The Diet on Wednesday enacted legislation to end the grip regional monopolies have held for 60 years on the household electricity market by opening it up to greater competition.
The move is expected to revolutionize the ¥7.5 trillion market for households and other small consumers in around 2016, as part of a broader shake-up of the country’s power industry in the wake of the 2011 Fukushima nuclear crisis, which exposed weaknesses in the nation’s power grid and pushed up electricity prices.
Households will become able to choose their supplier, shopping around for the best prices or for those offering power from renewable sources.
The changes represent the second part of a three-stage electricity reform process underway that is expected to boost competition in the market with the entry of new suppliers, including those from the gas, oil and telecommunications sectors.
Until now, 10 utilities have handled all electricity operations in their region, from generation to distribution and sales.
A law was enacted last November, during the first stage of the reform process, under which an independent entity will be set up around 2015 to coordinate power supply with demand nationwide.
In the final stage, power companies will spin off power transmission and distribution into separate units starting around 2018 to 2020, so power grids will become more accessible to new entrants. This is expected to lead to fairer competition and will be submitted as a bill during the ordinary Diet session in 2015.
But it is uncertain whether the reforms will result in lower electricity bills, as utilities are facing higher fuel costs for thermal power generation. All of Japan’s commercial nuclear reactors are currently unplugged, as they have mostly been since the 2011 nuclear disaster triggered by a massive earthquake and tsunami.
Reacting to the new law’s enactment, the Federation of Electric Power Companies of Japan released a statement saying the country needs to retain nuclear power if it is to secure stable power supplies and if the liberalization of the electricity market is to succeed.
It is necessary to “enhance our business environment so we can operate nuclear power in a stable way over a long period of time,” even under expected severe market competition, said Makoto Yagi, head of the federation and president of Kansai Electric Power Co.
Utilities are also bracing for the full liberalization of the electricity market, which is currently freed up only in the area of supply for large factories and corporate customers.
Beginning in October, Tokyo Electric Power Co., the operator of the crippled Fukushima No. 1 plant, will begin selling power to corporate customers for the first time outside its original service area in the Japanese capital and nearby prefectures, in the hopes of countering moves by rival regional utilities entering its turf.