15 May 2012—From his airy offices on the 19th floor of a tower in downtown Tokyo, Hiroaki Ikebe can see the headquarters of the Tokyo Electric Power Co. (TEPCO) in the distance. It’s a little like David having an excellent view of Goliath’s house. Ikebe is president and CEO of Ennet Corp., an upstart energy company that is challenging Japan’s powerful utility companies—of which TEPCO is by far the biggest and most powerful. “We are against the power companies,” says Ikebe, who comes off as a fervent revolutionary despite his finely tailored suit and wire-rimmed glasses. “It is war!”
Before Japan’s earthquake, tsunami, and nuclear meltdowns last year, Ennet was a small company fighting for the very small piece of the Japanese energy market that was open for competition. But in the wake of the nuclear accident, Japan is having a national conversation about energy, and the government is considering a new wave of deregulation that could give Ennet and other independent companies like it a much bigger share of the market. For the moment, uncertainty reigns, and it may be years before the government takes action. But this state of flux doesn’t bother Ikebe. “I’m happy to put myself in this changing world,” says Ikebe. “I’m surfing on the waves of change.”
The status quo was set back in 1951, when the Japanese government created nine regional energy monopolies and granted them guaranteed profit margins—thus high electricity rates for customers. (A tenth regional utility was added later.) When globalization brought increased international competition in the latter decades of the 20th century, Japanese businesses asked for relief on electricity rates, and the government began to take tentative steps to deregulate the industry and allow for competition. In 1995, the government authorized small independent companies to produce power, and in 2000, it permitted the independents to take part in auctions to supply power to industrial and business customers.
But the very limited competition didn’t do much to bring down prices. In 2010, Japanese consumers still paid about twice as much per kilowatt-hour of energy as Americans did, according to the International Energy Agency. And the “Big 10” regional monopolies still controlled 98 percent of the market.
“Before March 11, electricity monopolies were not just a monopoly of the market. They pretty much controlled politics,” says Tetsunari Iida, who has studied Japan’s energy system as director of Japan’s Institute for Sustainable Energy Policies. “So most of the rules around the electricity market were very much biased toward the electricity monopolies.” For example, the Big 10 controlled the country’s transmission lines, and they set onerous terms for independent companies that needed to use them. If it hadn’t been for an earth-shaking disaster that altered the political equation, it seems likely that the situation wouldn’t have changed, says Iida.
Now, however, the Japanese people are furious with TEPCO for its perceived failure to prevent the meltdowns at Fukushima Dai-ichi and its lack of transparency throughout the disaster. Today, none of Japan’s 54 nuclear reactors are in operation; they are all shut down for maintenance and safety checks. This summer, when the heat sends electricity use soaring, the government will ask businesses and residents to voluntarily reduce consumption in an attempt to stave off blackouts. And TEPCO incurred the nation’s wrath with its request to raise electricity rates for corporate customers by 17 percent, to pay for the cleanup at Fukushima, to compensate evacuees, and to subsidize this year’s extra generation costs. (The utility had to buy fossil fuels to replace closed nuclear reactors.)
“After March 11, more and more voices are saying that the market should be restructured,” says Iida. Last week, the Japanese government announced that it’s taking a controlling stake in TEPCO and injecting 1 trillion yen (US $12.5 billion) into the company; the bailout may eventually total as much as 11 trillion yen (about $138 billion).“If the government owns TEPCO,” says Iida, “it could start by restructuring the electricity market in TEPCO areas. Then the [whole] electricity market could be restructured. So this is a very drastic change going on.”