Abolition of Remaining Electricity Monopolies and Unbundling in Japan

Last week, the Japanese government published the new long term energy strategy. It is available as a PDF file at the Prime Minister’s Website, and in Html format at Tokyo Shimbun. My comments here are based on the original PDF file.

In this post, I will address the question of electricity market regulation. Other areas of the policy will be the topic of other posts.

The relevant passage is section 4 on page 16 of the document. I think this is important, so I will provide a full translation:

4. Going ahead vigorously with the reform of the electricity system

“Realizing a society not dependent on nuclear energy even one day sooner”, “Realizing the green energy revolution”, and “Assuring the secure supply of energy” are the three pillars of this strategy paper. To realize these goals, it is necessary to radically reform the energy system. Until now, it was possible to regulate forward looking the best mix of electricity sources by the process of getting a de facto consensus between the government and the utilities. But from now on, a variety of producers will join the market for renewable energy, and countless consumers of energy will choose their own way of reducing consumption (raising energy efficiency), which will be the real mix of electricity sources. For a system where the citizens are the main actors, it is necessary that everybody can use the network freely and that the market is open to competition. The policy of building such a distributed network system may be called the “reform of the electricity system”.

(1) Promotion of competition in the electricity market

* By fully liberalizing the retail market, assure the freedom of “choosing electricity” for all citizens, and promote the introduction of services like demand response.

* Abolish regulations on wholesale of electricity, vitalize the wholesale market for electricity, and promote competition on the retail and wholesale level, so as to bring down costs and assure better service to consumers.

(2) Achieving neutrality and large scale of the grid

* Debundle generation of electricity and grid operation functionally and in legal structure. By this measure, the grid will be open in a neutral and fair way, including to producers of renewable and cogeneration energy.

* Set up a neutral institution that operates the grid on a large scale, so as to realize a grid spanning the whole country. (Explanation by the translator: Right now there is no national grid. Each of the monopoly utilities operates their grid on their own territory, and there is very little interconnection capacity). By this measure, the intermittency of renewable energy will be reduced, and it will be possible to effectively use the supply from a wide area.

* So as to effectively use the supply, including from renewable energy, from a wide area, and so as to vitalize the market, strengthen the grid both in connections between areas and inside of areas. For this, in principle finance will come from network usage fees that enable private capital to be recovered. As necessary, the government will provide support policies.

The government will decide on a “Strategy for reform of the electricity system” to show the details of the above policy in 2012 and present it to the citizens.

It is great news to hear that Japan will – finally – get the regulation of its electricity system in line with the international standard in the 21st Century.

For renewable energy, a national grid will be of vital importance. Many of the best wind resources are far away from the centers of consumption. Right now, developers need to draw lots to decide who gets to go ahead and use the bottleneck power lines. That has to change.

On the other hand, I wonder why this part of the new strategy paper doesn’t even mention the Asia Super Grid idea. I am quite sure that Masayoshi Son would have access to the Japanese government to present his ideas there in one way or another. This will have to wait until the next strategy paper.

Meanwhile, I am looking ahead to blogging about the “Strategy for reform of the electricity system” that will be published later this year. Stay tuned.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

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