Report on Japan's Electricity System Reform Compiled

The Expert Committee on the Electricity System Reform of the Advisory Committee for Natural Resources and Energy's Coordination Subcommittee, a committee under the Ministry of Economy, Trade and Industry, compiled a report on February 15, 2013. The present regional monopoly-based electricity market is an obstacle to encouraging competitions or new entries; thus, it is difficult to extensively introduce renewable energies or set up flexible utility rates. However, these will be drastic reforms if implemented. After discussing reform within the ruling party, the ministry will submit a reform bill in the current Diet session.

The first reform deals with a complete deregulation of electricity retailing. To secure a free choice of power supplier to everyone, as well as to improve the electricity business through competitions among retailers, the ministry will abolish the present regional monopolies and to fully implement free entry into the retail market, including small trades with residences. The retail rate will also be deregulated.

The second reform deals with an expansion of broad-range system operation. Based on powerful authorities for information collection and adjustment, the ministry will set up a "broad-range system operator" (tentative name) for developing a broad-range system plan and adjusting supply and demand, and to promote a nationwide operation system along with maintenance of power transmission infrastructure.

The third reform deals with an unbundling of the power transmission and distribution sector to secure its neutrality. The operational unbundling to transfer operation and command functions to different structures is not the goal, but the ministry will promote legal unbundling that moves the transmission and distribution sector to a different company.

The broad-range system operator is scheduled to be set up by 2015, and free entries to the retail market by 2016. Further neutralization of the transmission and distribution sector achieved by legal unbundling and elimination of price caps are presently expected to be implemented between 2018 and 2020.

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