Long-term decarbonized capacity auctions create a market-based route to support investment in low-carbon, firm and flexible power resources needed for future system adequacy. Instead of relying only on short-term energy market revenues, the auction provides selected projects with a long-term capacity payment or revenue commitment linked to the availability of eligible decarbonized or transition-aligned resources. This gives developers stronger revenue visibility for capital-intensive assets such as renewables, storage, nuclear, hydro, hydrogen- or ammonia-ready generation, and other low-carbon firm capacity.  

The mechanism is particularly useful in systems where power demand is rising, fossil capacity needs to be replaced or decarbonized and investors face uncertainty over future market revenues. By competitively procuring capacity through defined auction rounds, the framework can align decarbonization objectives with security of supply, while allowing system planners to steer investment toward resources that support long-term reliability. It can also help reduce investment risk, create clearer market signals and support a more orderly transition from fossil-based capacity to cleaner firm and flexible resources. 

Main Outcomes of the Solution 

• Business value: Improves investment visibility for capital-intensive decarbonized power projects by providing a long-term revenue framework. 
• Sustainability: Accelerates investment in lower-carbon and decarbonization-ready power resources that can replace or reduce reliance on unabated fossil-fuel generation. 
• Reliability and flexibility: Supports long-term resource adequacy by procuring capacity that can contribute to stable electricity supply as demand grows and the generation mix changes. 

Key Deployment and Scaling Factors 

1. Clear eligibility rules defining which technologies, retrofit pathways and new-build resources qualify as decarbonized or transition-aligned capacity. 
2. Competitive auction design with transparent bid evaluation, clearing rules, contract duration and payment structure. 
3. Long-term revenue commitments that improve bankability while maintaining cost discipline through competition. 
4. Integration with wider system planning, resource-adequacy assessments and decarbonization targets. 
5. Consumer cost-recovery and governance arrangements that balance investment incentives with affordability and market transparency. 

Case studies

Organization for Cross-regional Coordination of Transmission Operators (OCCTO) Long-term Decarbonization Power Source Auction (2024), Japan 

Japan’s Long-term Decarbonization Power Source Auction is a capacity-market mechanism designed to promote investment in decarbonized and decarbonization-ready power sources while supporting stable electricity supply. The auction provides selected projects with fixed capacity payments over a 20-year period, improving revenue visibility for capital-intensive resources such as battery storage, renewables, nuclear, hydro, hydrogen- or ammonia-fired generation, and decarbonization retrofits. 

The mechanism is administered by the Organization for Cross-regional Coordination of Transmission Operators, Japan (OCCTO), and procures new investment in eligible power sources through competitive auction rounds. Winning projects receive long-term capacity revenues, funded through capacity contributions, in exchange for making capacity available to the system. The first auction was held in January 2024, with results announced in April 2024, and the mechanism is intended to be held continuously. 

The case shows how a long-term capacity auction can strengthen both decarbonization and investment certainty. OCCTO awarded 9.766 GW in the first auction, comprising 4.01 GW of decarbonization power sources and 5.756 GW of gas-fired capacity. This structure illustrates both the potential and the complexity of transition-aligned capacity mechanisms: they can support investment in low-carbon and flexible resources, but eligibility rules must be carefully designed to ensure alignment with long-term decarbonization goals. 

Terna (2025), Italy 

In 2025 Terna implemented the first auction under the Electricity Storage Capacity Procurement Mechanism (MACSE) to procure large-scale battery storage in Southern Italy, Sicily and Sardinia. The mechanism is designed to contract storage as a system resource, using long-term remuneration to support investment in assets that can shift renewable electricity and provide grid flexibility. The first auction awarded 10 gigawatt-hours of storage capacity, covering 100% of requested demand, with contracted lithium-ion battery systems scheduled to enter operation in 2028. The auction results highlighted significant market interest, with bids exceeding demand by more than four times and weighted average clearing prices of €12,959/MWh-year (Central-South: €14,566/MWh-year; South and Calabria: €12,146/MWh-year; Sicily: €15,846/MWh-year; Sardinia: €15,029/MWh-year), all well below the reserve premium of €37,000/MWh-year. The case shows how a centralized long-term auction can reduce revenue uncertainty for battery developers while giving the system operator a structured route to procure flexibility where renewable penetration and grid constraints are most material. 

References: 

1. Let's know about the long-term decarbonized power auction! |Kaisetsu Capacity Market Special Site|Electric Power Wide-area Operation Promotion Organization 
2. Long-Term Decarbonization Power Source Auctions in Japan | N&A Newsletters | Knowledge | Nishimura & Asahi 
3. FEATURE: Japan strides for decarbonizing 120 GW fossil-fuel power supply | S&P Global 
4. Terna completes first MACSE auction: 10 GWh of energy storage capacity awarded - Terna spa