Japan Plans to Overhaul Its Electricity Sector

Proposal would break up the "Big 10" utility companies

2 min read

Japan Plans to Overhaul Its Electricity Sector

This week Japan's cabinet approved a proposal that would reduce the power of the nation's "Big 10" utilities, which until now have had a firm hold on both electricity generation and transmission. By forcing the utilities to split their generation and transmission services into separate companies, the Japanese government hopes to increase competition, thus driving down energy prices and encouraging growth in the renewable sector.

The move is government's latest response to the Fukushima Daiichi nuclear disaster that destroyed four nuclear reactors, turned nearby municipalities into ghost towns, and terrorized the nation. Today, only two of the country's remaining 50 reactors are in service while the government tries to devise a new energy policy.

TEPCO, the utility that owns the Fukushima Daiichi plant, is the largest of the Big 10, which were set up as regional monopolies in the 1950s. The utilities invested heavily in nuclear power, and provided Japan with extremely reliable electricity. However, they also charged high rates and saw little reason to pursue innovations like renewable power. In the 1990s, the government began taking tentative steps to deregulate the industry, allowing independent companies to produce power and sell it to industrial and business customers.

We've profiled one of those independent businesses, Ennet Corp. Its CEO, Hiroaki Ikebe, explained that his company had no option but to use the Big 10's transmission networks, and that the utilities set very unfavorable terms for that use. The government's proposed overhaul of the energy sector will likely result in better terms for Ennet Corp and its like, as well as for renewable energy startups. The proposal would also open up new business opportunities for independent power producers, as it would allow them to sell power to residential customers as well. 

The government proposal must still be approved by parliament. It would be implemented over five years beginning in 2015, although it includes some wiggle room that worries those in favor of deregulation (for example, a clause says that the government must guarantee the stability of the energy sector before allowing the changes to begin). 

It's not yet clear how Japan's energy sector as a whole will be reshaped in response to the nuclear disaster. The prior administration advocated a full phase-out of nuclear power, but the current prime minister, Shinzo Abe, has endorsed reopening nuclear plants if their safety can be assured. While there's a great deal of enthusiasm about renewable power sources like solar, wind, and geothermal, such sources currently provide less than 3 percent of Japan's electricity generation. It's uncertain how much and how quickly that figure can be increased. 

Images: OiMax, Wikimedia

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