An industry ministry panel will propose a set of power industry reforms to the government that would enable households to select electricity suppliers from 2016 and force utilities to separate their energy generation and transmission businesses between 2018 and 2020.
The measures, which would represent the most significant postwar changes to the electricity industry, are intended to create a more competitive market by allowing new entrants to participate, ending the 10 utilities’ regional monopolies, which the March 2011 natural and nuclear catastrophes proved were vulnerable.
Based on the proposals by the panel of experts Friday, the Ministry of Economy, Trade and Industry plans to submit a bill to revise the electricity business law during the ongoing Diet session.
As a result of the so-called unbundling of the industry, competition would be promoted in the power generation and retail sectors while the transmission and distribution networks, which have been under the strict control of the regional utilities, will become more accessible so various players can enter the market.
But uncertainties remain about whether the reforms will proceed as envisioned, given the reluctance voiced by the major utilities to divide their energy generation and transmission operations by splitting up subsidiaries.
According to a report agreed on by the panel, the reform process would commence with the creation around 2015 of an independent entity that would be placed in charge of coordinating power supply and demand nationwide. In the next stage, new entrants would be allowed into the household electricity retail market roughly in 2016, making it possible for consumers to start shopping for the cheapest power suppliers.
The need for a greater choice of power suppliers was recognized following complaints that consumers in the Kanto region centering on Tokyo had no option but to accept Tokyo Electric Power Co.’s electricity rate hikes last year, because the operator of the wrecked Fukushima No. 1 nuclear complex is struggling to finance mounting fuel costs for its thermal power stations.
As for the final stage of the reform, the 10 regional utilities would separate their power generation and transmission businesses around 2018 to 2020. The panel has proposed a “legal unbundling” method under which utilities would be required to turn their transmission sectors into separate companies.
The current pricing system for households, in which utilities pass on personnel expenses and other costs to their customers, should also be scrapped when power generation and transmission are separated, or at a later date, according to the report.
Japan started to liberalize its electricity market in the 1990s, allowing businesses to supply power to major utilities and large-lot users such as companies. But the process was only partial and new entrants accounted for just 3.6 percent of the electricity sold to large-lot users in fiscal 2011, amid high costs to access the existing power grid.
Meanwhile, the retail market for households is still dominated by the regional utilities.
At the panel meeting, the Federation of Electric Power Companies of Japan said the time frame for achieving the separation of energy generation and transmission “is tough at the moment,” citing deteriorating business conditions due to the prolonged shutdown of all but two of the country’s commercial nuclear reactors because of the Fukushima disaster.
But many panel members urged the utilities to back the reforms, with one expert stressing that unbundling is crucial since it would enable the country to efficiently tap a variety of power sources, including renewable energies, amid electricity shortage concerns.