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

Japan’s Long-Term Decarbonization Power Supply Auction (LTDA) pays capacity revenue sized to a project’s fixed costs for 20 years or more. Offshore wind can enter only through six zero-premium projects from Rounds 2 and 3, and only this once. The fourth auction is due in January 2027, so those developers and their lenders must now judge how far below the ceiling a project still works.

👉 Background: Japan’s offshore wind policy framework

1. The Core Mechanism: Long-Term Payments Against Capacity (kW)

LTDA was introduced to bring investment into decarbonized power. Projects costing tens or hundreds of billions of yen can recover that outlay through revenue that depends less on power market prices.

The defining feature is payment against capacity. The awarded price (JPY/kW/year) sets a capacity payment that runs for 20 years or more. From the fourth auction, the term becomes 20 to 40 years.

Japan’s Agency for Natural Resources and Energy describes the scheme as capacity revenue matched to the level of fixed costs. Lenders ask first whether debt will be repaid on time. Long-term revenue visibility is what gives the scheme its value.

2. How LTDA Differs from FIT and FIP: From kWh to kW

A feed-in tariff (FIT) guarantees a fixed price per kWh. A feed-in premium (FIP) adds a premium to the market price, so the generator carries some market risk. LTDA assumes sales into the market and carves fixed-cost recovery out into capacity revenue.

Japan’s offshore wind tenders used FIT in Round 1 and FIP from Round 2. The Marine Renewable Energy Act, renamed in April 2026, governs how sea areas are allocated for offshore wind. FIT and FIP projects, including tenders under that law, generally cannot join LTDA. The rule prevents double recovery of fixed costs.

👉 Japan’s Offshore Wind Policy Enters a New Phase

3. Returning About 90% of Other-Market Profit: Upside Traded for Fixed-Cost Cover

Winners return about 90% of their profit from other markets to the Organization for Cross-regional Coordination of Transmission Operators (OCCTO), the body that coordinates Japan’s grid supply and demand. OCCTO passes that money back to retailers and network operators.

This profit is narrower than revenue. It equals other-market income minus variable costs that were not included in the bid. The income side covers:

• Electricity sales (kWh revenue)
• Balancing market income (ΔkW revenue)
• Non-fossil value sales
• Other income earned using assets included in the bid

In a high-price year the generator keeps about 10% of that profit. In a low-price year the capacity base remains, and a negative result carries forward against later years.

4. Third Auction: No Offshore Wind. Fourth Auction: An Exception for Six Projects

OCCTO published the third auction results (bid year 2025) on 13 May 2026. Decarbonized sources cleared 4.261 GW of the 5.0 GW solicited. Including LNG-only thermal, the national total reached 7.299 GW.

LDES stands for long-duration energy storage. In the breakdown by generation type, the “other / general hydro / solar / wind” group, which includes wind, won nothing (Source: OCCTO release of 13 May 2026, reproduced in Document 3 of the 73rd Capacity Market Review Meeting, 27 May 2026).

Tendered offshore wind projects could not bid at all, so the result says nothing about whether the ceiling was right.

The Zero-Premium Exception: Settled on 31 August 2026

An agency paper dated 31 August 2026 states that zero-premium projects from Rounds 2 and 3 may enter from the fourth auction. OCCTO’s auction guidelines of 2 September 2026 carry the same treatment.

A zero-premium project has changed the supply price in its occupation plan to JPY 0/kWh, so no premium can arise. To enter, it must also give up, for the whole support period, the FIP payment that covers balancing costs (the cost of matching actual output to the generation plan). On that basis, officials concluded that no double recovery arises.

Six projects may enter, about 700 MW in total on an expected-capacity basis after the area coefficient. The offshore wind cap in the fourth auction is 500 MW. The agency’s stated reason: the offshore wind ceiling sits above the JPY 200,000/kW/year threshold common to other sources, so the burden on consumers had to be weighed.

Supply prices in Rounds 2 and 3 are JPY 3/kWh, except for Saikai-Enoshima in Nagasaki at JPY 22.18/kWh. In DeepWind’s analysis, most of these projects give up little by moving to zero, which makes long-term capacity revenue relatively valuable.

This is a one-off. The paper applies the measure only to Rounds 2 and 3, the market’s formative period, and does not expect participation from later tenders. Anyone planning for Round 4 or later should leave this route out of the plan.

Other Changes in the Fourth Auction

• Term: “20 years or more” becomes “20 to 40 years.” General hydro, new pumped storage, LDES, nuclear and LNG-only thermal have the limit shortened to 30 years. Offshore wind does not.
• Decommissioning reserve: Wind must build one, but tenders under the Marine Renewable Energy Act are exempt.

5. The Ceiling Is Quoted Per Counted kW: JPY 31,000-62,000 Installed in the Third Auction, JPY 110,000 in the Fourth

The third-auction offshore wind ceiling was JPY 180,655 to 200,000/kW/year. That figure overstates what a project would receive per kW it builds.

Wind cannot be relied on to produce at peak demand, so the capacity market counts only a share of installed capacity. That share is the area adjustment coefficient, which ran from 15.5% to 34.3% for wind in the third auction. The ceiling is quoted after dividing by the coefficient. Revenue equals the awarded price times installed capacity times the coefficient.

Per installed kW, the third-auction ceiling comes to:

• 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

Set against the fourth-auction level covered below, about JPY 110,000 per installed kW per year, the third-auction ceiling reached roughly 30% to just under 60%.

The JPY 200,000 was a shared threshold. Eight of nine areas hit it. Shikoku shows 180,655 because its high coefficient kept the calculated value below the threshold.

Inside the Fourth Auction’s JPY 345,220-701,172

The fourth-auction ceiling runs from JPY 345,220 to 701,172/kW/year by area. Per installed kW, all nine areas land at about JPY 110,000/year:

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

The change lies in the unit price. The third auction used JPY 18/kWh, the Round 3 tender ceiling. The fourth starts from JPY 30.9/kWh in Japan’s generation cost review (2023), removes JPY 1.3 of budget-related policy cost, and adjusts for prices to 2025, giving JPY 31.9/kWh.

The paper gives two reasons. A JPY 18 basis raised the concern that no bids would come. And in July 2026 the Offshore Wind Promotion Working Group set about JPY 30/kWh as the guide for which projects to advance first. Offshore wind is also now exempt from the JPY 200,000 threshold.

The multiples are DeepWind’s calculation. A ceiling is still a maximum bid, and competition sets the price. Whether offshore wind bids will also depend on how much equipment and construction inflation a bidder can absorb.

6. Capacity Factor Requirement: Offshore Wind Moves from 39.3% to 25.2%

Variable power sources, including wind, must reach a minimum annual capacity factor. For offshore wind the level was 39.3% in the third auction. For the fourth it falls to 25.2%, the lowest annual average reported to the procurement price committee over the past 10 years (Agency for Natural Resources and Energy, August 2026).

According to the agency, the requirement exists to screen out poorly sited projects with unusually low capacity factors. Generators had argued that a penalty for falling only slightly below the average was too strict.

The requirement is now looser, but the penalty for missing it remains. In DeepWind’s analysis, lenders will still want to test how a long turbine outage would affect compliance.

7. Murakami-Tainai (690 MW): The Distance Between Needed Revenue and the Ceiling

Take the Round 2 project off Murakami and Tainai in Niigata, developed by Mitsui & Co., RWE and Osaka Gas. It was selected at JPY 3/kWh, so the zero-premium route could apply. The plan at selection used 38 GE 18 MW turbines (684 MW). The draft EIA report, noticed in March 2026, shows 46 turbines of 15 MW (690 MW).

At 690 MW, each JPY 10,000 per installed kW equals JPY 6.9 billion a year. Dividing by the area coefficient converts that into a bid. Murakami-Tainai sits in the Tohoku area, where the fourth-auction coefficient is 26.9% and the ceiling is JPY 408,857/kW/year.

The more revenue a project needs, the closer its bid sits to the ceiling. How much room it leaves below the ceiling shapes its chance of winning.

The revenue a project actually needs depends on construction cost, interest rates and wind assumptions. You can test different assumptions in the DeepWind Simulator.

👉 BP’s Reported Exit from 450 MW Yuza: Winning an Auction and Getting Financed Are Different Tests

8. What Changes for Developers and Offtakers: Stability for Less Upside

In DeepWind’s analysis, an offtaker may find a generator whose fixed costs are largely covered by capacity revenue an easier long-term counterparty to assess. As the next section shows, that same generator has little room to cut its price.

9. Corporate PPAs: A Rule Against Selling Below Market

A corporate power purchase agreement (PPA) with an LTDA project falls under rules for bilateral contracts, which exist to stop generators avoiding the return by selling cheaply. Under the agency’s draft guideline (2026 revision), a contract must meet one of two tests:

• Non-discrimination: a price reached by selling on reasoned, equal terms inside and outside the group
• Market price: a price at or above a level not unreasonably low against market prices

If neither is met, other-market profit is calculated from average market prices. Discounts below the market average are allowed only in narrow cases, such as an amount equal to market participation fees.

There is one exception. Outside a price that meets the market test, a retailer may bear fixed or variable costs that LTDA does not recover, and that portion stays out of the return calculation.

In DeepWind’s reading, income from a PPA priced above market would count as other-market income, with about 90% returned. A PPA on an LTDA project is therefore a way to secure a long-term buyer more than a way to raise returns.

👉 What Is a Corporate PPA? Japan Market Guide

Related DeepWind Articles

• Japan’s Offshore Wind Policy & Regulatory Framework: Auction, Zones, and Legal Basis
• BP’s Reported Exit from 450 MW Yuza
• Japan’s Offshore Wind Policy Enters a New Phase
• What Is a Corporate PPA? Japan Market Guide
• Japan’s 2050 Grid Master Plan Review: Offshore Wind Scenarios

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