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Idemitsu Kosan Co. has pulled out of the retail electricity business because higher oil and coal costs have made it difficult for the major oil producer to compete with established utilities, the economy ministry said Tuesday.

Idemitsu entered the power retail business in January 2005 after deregulation in 2000 allowed new entrants, but it has now become the first of the new firms to exit the sector, according to the Ministry of Economy, Trade and Industry.

Large regional power firms have the advantage of relying on their nuclear and hydraulic power plants when operating thermal power facilities becomes too costly. In contrast, the new entrants have been selling electricity generated by oil and coal.

Idemitsu purchased some 60,000 kilowatts of excess power generated by firms in the Nagoya area, including a factory operated by Toray Industries Inc., for sale to other plants and buildings.

Contracts with customers for the business were terminated by the end of March and the company asked METI to rescind its registration as a power supplier Monday, the ministry said.

Idemitsu’s exit leaves 21 other companies in the power retail business, but their operations are also being hurt by higher fuel costs.

Such a trend could be a stumbling block for the government’s deregulation initiative aimed at stimulating competition between the older large power companies and new entrants to bring down electricity charges, industry observers say.

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