Electricity market reform in Japan
October, 2014
Electricity Market Reform Office
Agency for Natural Resources and Energy (ANRE)
History of Reforms in Japan
No competition in the electricity market before 1995:
10 vertically integrated GEUs (General Electricity Utilities) dominated and controlled the market.
METI embarked series of reforms...
No.
Year enforced
Overview
1
1995
• Open the IPP (Independent Power Producer) market
• Allow specified-scaled and vertically integrated power
generators
2
2000
• Introduce partial retail competition
• Accounting separation of transmission/distribution sector
3
2005
• Expand retail competition
• Establish the wholesale power exchange (JEPX) and its
supporting body for transmission in wider areas
4
2008
• Modify the rule of wheeling rates…
1
Japan’s Electricity Market Outline
 10 Vertically Integrated Power Companies
(EPCOs) and New Entrance (PPSs)
 Market volume: 1094TWh / 287 GW (2012)
• DC – Direct Current,
• FC – Frequency Conversion
Hokkaido
 Retail competition for over 50kW customers
(62% of the market in 2013)
- Share of non-EPCOs: 4.2% (2013)
- 1.3% of the total retail market sales is
transacted at JEPX (2013)
 Average household electricity price was 21.26
yen/kWh before 3.11 (2011); 24.33 yen/kWh
(2013) (24.81 yen/kWh in 1994)
 Frequency
*EPCO: Electricity Power Company
*PPS: Power Producers and Suppliers
*JEPX: Japan Electric Power Exchange
 West Japan: 60Hz
 East Japan: 50Hz
 Hokkaido (peak demand: about 5.7 GW) is
connected by DC line.
Okinawa
Frequency in East:
50Hz
Frequency in West:
60Hz
[2012]
5.52 GW
DC
Tie line
0.6GW
Chugoku
16.66
GW
[2012]
10.85 GW
5.57
GW
2.4
GW
5.57
GW
Hokuriku
Tohoku
[2012]
5.26 GW
[2012]
13.72 GW
Kansai
[2012]
26.82 GW
5.57
GW
BTB
0.3GW
DC
Chubu
Tie line [2012]
1.4GW 24.78 GW
Kyushu
Shikoku
[2012]
15.21 GW
[2012]
5.26 GW
12.62GW
Tokyo
[2012]
50.78 GW
FC
1.2GW
2
Problem revealed by 3.11
• Negative aspects of regional monopoly system with 10 big and vertically integrated
EPCOs were revealed in the Great Earthquake 3years ago:
1. Lack of system to transmit electricity beyond regions
2. Little competition and strong price control
3. Limit in handling the change in energy mix including the increase in renewables
Frequency in West: 60Hz
Frequency in East: 50Hz
Hokkaido
[2012] 5.52 GW
* DC – direct current, FC – frequency conversion
DC Tie line
Chugoku
[2012] 10.85
GW
5.57GW
Kyushu
[2012] 15.21
GW
16.66GW
2.4GW
5.57GW
Kansai
[2012] 26.82
GW
DC Tie line
1.4GW
Shikoku
[2012] 5.26 GW
Tohoku
[2012] 13.72
GW
Hokuriku
[2012] 5.26 GW
BTB
5.57GW
0.6GW
0.3GW
12.62GW
Chubu
[2012] 24.78
GW
Tokyo
[2012] 50.78
GW
FC
1.2GW
3
Electricity Market Reform in Japan: Roadmap
 April 2, 2013, Cabinet decided the “Policy on Electricity System Reform” to realize three
objectives in Japan’s market with a three-step approach.
3 Objectives
(1) Securing a stable supply of electricity
(2) Suppressing electricity rates to the maximum extent possible
(3) Expanding choices for consumers and business opportunities
(1st Bill)
2013
Apr. 2, 2013
Cabinet Decision
Nov. 13,
2013
(2nd Bill)
2014
(3rd Bill) 【1st Step】
2015
2015
【2nd Step】
2016
【3rd Step】
2018-2020
Jun. 11,
2014
The 2nd Bill
The 1st Bill
2nd reform
3rd reform
Cabinet Decision on the Policy
on Electricity System Reform
1st reform
Establishment of the
Organization for Crossregional Coordination of
Transmission Operators
(OCCTO)
小売全面
Full retail
自由化
competition
Period of
transitional
（参入自由化） arrangement for
retail tariff
Abolishment
of retail tariff
Legal unbundling of
transmission
/distribution sector
（※At around 2015:Transition to new regulatory organizations）
4
1st step: Establish the OCCTO
The 1st Bill
• Establish the Organization for Cross-regional Coordination of Transmission Operators
(OCCTO) in 2015
 Main functions of OCCTO
1. Aggregate and analyze the EPCO’s supply-demand plans and grid plans, and
order to change EPCO’s plans such as tie lines construction
2. Order EPCOs to reinforce generations and power interchanges under a tight
supply-demand situation
Frequency in West: 60Hz
Frequency in East: 50Hz
Hokkaido
OCCTO
JEPX
(Power Exchange)
TDSO
(Coordination of TDSOs )
Retail
Hokuriku
Generation
16.66GW
Chugoku
Generation
5.57GW
Kyushu
TDSO
5.57GW
Kansai
Generation
TDSO
TDSO
Retail
Retail
2.4GW
Generation
Generation
TDSO
TDSO
Retail
Retail
Generation
DC Tie line
Tohoku
0.6GW
Generation
TDSO
Retail
Retail
BTB
0.3GW
12.62GW
5.57GW
Generation
DC Tie line
1.4GW
Chubu
Tokyo (TEPCO)
Generation
TDSO
TDSO
Retail
Retail
Shikoku
* DC – direct current, FC – frequency conversion, TDSO – Transmission and Distribution System Operator
FC
1.2GW
5
2nd step: Full Retail Competition
The 2nd Bill
• Expand retail competition to the residential sector in 2016, opening a new
market
• Maintain regulated tariffs to 10 big EPCOs at around 2018-2020
Liberalized Sector
(50kW～）
Share of total power: 63%
Large factory
Large building
Building
Medium factory Small Factory
Regulated Sector
（～50kW）
Market Volume ; ¥7.5 trillion (=$ 75bn, € 54bn)
Number of contracts
Residential Customers : 76.8m
Small shops and offices: 7.4m
Small shop
Residential Customer
Share of total power: 37%
6
2nd step: Full Retail Competition
Revision of Business License Categories
The 2nd Bill
• Business License categories under the Electricity Business Act, such as “General
Electricity Utilities (GEU)” and “Wholesale Electricity Utilities”, will be revised in
line with the full retail choice.
Current categories
GEU
（１０EPCOs）
PPS
(Power Producer
and Supplier)
Wholesale
Electricity
Utilities , etc
 Supply for customers, including
those in regulated sector with
obligation to supply, regional
monopoly and rate regulation
 Secure stable frequency and
voltage
New categories (after 2016)
Obtain ３ licenses
（not necessary to change corporate organization）
Generation
 Supply for customers in
liberalized sector (more
than 50kW)
Generation
 Supply for GEU
Generation
【Notification】
 Regulation based
on the level
playing field of
competition
Transmission &
Distribution
Retail
Retail
【Permission】
 Operate and
maintain
transmission
/distribution lines
 Regional
monopoly and
rate regulation
【Registration】
 Supply for customers
 Obligation to secure
the capacity of power
supply
 Regulation based on
the level playing field
of competition
7
3rd step: Unbundle the T/D sector
The 3rd Bill
（will submit in 2015）
• Unbundle the transmission/distribution sectors of big EPCOs by legal unbundling
style at around 2018-2020
Holding company
Transmission/Distribution
company
Generation
company
(System operation)
送
配
(Transmission/電
distribution 設
備
Retail
company
facilities)
Competitive
<Note>
 Big EPCOs will be required to unbundle
transmission and distribution
companies from generation ones or
retail ones, in “legal unbundling.”
 Both the holding company style and the
affiliated company style, in which a
generation and retail company has a
transmission and distribution company
as a subsidiary company ,are allowed.
Regulated
Competitive
• Regional monopoly
• Network tariff
• Responsibility for maintaining frequency
& providing LR service
• Code of conduct
8
Future Design of Japan’s Electricity Market
Thermal plant
Hydroelectric plant
Nuclear power plant
Wind farm,etc.
Generation companies
220-500kV
220-500kV
220-500kV
Contract with
retailer to sell
electricity
JEPX
Super high voltage
substation
154-220kV
Transmission/
Distribution
companies
Receive electricity from various
power companies
154-220kV
Primary substation
66kV
Regional monopoly,
tariff regulation
66-154kV
Wheeling
contract
Transmission
Substation for distribution
6.6kV
6.6kV
Distribution
100/200V
Meter
Meter
Meter
Meter
Meter
Retailers
Not necessary to
have assets
Retail contract with
consumers
Consumers
Large factory
Large building
Building
Medium factory
Small factory
Shop Household
9