Japans Electricity Market Reform and Beyond

July 7, 2015
Takuya Yamazaki
Director, Electricity Market Division
Director for Electricity Market Reform
Agency for Natural Resources and Energy (ANRE)

OVERVIEW OF JAPANS ELECTRICITY

MARKET
1

Electricity Market Overview

10 Vertically Integrated Electricity Power Companies (EPCOs)
2 types of frequency, 50Hz and 60Hz
Frequency in West: 60Hz

Frequency in East: 50Hz

DC Direct Current,
FC Frequency Conversion

Hokkaido
[2012]
5.52 GW

Chugoku

16.66 GW

[2012]
10.85 GW

5.57
GW
Kyushu

[2012]
15.21 GW
Okinawa

5.57
GW
Kansai

[2012]
26.82 GW

2.4
GW

DC
Tie line
1.4GW
Shikoku
[2012]
5.26 GW

Hokuriku
[2012]
5.26 GW

5.57
GW

DC
Tie line
0.6GW

Tohoku

[2012]
13.72 GW

BTB
0.3GW
Chubu

[2012]
24.78 GW

12.62GW
Tokyo

[2012]
50.78 GW

FC
1.2GW

Partially Liberalized But Still Very Low Competition

While Japans electricity market has been partially liberalized since 2000, still big 10
EPCOs dominates the market.
10 big EPCOs: 848.5TWh / 209GW = JPY 18.2 trillion ($ 151.7bn, 134.8bn) (2013)
Share of non- big EPCOs for over 50kW retail market = 4.2%
Only 1.3% is transacted at Japan Electric Power Exchange (JEPX)

Total market volume: 982.4TWh/289GW

Problems Revealed by 3.11

The Great East Japan Earthquake on March 11 2011 revealed
negative aspects of regional monopoly system with 10 big and
vertically integrated EPCOs.
1. Lack of system which transmits electricity beyond regions
2. Little competition and strong price control
3. Little flexibility in changing the existing energy mix; hard to
increase the ratio of renewable energy

Electricity Price Goes Up After 3.11

(Yen/kWh)
26
24.33

24

Increased
25.2%

22

25.51

22.33
21.26

20

20.37

18

18.86
17.53

Increased
38.2

16

15.73
14.59

14

For
Households

12

7
1995

8
1996

9
1997

10
1998

11
1999

12
2000

For
Industry

13.65

13
2001

14
2002

15
2003

16
2004

17
2005

18
2006

19
2007

20
2008

21
2009

22
2010

23
2011

24
2012

25
2013

26
2014

Fiscal year

[Source] Created based on the Electricity Demand Report (Federation of Electric Power Companies in Japan) and the materials
concerning the power companies final settlement reports, etc.

CO2 Emissions Also Goes Up After 3.11

Non-CO2 emissions from
energy production
CO2 emissions from
energy production
CO2 emissions by general
electricity utilities
(Million ton-CO2)
1400

1,270

1,397

1,304

1,354

1,390

1,408

1200
1000
800
600
400

+65

+112

+110

FY2011

FY2012

FY2013

200
0

FY1990

FY2005

FY2010

ELECTRICITY MARKET REFORM

ROADMAP
7

1st step: Establish the OCCTO

Established the Organization for Cross-regional Coordination of Transmission
Operators (OCCTO) in Apr. 2015
OCCTOs main functions include:
1. Review the EPCOs supply-demand and grid plans for changes in the plans (e.g.
tie line construction) if needed.
2. Order EPCOs to increase power generation and interchange if supply gets tight.
60Hz

Hokkaido

OCCTO

JEPX

(Power Exchange)

16.66GW
Generation

5.57GW

Kyushu

Kansai
Generation

TDSO

TDSO

Retail

Retail
2.4GW

Generation

Generation

TDSO

TDSO

Retail

Retail

Generation
TDSO

(Coordination of TDSOs )

Retail

Hokuriku
Generation
Chugoku

50Hz

TDSO

5.57GW

DC Tie line
Tohoku

0.6GW
Generation
TDSO

Retail

Retail
BTB

0.3GW

5.57GW
Generation

DC Tie line
1.4GW

Chubu

12.62GW

Tokyo (TEPCO)
Generation

TDSO

TDSO

Retail

Retail

Shikoku

* DC direct current, FC frequency conversion, TDSO Transmission and Distribution System Operator

FC
1.2GW

2nd step: Full Retail Competition

Expand retail competition to the residential sector in 2016
Maintain regulation on retail tariff for under 50kW users to incumbent 10 big EPCOs at
least until 2020

Will be liberalized

3rd step: Unbundle Transmission/Distribution Sector

Unbundle the big EPCOs transmission/distribution (T/D) sector by legal unbundling in
2020 to enhance neutrality and transparency of T/D sector.
EPCO can choose either a holding company or an affiliated company format
Holding company format

Affiliated company format

Generation company

Holding company

Competitive
Transmission/Distribution
company
Generation
company

(System operation)

Regulated

Competitive

Transmission/Distribution
company
Retail
company

(Transmission/distribution
facilities)

Competitive

Retail company

(System operation)
(Transmission/distribution
facilities)

Competitive

Regulated

Regional monopoly
Regulation on network tariff
Responsibility for maintaining frequency & providing
LR service
Code of conduct for securing neutrality

10

Japans Electricity Market Reform: Roadmap

1st Step
Apr. 2015

2nd Step
Apr. 2016

3rd Step
Apr. 2020

1st reform

Establishment of OCCTO
(The Organization for
Cross-regional
Coordination of
Transmission Operators)

New
regulatory
authority

2nd reform

Full retail
competition

Period of transitional
arrangement for retail tariff
(The government reviews
competitive situations)

Abolishment
of retail tariff

3rd reform

Legal unbundling of
T/D sector
Within 2015:Transition to new regulatory authority

11

Positive Signs of More Competition

Non-EPCO companies s announce to enter the power retail market after 2016
Gas company : electricity + gas,
Telecom company : telecom + electricity, etc.
Big EPCOs announce to start preparing for offering power retail business in other
EPCOs regions.
Non-EPCO Companies start making new investments in power generation
KOBELCO: 1.4GW (2019-2020), Saibu Gas: 1.6GW (2020), Ohgishima Power:
0.4GW (2016), etc.
EPCOs promote partnership
Tokyo EPCO and Chubu EPCO contracted to form comprehensive partnership
to jointly procure fuel, operate related businesses (upstream investment,
transportation and trading), construct and replace thermal power plants, etc.

12

ROAD AHEAD

13

Challenge

How can we secure stable supply and

achieve desirable low-carbon energy mix
while facilitating competition?

14

Japans Generation Mix Target (Preliminary)

100%
90%

Renewables
9.6%
Oil 7.5%

80%
70%

Oil
10.6%

LNG
29.3%

60%

LNG
46.1%

50%
40%

Renewables
12.2%

Coal
25%

10%

Oil 3%
LNG
27%

Coal
26%

30%
20%

Renewables
22-24%

Nuclear
28.6%

Coal
31.0%

2010FY

2014FY

Nuclear
20-22%

0%

2030FY

Coal

15

Nuclear Electric Power Plants in Japan (As of June 23rd, 2015)

25 units in 15 NRPs are under NRAS assessment and inspections for resuming operation: NRA has decided to decommission 5
units in 3NRPs.
These 25 units account for 25GW out of total nuclear capacity of 46GW.

Tokyo Electric Power Co.

Electric Power Development Co.-Ohma

Kashiwazaki Kariwa

Hokkaido Electric Power

Co.-Tomari

Hokuriku Electric Power Co.- Shika

Tohoku Electric Power Co.-Higashidori

Tokyo Electric Power Co.-Higashidori

The Japan Atomic Power Co.-Tsuruga

Tohoku Electric Power Co.-Onagawa

The Kansai Electric Power Co.-Mihama

Fukui

The Kansai Electric Power Co.-Ohi

Tokyo Electric Power Co.-Fukushima Daiichi

The Kansai Electric Power Co.-Takahama

Kyushu Electric Power

Co.-Sendai

Kyushu Electric Power

Co.-Genkai

The Japan Atomic Co.-Tokai Daini

Chubu Electric Power Co.-Hamaoka

Tokyo Electric Power Co.-Fukushima Daini

The Chugoku Electric Power Co.- Shimane

Shikoku Electric Power

Co.-Ikata

Output scale
500

Under review by
NRA
Decommissioning by
operator

In operation

Under suspension

1000

1000

Under construction

RES integration
G
45

Generated Renewable Energy

About
39GW

40

3.79GW

3.1GW

PV

78.84GW

15.01GW

Wind

2.29GW

0.33GW

Hydraulic

0.66GW

0.09GW

Geothermal

0.07GW

0.01GW

Biomass

2.03GW

0.22GW

Total

87.68GW

18.76GW

(non-residential)

9%

Average annual growth rate

5%

15
10
5
0

PV

(residential)

32%

30

20

Already
installed
before
2014FY

33%

35

25

Authorized
(up to the
end of
2014FY)

2003FY 2004FY 2005FY 2006FY 2007FY 2008FY 2009FY 2010FY 2011FY 2012FY 2013FY 2014FY
Biomass

Geothemal

Hydraulic

Wind

PV

FIT(only for surplus residential PV)

FIT

17

Policy Under Consideration

How can we secure stable supply and achieve desirable low-carbon
generation mix while facilitating competition?
Challenges
Maintain nuclear power generation in competitive environments.
Promote cross-regional electricity supply.
Set up a scheme to recover investments in grid reinforcement for RES integration.

Policy Plan
Strengthen OCCTOs influence over 9 TSOs to promote risk/cost sharing and
coordination for more cross-regional transmission and grid reinforcement.
Prepare the scheme for neutralizing risks of nuclear investments
Review FIT system.
Introduce Capacity Mechanism

Thank you!

APPENDIX

Transition of Japans Generation Mix

100%
12% 13% 11% 13%

9%

9%

10%

9%

10%

11%
11% 10%

9%

13% 12%

27%

26%

10% 10% 11% 11% 10% 10% 10% 10% 11% 11%

9%

90%

80%
29% 26%

26% 21%

11%
12% 12%
14%
18%
24% 19%

70%

60%
22% 22%
50%

22%

23%

30%

20%

10%

23%

25% 26%

27%

28%

24% 26%

27% 28%

10% 10% 10% 11%

12%

7%

7%
14%

Renewables

39%
42%

12% 13%
11%

11%
18% 15%

29% 29%

23%

40%
10% 10%

22%

24%

26%

8%

9%

14% 14%

15% 15% 17% 18%

21%

22%

25%
24%

26% 25%
25% 25%

43%

46%

Oil
LNG
Coal

25% 25%

Nuclear

25%
35% 36% 37% 34% 34% 35%
32% 32% 34%
31%
29% 29%
29% 31% 30%
27% 28% 29%
26%
26% 26%

28% 30% 31%

11%
0%

2%

1% 0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Coal

21

History of Electricity Market Reforms in Japan

No competition in the electricity market before 1995:
10 vertically integrated EPCOs dominated and controlled the market.
METI embarked on a series of reforms...
No.

Year enforced

Overview

1995

Opened the IPP (Independent Power Producer) market

Allowed specified-scaled and vertically integrated power generators

2000

Introduced partial retail competition

(over 2,000kW in 2000 [26%], over 500kW in 2004 [40%])
Introduced regulation of third party access to grid lines

2005

Expanded retail competition (over 50kW [62%])

Established the wholesale power exchange (JEPX) and its supporting
body for transmission in wider areas
Improved regulation of third party access to grid lines, and
introduced accounting separation of transmission/distribution sector

2008

Modified the rule of wheeling rates

22

Future Design of Japans 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
Transmission

66kV

Regional monopoly,
tariff regulation
66-154kV

Wheeling
contract

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

23

People Want Reform

54% people want to switch their electricity retailer if retail power sales is fully
deregulated.
And even among those who do not think about switching, only 1% say they like the
current retailer.
Reasons why you are negative or neutral to switch
you retailer?

Do you want to switch your retailer?

Strongly
negative
2.6%

N/A
9.8%
Strongly

Negative

positive

6.1%

22.7%

54.4%
Neutral
27.1%

Positive
31.7%

Ask to people (36%) who answered as follows

Neutral
Negative
Strongly negative

Source: Opinion research , Apr. 2014 , METI

Do not know which

company is good.

22%

Cannot think of
switching the retailer.
Procedures may be
troublesome.

23%

45%
37%
34%

18%

Dont think the price

goes down

10%

18%

Satisfied with the

current retailer.
No particular
reason

9%

18%

Other
3% reasons
I like the current
retailer

14%
3%
1%

The most powerful reason

Less power reasons

24

Improve liquidity in the wholesale market

Current rule (from March 2013):
Self commitment by 10 big EPCOs to provide all
capacity except for adequate reserve margin into
JEPX
Market monitoring by the regulator
Further discussion including introduction of VPP
scheme etc. will be needed depending on the result of
market monitoring
Share of trading in JEPX to retail market sales (FY2014)
Trading in JEPX
1.6% (13.51TWh)

Breakdown of 1.6%

Trend of share of trading in JEPX

13.51TWh
to retail market sales
(+2.34TWh)

11.17TWh
(+3.50TWh)

7.67TWh
(+2.93TWh)

4.74TWh

0.5%
FY2011

0.9%
FY2012

1.3%

Others

Breakdown of 8.1%

Forward trading

4.0%

Source: JEPX

(837.67TWh)

Day-Ahead spot trading

91.9% (12.41TWh)

(0.04TWh)

New
Forward trading

(1.10TWh)

98.4%

FY2014

FY2013

Breakdown of trading in JEPX (FY2014)

8.1%

Others

1.6%

17.3%

(0.19TWh)

4 hour-Ahead
spot trading

78.8% (0.86TWh)

25

Cross-regional competition
Avoid market separation and congestion of tie lines through OCCTOs function for
reinforcing their capacities.
Eg.

Frequency conversion b/w Tokyo and Chubu : 1.2GW 2.1GW 3.0GW

DC tie line b/w Hokkaido and Tohoku: 0.6GW 0.9GW ? ?

Maintain the postage stamp cost allocation scheme for network fee, even after
introducing full retail competition.
Frequency in West: 60Hz

Frequency in East: 50Hz

Hokkaido
[2012] 5.52 GW

* DC direct current, FC frequency conversion

DC Tie line

0.6GW
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

Hokuriku
[2012] 5.26 GW

BTB
5.57GW

Tohoku
[2012] 13.72 GW

12.62GW

0.3GW

Chubu
[2012] 24.78 GW

Tokyo
[2012] 50.78 GW

FC
1.2GW

26

Switching support system

Establish an one-stop system for switching support until 2016.
New retailer X can obtain necessary customers information for the switching, which are
standardized, from TDSOs through the system.
New retailer X can complete a switching process including changing a wheeling contract b/w
retailer X and TDSOs through the system.
Time line: automatically and instantly

make up
an estimate

Retailer A

Retailer B

consumers

apply to
switching

start to
supply

request for
consumer
information

provide for
consumer
information

Retailer C request for changing

wheeling
contract

TDSO A

OCCTO
Switching
Support
System

TDSO
continuously
linked
TDSO C

Retailer D

finalize to
change
wheeling
contract

Information interchanged through this system will be standardized and provided for retailer instantly.

27

Ensuring electricity security in Japans EMR project

1. Regulation for T/D companies to secure frequencies and to maintain
investment on the grid
2. Obligation for all retailers to secure adequate capacity <2016>
- Ensure procurement of enough quantity in the electricity market

3. Auction for the long-run generation capacity by OCCTO <2016>

- Prepare for the possible shortage of long-run capacity as a safety net for the
electricity market

4. Further discussion on capacity mechanism (capacity market etc.)

- Enhance the incentive to establish and maintain generation plant

28

Obligation for all retailers to secure adequate capacity <2016>

All retailers are legally obliged to ensure adequate capacity (incl. reserve margin) to
match their demand.
Government checks all retailers plans at both points of registering to enter the
market and of submitting 10-year supply and demand plan each year
TDSO will balance the gap b/w actual supply and actual demand in the imbalance
mechanism.

Retailer A

Forecast the
demand as
100
Purchase the
supply same as
forecasted
demand (=100)

The demand
Increases to
110, when
accident
happens.

TDSO

Reserve margin which

retailer A should have
secured for upward
demand
(additional supply
necessary for fulfilling
the obligation)

Compensate
the shortage

Compensate
the shortage

Buy the
surplus

Purchase Forecast
plan for the demand
supply

Actual Actual
supply demand

Some years or
months ahead

At the actual
supply and
demand

Actual Actual The gap

supply demand (shortage)

Retailer A

Actual Actual The gap

supply demand (surplus)

Retailer B

Actual Actual The gap

supply demand (shortage)

Retailer X

29

Auction for the long-run capacity by OCCTO <2016>

OCCTO will call for bids when supply power shortage is likely to occur because of
insufficient investment.
OCTTO will pay for their capacity (MW), through recovering from network fee.
The detailed design is under discussion.
Pay the cost as
network fee

OCCTO

All Consumers

Call for bids for constructor of power plants

Decide the constructor by bids
Compensate part of the cost

Bid
Bid

Generation
company A

Bid

Generation
company C
Generation
company B

Construct the power plant

and sell the electricity
Revenue
Selling electricity

Retailers / Power
exchange

30

Smart Meter and the effects

Smart meter
Reducing measurement cost and the future capital investment by launching Demand Response
menus, visualization of the electricity use, control of appliances and so on
Creating future various services and businesses by utilizing Big Data such as energy usage
Total image and the effects of Smart Meter and the related system
Retailer

Private company
(third party)

3) Controlling appliances in demand side for stabilizing girds

EMS
<Peak cut / Peak shift of demand>

EV

Power usage (30min.), etc.

MDMS

HES

EPCO
(transmission/distribution)

Stop/Stop-release
Change contract

Request information

<Visualization of power usage

/ Control of home electrical appliances>

Power usage (30min.), etc.

Smart Meter

1) Remote metering and opening/closing for

efficient tasks
(Note) EMS: Energy Management System
MDMS: Meter Data Management System

PV

HES: Head End System

HEMS: Home Energy Management System

Home electrical
appliances

Customers

Storage

2) Utilizing data for declining energy and CO2 by

customers

31

Introduction schedule of Smart Meters

The demand of each Small and Medium-sized Enterprise and Low Voltage Consumer is
small. However, the number is large.
Based on the perspective of efficiency of Smart Meters as a supply and demand measure, a
transition to Smart Meters for commercial-scale utility customers will be initiated first.
Smart Meters in high voltage sector (factories, etc.) are planed to complete installing in Japan
until FY2016.
Smart Meters in low voltage sector (household, etc.) are planed to complete installing in Tokyo
until the end of FY2020 and in Japan until the end of FY2024.
All EPCOs announced to exchange the current meters to smart meters promptly for consumers
who want to install according to the introduction of HEMS, etc. or switch their retailers.
Introduction schedule
Hokkaido Tohoku

High voltage

Low voltage

Tokyo

Chubu

Kansai Hokuriku Chugoku Shikoku Kyushu Okinawa

2016

2016

Installation will be
completed in

2016

Installation will be
started in

2015 Started Started 2015 Started 2015

2016 Started 2016

2016

Installation will be
completed in

2023

2023

2024

Completed Completed

2023

2020

2022

2022

Completed

2023

2016

2016

2023

Completed

2023

2016

32

EPCOs Plan to Introduce Smart Meters

The estimated number of smart meters introduced as of the end of each fiscal year
FY2014
Hokkaido
Tohoku
Tokyo
Chubu

Total

FY2018

FY2019

FY2020

FY2021

FY2022

FY2023

FY2024

Total

480

490

510

510

520

560

570

4,550

120

650

840

820

810

800

780

730

730

720

7,000

1,900

3,200

5,700

5,700

5,700

3,300

3,300

10

1,020

1,460

1,440

1,420

1,390

1,390

1,420

1,390

150

250

250

230

230

220

190

190

1,700

1,700

240

560

610

610

610

610

610

610

610

5,070

150

310

310

310

310

310

310

310

300

2,650

800

850

850

1,090 1,010(Note) 1,000(Note) 890(Note) 790(Note)

7,280

100

100

100

1,600

30

Kyusyu
Okinawa

FY2017

530

Chugoku
Shikoku

FY2016

380

Hokuriku
Kansai

FY2015

(Thousand)

10

28,800
10,940
1,870

160

15,600

1,700 1,500(Note) 1,300(Note) 1,300(Note) 1,200(Note) 1,100(Note)

100

100

100

90

90

3,660 7,500 12,250 12,260 12,020 9,640 9,530 6,080 5,870 3,240

(Note) Except the number in the table, some smart meters will be exchanged new smart meters because of reaching maturity of the verification

90

850

90 84,610

33