storage project in Japan.
Developer Pacifico Energy has delivered 1.6GW of solar PV projects in Japan to date and in 2023 became the first in the country to actively trade power from two battery energy storage system (BESS) projects.
Those two projects, each of 2MW/8MWh, were considered milestones for the Japanese market. They were among the first projects to be selected for a government subsidy programme to support the uptake of energy storage, which Pacifico Energy head of energy storage Dr Mahdi Behrangrad said was useful “in proving developers of BESS assets can be a trusted partner in Japan’s efforts to support and kickstart its industry.”
In its latest development, Pacifico Energy put into commercial operation Koganai ESS Project, a 2MW BESS with approximately 10MWh storage capacity in the Greater Tokyo area, on 9 December, this time under a fully self-funded “merchant model”.
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“In the Japanese context, ‘merchant’ is defined by a shift from the historical stability of the FIT (Feed-in Tariff) regime toward a multi-stream revenue stacking model that necessitates sophisticated volatility management,” Behrangrad told ESN Premium in an interview this week.
There are differences with merchant models in more established markets such as ERCOT in Texas or the GB grid in the UK, in that the UK has a mature ancillary services market, while ERCOT “is characterised by extreme price spikes and a ‘scarcity pricing’ philosophy,” Behrangrad said.
“Japan is an emerging merchant landscape still grappling with ‘price-cannibalisation’ and fragmented liquidity across its nine regional transmission zones. To succeed here, you cannot simply ‘trust’ the market; you must quantify the basis risk and the impact of the ‘merit-order effect’ as renewables scale.”
In other words, a merchant project in Japan today is one that leverages proprietary forecasting and automated dispatch to capture value across the different revenue streams: the JEPX wholesale power market, Balancing Market and Capacity Market simultaneously.
All of this must be done while navigating a regulatory environment that Behrangrad said is “arguably more idiosyncratic than any Western counterpart”.
The announcement comes just a few weeks after Manoa Energy and HD Renewable Energy Japan said they had put a 50MW/104MWh BESS into operation in northern Japan, which will also be fully merchant, based on those same revenue streams.
Behrangrad and other sources have spoken previously about the regulatory “idiosyncrasies” of the Japanese market. In an interview a couple of months ago, ahead of the Energy Storage Summit Asia 2025 conference, the Pacifico Energy energy storage head said that the regulatory environment changes rapidly and is very complex.
Making money out of energy storage in Japan is, Behrangrad said at the time, “a brutal job,” with “many, many pieces to be understood and done smartly in order to make sure you don’t fail.”
Developer targets 2.9GWh of deployments by 2030
Nonetheless, Pacifico Energy clearly still sees Japan as an attractive market for energy storage.
Alongside the announcement of the new project’s start of operations, Pacifico Energy CEO and president Hiroki Matsuo said the company is aiming to scale up its operations and achieve 660MW/2,900MWh of energy storage installations by 2030.
Matsuo said the company was proud to be “boldly taking on the challenge of operating as a full-merchant player, independent of subsidies, in the complex and unpredictable wholesale power market.”
“This approach is grounded in our proprietary market analysis and trading methodologies, as well as the strong track record we have built since entering the market in 2022,” Matsuo said.
Mahdi Behrangrad echoed those sentiments, arguing that while the operational reality of BESS in Japan can indeed be brutal due to high capex requirements as well as evolving grid codes, the developer’s approach to overcome those challenges is rooted in technical de-risking and vertical integration.
“We aren’t just deploying capital; we are deploying a best-in-class system equipped with a data-driven optimisation platform.”
Pacifico was further able to complete its unsubsidised project due to a disciplined approach to bringing down soft costs and EPC margins by executing various functions in-house, Behrengrad said.
Meanwhile, participating in three distinct revenue streams across the wholesale, balancing and capacity markets simultaneously enables the developer to achieve a more diversified risk profile. Moving forward, Pacifico intends to reduce risk further through diversification of asset locations and market areas, Behrangrad said.
The transition to subsidy-free development is an intentional move towards institutionalising energy storage as an asset class, according to the developer. Subsidies, while offering a “safety net,” also often come with operational mandates, for example, handing over a (high) percentage of merchant revenues back to the government.
These mandates can be restrictive and stifle the ability to pivot between market products as price signals change, Behrangrad said.
“By stripping away the reliance on government support, we gain total optionality over our dispatch strategy. We aren’t just betting on a green future; we are demonstrating that BESS has reached a ‘tipping point’ where, with the right optimisation engine and lean development cycle, it can deliver risk-adjusted returns that are competitive on a pure-play merchant basis,” Behrangrad told ESN Premium.
