The cabinet has approved a bill to reform Japan's power industry in what will be the biggest industry shake-up in 60 years.
Economy, Trade and Industry Minister Yoichi Miyazawa told a news conference on Tuesday that the bill will remove a monopoly by regional utilities by separating power generation from transmission in 2020.
The main part of the reforms will be the opening up of the 7.5 trillion yen residential and small business market from March 2016, the centerpiece of the plan to boost competition, lower power prices and cut energy imports. Households will be able to choose among power companies.
After the Fukushima disaster crippled Japan's nuclear energy sector four years ago, the government then pledged the biggest shake up in the history of the fragmented electricity industry to boost competition and contain a surge in power prices.
Prime Minister Shinzo Abe's plan is to set up a national grid company to allow new suppliers to sell electricity to the residential sector. The original government aim was to set up a company that could guarantee equal access to all participants. But plans to give the nationwide grid management body more control over the system of distribution and transmission lines were scaled back, amid lobbying from power utilities.
The main remit of the grid company has been restricted to ensuring reliability of supply in emergencies.
The body's lack of power means the new company will be unable to force the country's 10 regional monopolies, which control generation and distribution within their regions, to boost interconnections to establish a true national grid.
The structural problems of the power grid were highlighted by the 2011 tsunami and nuclear shutdown, which left some regions with power shortages despite ample supplies elsewhere.
The government says the reforms are on track and it is committed to reducing the cost of electricity as much as possible.
Japan is the only country in the world with two electricity frequencies and needs transformers to switch power between east and west. Only 1.2 gigawatt can be transferred, about the capacity of one large nuclear reactor, and current plans are to increase this only by an extra 0.9 GW at a cost of 190 billion yen, according to a trade ministry official.
The shortcomings in setting up a national grid will make it harder to open up the power market to full competition, say officials at companies looking to enter the industry, while grid limitations could restrict the ability of independent power sellers to help drive down prices.
Independent power sellers, which often offer lower rates and consumer friendly plans, have been limited to 4% of the market by what they say are onerous operational restrictions.
The lure of selling directly to the retail market spurred more than 300 companies including Panasonic Corp and Nissan Motor Corp to register with the government to sell power independently since the Fukushima disaster.
They plan to either build their own generation plants or buy off others and act solely as retailers.
Tokyo Gas Co Ltd, for example, Japan's biggest city gas supplier, aims to grab a 10% share of the retail power market in the Tokyo metropolitan area by 2020, doubling its power generation capacity to 3,000 megawatts. The company already supplies power to larger customers after an earlier phase of liberalization.
The final stage of the reforms involves splitting up the generation and transmission units under holding companies but utilities won't be forced to shed operations under the current plans, creating further doubts about the scope of changes.
Adding to the grid body's difficulties, is the uncertainty over when and how many of Japan's 48 nuclear power plants will be restarted after the post-Fukushima shutdown.© Japan Today/Thomson Reuters