New law paves way to break up electricity monopolies

Kyodo

In light of the Fukushima nuclear crisis, the Diet enacted a law Wednesday to begin a drastic, three-stage reform of the electricity sector that will free up the regionally monopolized supply system.

The law will enable the creation of a nationwide power grid operator in about 2015 as the first part of the reform, and sets a timeline for fully liberalizing the retail market and separating utilities’ power generation and transmission businesses by around 2020.

The government has been seeking to overhaul the power industry after the earthquake and tsunami in March 2011 and ensuing Fukushima nuclear disaster led to power shortages and exposed the vulnerability of the existing electricity supply system.

As a result of the planned reform, the 10 utilities’ regional monopolies on supplying power to households will come to an end, and market competition is expected to increase with the entry of more suppliers, including those dealing with renewable energy.

This will enable consumers to choose suppliers and benefit from possible price competition among suppliers, bringing what officials say will be the most significant changes to Japan’s power sector in the postwar period.

An independent entity will be created to coordinate power supply with demand nationwide, instead of leaving it up to existing regional utilities.

When a power crunch is feared in one region, the entity can order utilities in other regions to share electricity or boost their power generation.

In the second and third stages, new entrants will be allowed into the market for households in around 2016 and major utilities will split power generation and transmission operations from around 2018 to 2020.

The “unbundling” of the industry’s key operations is intended to make transmission and distribution networks, which are currently under the strict control of regional utilities, more accessible to new entrants and ensure fair competition.

A process to liberalize the electricity market started in the 1990s, allowing businesses to supply electricity to major utilities and large-lot users.

But the process so far has resulted in only partial liberalization and new entrants only accounted for about 3.6 percent of the power sold to large-lot users in fiscal 2011, amid high costs for them to access the existing power grid.

The retail market, or the supply to households, is still monopolized by the major utilities.

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  • This is perhaps the most telling signal to me that Abe is seriously committed to reform. The diversity of generation capacity should ensure a pretty competitive market. Good to see, though it might lead to higher prices as they build capacity. Prices are set at the margin, so Fukushima rehabilitation will hit Tokyo Electricity at the margin. It will partially absorb that cost, but partly it will be recouped in the market, so taxpayers will pay. Taxpayers should ensure that there is no legacy of ‘vested contracts’, where politicians lock in prices for the sale of wholesale electricity for 10-20 years, as this is a form of hidden taxation,…so the govt can recoup higher amounts from privatisation. That would be a regressive tax as well, since we all use electricity, albeit with some discretion. Exciting times for Japan. It should stimulate the market. My advice is to buy the utilities with the greatest hydro capacity. Coal might be a surprise catch though when the greenhouse scandal is proven wrong.