Japan moves forward on electricity deregulation

By Gavin Blair for EURObiZ Japan

The opening up and deregulation of Japan’s ¥7.5 trillion retail electricity market is underway. The Partial Revision of the Electricity Business Act was approved by the cabinet of Prime Minister Shinzo Abe on March 3, and is expected to pass through a Diet no longer in the thrall of a somewhat neutered, post-Fukushima, power industry.

The three-step process is designed to break the monopolies of the 10 privately owned regional electric power companies, reduce prices and secure a stable national power grid — one that can avoid the shortages and outages that struck after the 2011 disasters.

A large cut in electricity prices would boost household spending and lower costs for small businesses, while a truly open sector could provide cost-effective opportunities for overseas firms.

April saw the implementation of the first stage of the process, establishing an independent regulator: the Organization for Cross-regional Coordination of Transmission Operators (OCCTO). This will be followed in 2016 by the entrance of new suppliers to the market, and then in 2020 by the unbundling of the generation and transmission of electricity into operations run by separate companies.

Deregulation having already occurred in much of Europe and the US gives Japan the opportunity to learn from what worked and what didn’t. However, concerns remain about lingering bonds among the power companies, bureaucrats and politicians, and the resulting potential for inertia hampering the reforms envisioned.

Some of this resistance to change concerns the utilities’ restriction of access to the grids for renewable-energy generators, citing fluctuations in the new power sources and limitations in the transmission infrastructure.

“The capacity of the transmission grid is not public information in Japan,” notes Frenk Withoos, EBC Energy Committee chairman and vice-president of ABB Japan. “In other parts of the world, it’s much easier to understand where the bottlenecks are.

“Japan should look at how to best integrate a mix of energy sources — more wind power from the north of the country, for example, and more solar from the south. This is already being done efficiently in China. From an engineering point of view, the question is why this isn’t done in Japan,” adds Withoos.

The key to all the reforms is meaningful unbundling of generation and distribution, suggests Withoos, “if that doesn’t happen, the rest is useless.”

This will also be the biggest challenge for the existing regional power companies, trumping even the end to their monopolies, says Bastien de Lazzari, manager of marketing and strategy at Areva in Japan, a France–based firm that specialises in nuclear and renewable energy.

“The utilities won’t be able to set preferential tariffs,” says de Lazzari, who believes the generation part of the electric utilities will have more difficulty in financing investments such as in new reactors and maintaining high safety standards for existing infrastructure.

However, the fact that an electricity generator will still be able to own distribution through a holding company structure is cause for concern, according to Withoos. “It will depend how strong the independent regulator [OCCTO] will be in forcing the utilities to open up.”

Without strict regulation by the OCCTO, there is clear potential for conflict of interest when a distributor maintains equal access to different generators, one of which is its owner.

METI (Ministry of Economy, Trade and Industry) is determined to ensure neutrality through supervision of the regulator, believes Yu Nagatomi, a researcher at the Tokyo-based Institute of Energy Economics, a leading global authority in the field.

Nagatomi expects the reforms to drastically change the market in Japan and points out that the major utilities are forecasting significant upheavals.

“Tokyo is a very attractive market; and TEPCO, by its own estimates, expects to lose about 20% of its share to newcomers,” says Nagatomi. “As well as regional companies such as Kyushu Electric Power and Kansai Electric Power coming into TEPCO’s territory, new [energy] players such as SoftBank and major trading companies like Marubeni are also likely to enter the market.”

The reforms do provide opportunities for the regional utilities to expand outside their own areas, and to bundle electricity with other services, such as gas or even mobile phones, notes Withoos.

TEPCO has already signed a deal to supply electricity outside its usual catchment area to electronics chain Yamada Denki, and is aiming for sales worth ¥170 billion within 10 years to Kansai and Chubu area outlets and plants of Tokyo-based companies.

One of the central aims of deregulation is to reduce prices, though there is disagreement even over whether that will be delivered.

The current government–controlled business model is “cost+” — the price determined by the cost to the utility plus a margin. This means there is little incentive to be efficient, points out Withoos, who believes that open competition could cut electricity bills by as much as half.

Areva’s de Lazzari is unconvinced, pointing to the European experience of deregulation.

“This clearly has not happened anywhere in Europe. Quite the contrary. As a matter of fact, households are charged subsidies to finance and support the development of renewable energies. This is especially true for Germany, for example,” says de Lazzari.

Efficiency in the Japanese electricity market could be boosted with the help of companies from Europe, in similar ways to the expertise that was brought to the solar sector, suggests Withoos. A case in point is ABB’s new joint venture with Hitachi, based on the Swiss firm’s High-Voltage Direct Current (HVDC) technology, which can transmit electricity over long distances with very low levels of energy loss.

“This is a good example of how European companies can bring technology to Japan. HVDC is already in use in the [Chinese] Three Gorges Dam project, taking electricity over 2,000km to Shanghai, which wouldn’t be practical without it,” says Withoos.

Despite a history of more than a century in Japan, ABB still sees benefits in having a Japanese partner to approach domestic utilities with its technology, according to Withoos.

“The utilities, as they are in many countries, are very conservative,” he says. “They need a few people to upset their status quos.”

© Japan Today

©2019 GPlusMedia Inc.

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Long afticle, so I only got to read the first part of it (until now).

Anyways, does this mean cheaper electricity in the future?

Will there be other companies competing against the big ones?

Really hope so!

-1 ( +1 / -2 )

Anyways, does this mean cheaper electricity in the future?

Don't hold your breath. Any and all value will benefit the corporates and their, ahem, regulators.

2 ( +4 / -2 )

yeah this article sounds too good to be true. we'll just have to wait and see.

0 ( +2 / -2 )

does it work in Japan where homeowners can generate and keep their own electricity?

1 ( +2 / -1 )

If you want a good grid, the whole country has to be on the same system. This half and half is crazy strange.

Imagine if the train tracks were different widths in the West and the East.

0 ( +2 / -2 )

Don't hold your breath. Any and all value will benefit the corporates and their, ahem, regulators.

So true

2 ( +4 / -2 )

Deregulation did not happen in most of the USA. Lame attempts to pretend it is deregulated occurred, these were designed to fail so the governments can keep their monopolies in place. Keep in mind all monopolies,on utilities exist because laws are in place banning competitors so the government can control it and siphon money from them.

california is a good example. The blame for the enron situation was put to deregulation. However, california has always had a law in place which mandates all wholesale power must come through the state government. They are by law the reseller and the state was who was over pricing and fooling around. Even today, the state puts a 100 to 400% tax tier on power generated by the private companies all of whom have a state mandated monopoly.

deregulating the government monopolies is a good move just dont do it like the usa. here it was all a scam by politicians to purposely make it fail so the people would believe government monopolies on utilities is the only option.

3 ( +3 / -0 )

Mr. Frenk Withoos represents the business interests of a sizable group of the EU energy sector. Withoos belief that open competition could cut electricity bills by as much as half, is spin 'n' win patent nonsense.

At least Areva’s de Lazzari doesn't possess the temerity to view EURObiZ/JT contributors and readership as though they would struggle to locate themselves in a mirror, and concede quote, 'This clearly has not happened anywhere in Europe. Quite the contrary. As a matter of fact, households are charged subsidies to finance and support the development of renewable energies. This is especially true for Germany, for example,'.

On deregulation, the UK 'Big Six' suppliers have taken it turns to treat residential consumers like piggy banks, introducing over 800 complex tariffs making price comparison between energy suppliers similar to breaking the enigma code. Since 2007 gas prices have risen in real terms by 41% and electricity by 23%. Climate policy and carbon pricing has been pass directly to the consumer averaging almost 9 per cent of a bill.

For Japan, the costs of integrating a mix of energy sources, coupled with the complex process of unbundling generation and distribution, factoring in infrastructure modernization will require additional investment that is at present incalculable.

Withoos suggestion that 'efficiency in the Japanese electricity market could be boosted with the help of companies from Europe, in similar ways to the expertise that was brought to the solar sector' has not by any stretch of the imagination translated into lower bills. For the UK, it has heralded a 'heat or eat' culture for the elderly who require help from the tax payer in the guise of winter fuel subsidies.

If Japan moves forward on electricity deregulation there must be transparency with clear set of priorities and restructuring models that define the benefits for consumers, clear costing, transmission, distribution, retail.

0 ( +0 / -0 )

Hopefully the deregulation will mean that households will have the choice of provider and more importantly, will be able to choose a renewable energy provider - as is possible in other countries.

0 ( +1 / -1 )

Hi Todd Topolski, Out of curiosity, and a guesstimate, how much does your household energy costs reflect on your monthly budget? Do you feel it is proportionate to a how you feel as a consumer?...Pardon me for being nosey.

0 ( +0 / -0 )

Does anyone know of a market where electricity prices decreased after deregulation? Every example I know of (California, etc) has only increased significantly.

0 ( +0 / -0 )

here in Ontario Canada deregulation drove up prices overnight..don't do it.

-1 ( +0 / -1 )

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