Japan’s LTDA Explained: How the Long-Term Decarbonization Auction Works and What It Means for Offshore Wind

Published: January 26, 2026 | Updated: September 3, 2026

POLICY & REGULATION

Japan’s Long-Term Decarbonization Power Supply Auction (LTDA) pays annual capacity revenue (JPY/kW/year) rather than energy revenue (JPY/kWh), guaranteeing recovery of fixed costs over a 20-year period. In the third auction (bid year 2025), whose results were published in May 2026, offshore wind won zero capacity. Offshore wind projects under the Marine Renewable Energy Act (FIP projects) are, as a rule, not eligible for LTDA, because the scheme is designed to prevent double recovery of fixed costs. On 31 August 2026 METI settled a narrow exception: “zero-premium” projects from the earlier Rounds 2 and 3 may enter from the fourth auction. Six projects qualify, and the measure applies once. Roughly 90% of market-derived revenue is still returned to the system, capping upside while removing the downside risk that makes project financing difficult under FIP alone.

👉 Japan’s Offshore Wind Policy & Regulatory Framework

1. The Core Mechanism: Paying for Capacity, Not Output

The Long-Term Decarbonization Power Supply Auction (LTDA) was introduced to solve a structural problem in Japan’s energy transition: decarbonized power sources (offshore wind, nuclear, large-scale hydro) require enormous up-front capital, but Japan’s power market does not provide the long-term revenue visibility that project finance requires.

The core design response is to separate fixed-cost recovery from energy revenue. Under LTDA:

• Winning bidders receive an annual capacity payment (JPY/kW/year) for 20 years
• Payment is based on capacity, not generation volume (kWh)
• This payment is designed to cover CAPEX amortization and fixed O&M costs

Government documents describe the scheme as “a mechanism that guarantees a level of capacity revenue equivalent to fixed costs.” The effect is to convert what would otherwise be a merchant revenue stream into a contracted, volume-independent cash flow, improving bankability for capital-intensive projects.

One detail matters throughout this article. For variable sources such as wind, the capacity that counts is not the capacity installed. Section 5 sets out how the area adjustment coefficient works and why it changes how every published figure should be read.

2. How LTDA Differs from FIT and FIP

FIT and FIP both reward energy output. LTDA rewards capacity availability. That distinction reshapes the entire financial structure of a project.

Under FIT, the generator is fully insulated from wholesale prices. Under FIP, the generator sells into the market and receives a premium above a reference price, carrying price risk but able to capture upside. Under LTDA, the generator participates in the market but returns about 90% of what it earns there; in exchange, it receives a stable capacity payment that covers costs regardless of market conditions.

Japan’s offshore wind auctions shifted from FIT (Round 1) to FIP (Round 2 onward). Round 3 bids came in at effectively zero premium, meaning revenue depends almost entirely on the wholesale price generators can capture. LTDA is the mechanism intended to restore the fixed-cost coverage that zero-premium FIP cannot provide, though, as Section 4 explains, offshore wind FIP projects can access it only through a narrow and time-limited exception.

👉 Japan’s Offshore Wind Policy Enters a New Phase

3. The 90% Revenue Return Rule: Capping Upside to Guarantee Fixed-Cost Recovery

LTDA’s most distinctive operational feature is the revenue return mechanism. Approximately 90% of all market-derived revenue must be returned to the system.

Revenue streams subject to return include:

• JEPX (Japan Electric Power Exchange) spot market income
• ΔkW balancing market income
• Non-fossil value certificate revenue
• PPA revenue equivalent to market prices

The generator retains approximately 10% of market revenue. In exchange, it receives the full capacity payment designed to cover fixed costs. The trade-off is explicit: accept a ceiling on revenue upside; receive a floor on cost recovery.

4. Third Auction Results and Offshore Wind Eligibility: Zero Awards and the “Zero-Premium” Exception

On 13 May 2026, the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) published the results of the third auction (bid year 2025). Decarbonized power sources were awarded 4.261 GW of the 5.0 GW solicited; including LNG-only thermal, nationwide awarded capacity reached 7.299 GW, 67% of the 10.856 GW bid.

LDES is Long Duration Energy Storage. In the breakdown by generation type, the “other / general hydro / solar / wind, etc.” category, which includes offshore wind, was awarded zero. Offshore wind won no capacity in this auction and continues on the FIT/FIP track (Source: OCCTO, “73rd Capacity Market Review Meeting, Document 3,” published 13 May 2026).

This outcome follows directly from the scheme’s design. FIT/FIP projects, including public tenders under the Marine Renewable Energy Act, are, as a rule, not eligible for LTDA, in order to prevent double recovery of fixed costs. The zero result therefore says nothing about the level of the price cap: offshore wind could not bid at all.

Only “Zero-Premium” Projects, and Only Once: Settled 31 August 2026

Following discussion at the 39th Offshore Wind Promotion Working Group (19 November 2025) and the system-review working group (12 December 2025), METI settled the treatment on 31 August 2026. Among the earlier Round 2 and 3 tenders, only “zero-premium” projects are admitted to the auction’s eligible sources, from the fourth auction onward.

A zero-premium project is one that has changed the supply price in its public occupation plan to JPY 0/kWh, eliminating any possibility of a premium. The condition for participation is that the project forgo the FIP subsidy equivalent to balancing costs. Under that condition, officials assess that no double recovery of fixed costs arises.

The scale is stated. Six projects may enter, together around 700 MW on an expected-capacity basis after the area adjustment coefficient is applied. The solicitation cap for offshore wind in the fourth auction is 500 MW. METI gives its reason plainly: the offshore wind ceiling sits above the JPY 200,000/kW/year threshold that applies to other technologies, so the burden on consumers had to be weighed.

What is easy to miss is that the supply prices of the Round 2 and 3 awarded projects are already low, around JPY 3/kWh (only the Saikai-Eshima site in Nagasaki is higher, at JPY 22.18/kWh). Because resetting the supply price to JPY 0/kWh gives up very little, the value of gaining a 20-year capacity-revenue offtake option becomes correspondingly large.

Other Related Changes in the Fourth Auction

Two further changes are relevant to offshore wind. First, the applicable period is capped: the current “20 years or more” becomes “20 to 40 years” (to keep the capital-cost share from becoming excessive). Sources whose price-cap parameters are being raised, general hydro, new-build pumped storage, LDES, nuclear, and LNG-only thermal, have this cap shortened to 30 years, but offshore wind is not subject to that shortening.

Second, wind is subject to a new decommissioning-cost reserve requirement. This applies the FIT/FIP framework and explicitly excludes public tenders under the Marine Renewable Energy Act, i.e., promotion-zone offshore wind. Offshore wind projects selected in the promotion zones are therefore not caught by this reserve requirement.

5. The Cap Is Quoted Per Counted kW, Not Per Installed kW

LTDA sets a price cap for each power source. The offshore wind cap indicated at the third auction was:

• Price cap: JPY 180,655 to 200,000/kW/year (as set for the third auction)

That figure cannot be read as an amount received. Wind cannot be relied on to produce at peak demand, so the capacity market counts only a share of the capacity a project bids in. That share is the area adjustment coefficient, which for wind ran from 15.5% to 34.3% at the third auction. The cap is quoted after dividing by that coefficient, and a winning project is paid its bid price multiplied by capacity times the same coefficient.

Converted to what a project would receive per kW of installed capacity, the third-auction cap was:

• Kyushu (coefficient 15.5%): about JPY 31,000/kW/year
• Tohoku (coefficient 28.0%): about JPY 56,000/kW/year
• Shikoku (coefficient 34.3%): about JPY 62,000/kW/year

DeepWind’s estimate of the capacity revenue needed to cover fixed costs is JPY 100,000 to 120,000 per installed kW per year. On that basis the third-auction cap reached only 30% to 60% of the level a project would need.

The JPY 200,000 figure was also not calculated for offshore wind. A threshold of JPY 200,000/kW/year applied to every technology, and eight of the nine areas hit it. Shikoku shows the odd figure of 180,655 because its coefficient was high enough that the calculated value fell below the threshold.

The Fourth Auction: What the Higher Number Contains

The terms were settled on 31 August 2026. The offshore wind cap is set separately for each of the nine areas from Hokkaido to Kyushu, at JPY 345,220 to 701,172/kW/year.

That spread is again a product of the division. Converted to installed kW, all nine areas land at about JPY 110,000/kW/year (DeepWind calculation), because the formula is 110,000 divided by the area coefficient.

The 110,000 is built as follows:

• JPY 31.9/kWh × 8,760 hours × 39.3% capacity factor = about JPY 110,000/kW/year

What changed between the two auctions is where the per-kWh figure comes from. The third auction used JPY 18/kWh, the ceiling of the third offshore wind tender. The fourth auction uses JPY 31.9/kWh, derived from the JPY 30.9/kWh generation cost for offshore wind in Japan’s cost verification exercise (2023), less JPY 1.3/kWh of budget-related policy expense, then adjusted to 2025 prices using the construction cost deflator. The reference moved from what the tender allows to what the cost review says it costs. METI states the reason: the most recent tender ceiling is still JPY 18/kWh, and setting the LTDA cap on that basis raises the concern that no bids would come.

Offshore wind is also now exempt from the JPY 200,000/kW/year threshold, so the values that were previously capped come through in full.

Measured by what a project would actually receive, the increase varies by area (DeepWind calculation):

The 3.5x reported at the time compares published figures. On a received basis the increase runs from 1.8x to 3.5x depending on the area.

The new cap sits at roughly the level DeepWind estimates a project needs. Two things follow for the third auction. The zero awards were not a verdict on the cap: offshore wind could not bid at all. But the cap itself was below the level a project would have needed. Had participation been open, bids would have been unlikely at that level. METI’s own reason for changing the reference points the same way.

A ceiling is still a maximum allowable bid, not a payment: awards are set by competition, so bidding at the ceiling is rarely a viable strategy. Whether offshore wind bids into the fourth auction will depend on the height of the cap and on how far cost inflation in equipment and construction can be absorbed.

6. Capacity Factor Requirements Are Being Formalized

Government documents explicitly require:

“Generators must achieve annual capacity factors appropriate for each power source.”

For offshore wind, specific thresholds remain under discussion. However, the direction of travel is clear: capacity factor performance will become a formal condition for receiving capacity payments.

For project finance, this introduces a compliance risk layer. Capacity factors for offshore wind depend on site wind resources and turbine availability, both subject to P90 modeling uncertainty. Lenders assessing LTDA-eligible projects will need to stress-test capacity factor scenarios to confirm that the 90th percentile performance band still meets the eligibility threshold.

7. Profitability in Practice: The Murakami-Tainai (690 MW) Case Study

DeepWind uses the Murakami-Tainai offshore wind project (Niigata Prefecture) as a reference case for LTDA profitability analysis. The project, led by Mitsui & Co. and Osaka Gas, is a Round 2 fixed-bottom project selected at a supply price of JPY 3/kWh, making it one of the very projects that could realistically consider the zero-premium route described above.

Updated Configuration (January 2026 Revision)

In January 2026, the project consortium announced a turbine revision: the original 18 MW GE Vernova turbines (discontinued) would be replaced by 46 units of 15 MW turbines. DeepWind’s cost model (May 2026) reflects this configuration:

• CAPEX: approximately JPY 640 billion (estimated)
• OPEX: approximately JPY 19 billion per year (estimated)
• Capacity: 690 MW
• Operating period: 30 years (assumed)

Scenario: JPY 100,000 per Installed kW per Year

• Capacity payment received: JPY 100,000 per installed kW per year (assumed)
• Annual capacity revenue: approximately JPY 69 billion (690,000 kW × 100,000)
• Market revenue: ~90% returned → approximately 10% retained (excluded from base calculation)

On that assumption, cumulative capacity revenue covers cumulative fixed costs at approximately year 13. If capacity payments continue for 20 years, fixed-cost recovery is complete well inside the term.

It is worth testing how strong that assumption is. The JPY 100,000 is an amount received per installed kW, so expressing it as a bid means dividing by the area coefficient. Murakami-Tainai sits in Niigata, inside the Tohoku area, where the fourth-auction coefficient is 26.9%.

• 100,000 ÷ 0.269 = about JPY 370,000/kW/year as a bid
• Tohoku fourth-auction ceiling: JPY 408,857/kW/year
• Position against the ceiling: about 91%

The case therefore describes what happens when a project clears just short of the ceiling. Clearing prices are set by competition and normally settle below it. Read year 13 as the upper end of the range this assumption allows, not as a central expectation.

👉 BP’s Reported Exit from 450 MW Yuza: Winning an Auction Is Not the Same as Getting Financed

8. What LTDA Means for Developers and Offtakers

Developer Perspective

Offtaker Perspective

For offtakers seeking long-term corporate PPAs, LTDA-supported generators offer a specific advantage: the generator’s fixed-cost burden is already covered by capacity revenue, meaning default risk is structurally lower. The PPA is an overlay on an already-stable revenue base, not a lifeline for a financially stressed project.

The constraint is that the generator has limited room to offer favorable PPA pricing. With most market-equivalent revenue returned under LTDA, the economics of above-market PPA terms are largely nullified on the generator side. PPAs on LTDA projects are stability arrangements rather than yield-enhancement tools, and an offtaker expecting a discount in exchange for a long commitment will find that incentive missing.

👉 What Is a Corporate PPA? Japan Market Guide

9. LTDA and Japan’s 2050 Grid Build-Out

Japan’s 2050 grid expansion plans add a layer of context to the 20-year horizon LTDA is designed to cover. Large-scale offshore wind supported by a capacity payment is expected to contribute to system stability, and the long-term transmission build-out creates the conditions under which a 20-year contracted revenue stream is worth having.

That context also frames the limits of the current measure. The capacity route is open to six already-committed projects and closes behind them. Whatever the fourth auction shows in January 2027, the projects being planned for Round 4 and beyond will be financed against tender revenue alone unless something else changes.

👉 Japan’s 2050 Grid Master Plan Review: Offshore Wind Scenarios

Related DeepWind Articles

• Japan’s Offshore Wind Policy & Regulatory Framework: Auction, Zones, and Legal Basis
• BP’s Reported Exit from 450 MW Yuza: Winning an Auction Is Not the Same as Getting Financed
• Japan’s Offshore Wind Policy Enters a New Phase
• What Is a Corporate PPA? Japan Market Guide

DeepWind Premium Report

Why Isn't Floating Wind Bankable in Japan Yet?

The synchronized supply-chain bottleneck, quantified node by node, with a full sensitivity ranking and a bankability ladder of scaling conditions. Includes Simulator Professional (β) access to reproduce every figure on your own assumptions.

See the full analysis →

See product page for details and pricing.