The government approved bills Friday that will set the stage for Japan to move ahead with liberalization of the retail electricity market, something that has largely been dominated by regional monopolies over the past 60 years.
The liberalization of the market for households and other small-lot consumers around 2016 is the second part of a three-stage reform of the electricity sector the government decided to carry out after the huge March 2011 earthquake and tsunami exposed the vulnerability of the nation’s power supply system.
The disasters triggered the meltdowns at the Fukushima No. 1 nuclear power plant.
According to the Ministry of Economy, Trade and Industry, the market size to be freed up totals some ¥7.5 trillion. Market competition is expected to increase with the entry of new suppliers, such as from the gas, oil and telecommunications industries.
Households and other consumers will be allowed to choose suppliers, including those that can provide cheaper electricity prices than utilities that have served their regions until now.
To protect consumers from facing a rise in electricity rates when competition does not intensify, the government plans to retain for a certain period the current electricity price-setting system, which is intended to prevent regional utilities from setting unjustly high rates by taking advantage of their dominant positions.
A law to implement the first stage of the planned reform was enacted in November. Under it, an independent entity will be created around 2015 to coordinate power supply and demand nationwide.
In the third stage, regional utilities will spin off their power transmission and distribution sections into separate companies from around 2018 to 2020 so that power grids will become more accessible to new entrants and lead to fairer competition.
The government plans to submit a bill to achieve the third stage of the reform during the ordinary Diet session next year.
Up to now, a total of 10 utilities have handled all aspects of electricity across the nation, from generation to transmission and distribution, as well as retail.
But the triple disasters in 2011, which created power shortages, highlighted the fact Japan lacks a system enabling electricity to be transmitted beyond the various regions more freely and can respond to an increase in renewable energy amid the need to diversify its power sources.
Japan has relied on nuclear power to supply about 30 percent of its electricity, but all reactors are currently offline amid safety concerns heightened by the catastrophe at Tokyo Electric Power’s Fukushima No. 1 complex.