Debate on electricity market reform heats up


As Japan braces for a summer marked by energy-saving targets amid potential power shortages, debate about liberalizing the electricity market by unbundling generation and transmission services is slowly gaining momentum.

Prime Minister Naoto Kan’s government is studying the situation in countries that have already proceeded with deregulation, but many experts say that there are not many examples of significant success.

In the case of Britain, the first European nation to take the plunge in 1990 by privatizing the state-owned entity and separating transmission from electricity generation, power companies now face heavy burdens such as capital investment costs to sustain supply capabilities and household utility bills are rising.

“The jury is still out,” Malcolm Grimston, a nuclear and electricity policy expert at nonprofit, nongovernmental organization Chatham House, said with regard to Britain’s privatization process.

Simon Walker, a nuclear engineering expert at Imperial College, London, said, “It’s unclear whether the previous system or the current system is more beneficial.”

A spokesman at Britain’s Department of Energy and Climate Change also said the benefits of deregulation have yet to be felt due to inadequate competition.

Across the Atlantic, the drive to deregulate the electricity industry in the United States also gained impetus in the late 1990s as several states began to create wholesale markets and introduce retail competition.

But massive blackouts in California in 2000 and 2001, a crisis accompanied by price surges and financial scandals that triggered widespread economic damage, soon halted the trend toward liberalization in other parts of the country.

Ironically, the only part of California that escaped the crisis was Los Angeles, which had refused to deregulate and continued to operate its electricity supply through a vertically integrated, city-owned monopoly.

The Japanese government, still struggling to address the nuclear crisis at the Fukushima No. 1 power plant, is looking into reshaping the power grid in the hope that competition can bring down electricity charges and help spread the use of renewable energy.

But the move has spurred fierce opposition from domestic power companies intent on protecting their regional monopolies, as well as the nation’s most influential business lobby, the Japan Business Federation (Nippon Keidanren). These two forces argue that deregulation would result in unstable supply and may even trigger major blackouts.

The installation and transmission costs for renewable energy sources, such as solar and wind power, remain high compared with thermal and nuclear power plants. The likelihood of green energy undergoing a significant expansion is unlikely unless subsidies or other preferential measures are taken.

The nation’s 10 electric power companies handle everything from generation to transmission and retail distribution, and enjoy monopoly status in their service areas.

Although the power generation business was partially liberalized in the late 1990s, few new companies have entered Japan’s market because the 10 utilities maintain strict control of their power transmission networks.

Walker at Imperial College said that in order for reform in Japan to succeed, “there need to be enough competitors in the market.”

In the aftermath of the March 11 earthquake and tsunami, the fragility of such a monopolized and nuclear-dependent power grid has become obvious.