Electricity Market Reform in Japan: Bumpy Road Ahead

Mon Aug 01 13:05:00 EDT 2016
Dr. Glenn R. George, Hans-Martin Ihle, Miura Wataru

In the first of three articles in Public Utilities Fortnightly (PUF) related to power market reform in Japan, NERA Senior Vice President Dr. Glenn R. George, Senior Consultant Hans-Martin Ihle, and Associate Miura Wataru look back on the Japanese government’s Policy on Electricity Market Reform since the nuclear accident at the Fukushima Daiichi plant in March 2011. The authors review the changes that are taking place as the result of legislation passed between 2013 and 2015, intended to ensure improved interconnection between regional markets, expand retail competition in the residential sector, and establish unbundling and separation of transmission and generation by 2020—all with the aim of liberalizing both the retail and wholesale electricity markets.

The article concludes that the initial signs are encouraging. The government’s liberalization program is already introducing much-needed competition in these markets, especially in the retail electricity sector. The authors argue, nevertheless, that certain elements of the wholesale electricity market design need improvement and that some changes may be necessary, such as a mechanism to enhance transmission capacity allocation (e.g., a capacity auction). They also suggest that, in order to maximize the advantages of electricity market reform, Japanese electric power companies should gain experience by participating actively in existing liberalized power markets outside of Japan—the subject of the next NERA installment in PUF.

This article is provided with the permission of the publisher.