Electrifying Japan's economy

posted on May 12, 2016

Japan liberalized its retail electricity market last month, creating one of the largest deregulated electricity markets in history. While companies and consumers have just begun to switch electricity providers, and questions remain about the plan to unbundle electricity transmission from generation, competition has already brought down rates.

Japan's 10 regional utilities had monopolized the power industry since the 1950s and charged consumers high rates. Lawmakers attempted several times to liberalize the industry since the 1990s, when several U.S. states opened their markets and watched rates fall. But the "Big Ten," including Tokyo Electric Power Co. (Tepco), stymied reform.

That changed after the 2011 Fukushima disaster, when a tsunami triggered meltdowns at three of Tepco's nuclear reactors. Japan shut down all 54 of its plants, which had supplied 30% of the nation's power. Two plants recently restarted but they are threatened by lawsuits and conflicting court orders.

As a result of these supply shocks, Japan's energy prices surged to record highs. In particular the utilities that invested heavily in nuclear power raised rates to cover their losses. Japan imported some $40 billion of coal and gas annually, contributing to nearly five years of trade deficits.

Under public pressure, the government created a three-phase deregulation plan last year. Tokyo established an independent institution to develop transmission and distribution systems to move power across regions and balance supply and demand. The second phase, implemented last month, introduced some 150 new players to the retail market, from big enterprises like Tokyo Gas, Japan's largest natural gas utility, to small-scale operators.

Leading up to the April 1 liberalization, companies competed on price for a share of the $71.6 billion electricity retail market. Tepco and its peers are joining with wireless carriers and gas utilities to offer discounted bundles. Newcomers are experimenting with more efficient power procurement methods to offer lower prices.

Within a week after the market opened, more than 622,000 households switched providers, with some 60% of those leaving Tepco. At this rate, Tepco could lose 3% or more of its market share.

source by wsj
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