Power industry reform

The Abe Cabinet on April 2 endorsed a plan to reform the nation’s power industry and its market, including liberalizing electricity retail sales and removing power transmission and distribution functions from the country’s 10 major power companies. Since the reforms won’t be completed till as late as 2020, the government must act to prevent the major power companies and lawmakers representing their interests from weakening or even gutting the reform efforts.

As a first step, the government will submit a bill during this Diet session to establish by 2015 an organization for facilitating the supply of electricity from power companies to others during an emergency. Then, during the 2014 Diet session, it will submit a bill to completely liberalize the retail sale of electricity by 2016 and another bill, during the 2015 Diet session, to strip the major power firms of power transmission and distribution functions, which would take place between 2018 to 2020.

A new organization for the supply of electricity between power companies will be empowered to instruct power companies to send electricity to others when needed to overcome supply shortages. When the Fukushima nuclear disaster destabilized power supplies, it became difficult to send power from western Japan to eastern Japan because alternating current frequencies for the two regions are different — 60 Hz in western Japan versus 50 Hz in eastern Japan. To facilitate transmission between eastern and western Japan, it will be important to invest money to build frequency conversion facilities.

The retail delivery of electricity by smaller power generation entities to offices and factories has already been liberalized. But their share in the total power sales is less than 4 percent. The bill will also allow these entities to sell power to households. This will enable households to buy electricity from eco-friendly power generation entities. The problem is that the Abe government has not set a clear target for increasing the weight of green energy. It should do so at once and adopt measures to increase power generation using renewable sources.

Even if the retail market is liberalized, it will be difficult for newcomers to enter the market as long as major power companies charge high prices for use of their transmission lines. Therefore it is necessary to take away power transmission and distribution functions from major power companies. It would be better to do this at the same time as the liberalization of retail sales, rather than a few years later, to make it easier for newcomers to gain a foothold and help the reform efforts have their intended effects of breaking the major power firms’ regional monopolies.

The government must remember that the practice of relying on a relatively few number of large power plants resulted in an unstable power supply after the Fukushima nuclear crisis and the closure of many nuclear power plants. It should diversify energy sources by building a large number of small-size power plants and locating them close to the communities that they serve.