Clean Power

Published on April 2nd, 2013 | by Dr. Karl-Friedrich Lenz


2 Big Electricity Reforms In Japan

April 2nd, 2013 by  

Reposted from Lenz Blog with permission:

Electric wires in Japan.  Image Credit: Shutterstock

Electric wires in Japan.
Image Credit: Shutterstock

The Japanese Cabinet just adopted a decision on energy policy (in Japanese) reflecting the fact that a consequence of the elections last year the former opposition party LDP is now governing. Thanks to this tweet by Hiro Matsubara for the link.

It doesn’t say much about renewable energy, or nuclear energy. Instead, the central points addressed are about organization of the electricity market.

There it calls mainly for two reforms.

For one, Japan will finally get red of the remaining district monopolies for selling electricity to household consumers. Everybody will be free to sell electricity to everyone. This means that a Japanese company could start to sell only renewable energy, as Lichtblick has in Germany after that market was liberalized fifteen years ago.

The policy paper says that necessary legislation to do this should be done in 2014, with a view of starting the new system in 2016.

However, even after liberalizing the market, price control mechanisms are supposed to stay in place for a certain period of time, until there is enough competition to leave pricing to the market.

The other reform is unbundling. As most other countries have already done, Japan will also go ahead and unbundle the functions of generating and delivering electricity. Operation of the grid will be done by a district monopoly company that may not generate electricity, so as to make sure that there are no conflicts of interest and the grid operator is neutral.

Necessary legislation for doing this is supposed to be enacted in 2015, with a view on taking effect between 2018 and 2020.

This all takes a lot of time for something relatively simple to do. There has been ample experience in Europe with this kind of market reform. So I don’t understand why they want to take so much time.

Anyway, the direction of these reforms is to be applauded, though the speed seems to be rather lacking.

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About the Author

is a professor of German and European Law at Aoyama Gakuin University in Tokyo, blogging since 2003 at Lenz Blog. A free PDF file of his global warming science fiction novel "Great News" is available here.

  • Dave2020

    “Operation of the grid will be done by a district monopoly company that may not generate electricity, so as to make sure that there are no conflicts of interest and the grid operator is neutral.”

    So sad; Japan fails to learn the lessons of the errors in neoliberal dogma:-

    1.) You’ll never create a functioning ‘market’ from a natural monopoly. The lessons of history show that monopolies are best run on a not-for-profit business model – a service to society – coordinated by municipal or state legislation.

    2.) There is NO ‘conflict’ between generating and distributing electricity. It should be one and the same thing, working always in synergy, not in ‘competition’. To pretend otherwise is nothing more than ignorant ideology.

    Current thinking is that electricity storage is a systems adjunct that can only smooth and balance grid operations. That’s a technical misconception, but UK legislation defines storage as a ‘generator’ anyway, so National Grid is NOT allowed to build it into the system. ‘Unbundling’ in that sense is an unworkable ‘market’ proposition.

    Energy storage should be made the generator’s responsibility. If it’s located before-generator it would also reduce peaks in supply – QED. It is the only cost-effective, holistic solution and could cut gross installed capacity by half.

    “the direction of these reforms is to be applauded.”

    The direction of these reforms will be applauded by the oligopoly of corporations who will take the profit, and cursed by the consumers who will pay the price.

    • arne-nl

      Stop bleating ‘liberal dogma!’, as if that is any argument.

      This decision is very defendable on logical grounds. There is only one grid, and no company will build a second or third competing grid as to obtain a true free market. There is a defacto monopoly. This is just recognizing that a monopoly is inevitable.

      When you say that one company could run the grid AND generate electricity completely ignores the market distortion that would result from it. Of course the company that runs the grid would treat its generating department with preference and hamper competing electricity generating companies. To think this company with two roles would behave itself and be neutral is pure naivity.

      The situation is very comparable to the road system that is run by the government as a defacto monopoly. Transport companies are private entities that use that road system competing with each other.

      • Bob_Wallace

        Anne’s got this right. The physical grid needs to be run by a standalone company who earns a fee based on the power than runs through their system.

        Then we need “electricity companies” who purchase wholesale and sell retail. We need multiple companies on each grid. That’s where competition should come into play.

        Just like you can buy a bar of soap from any number of stores they all pay a portion of their revenue to support the road system that moves the soap from factory to shop.

        • Dave2020

          Hi arne-ni and Bob,

          Judging by your naive faith in ‘free’ market dogma, I’m guessing that neither of you guys have any experience of a state-run system of energy provision?

          I have – both as an employee in a nationalized industry and as a customer for gas and electric, and I can tell you which works in the best interest of the consumer and which just adds extra profit margin at every stage of the ‘production’ and ‘distribution’. Greed always gets the better of privatised oligopolies/monopolies. The worst offenders in the UK are the DNOs.

          Nobody “needs” to purchase wholesale electricity and sell retail. That’s an entirely artificial construct imposed on us by the ‘market’ theory, which is promoted by the middlemen and market gamers who benefit from such a system. You’ve swallowed their propaganda hook, line and sinker. If this pretend market is as efficient as they tell you, why is the regulator ‘forced’ to allow excessive profits and bonus payments? Why have these energy companies been fined for ripping off the consumer?

          The UK’s original electricity grid was planned, designed, built and paid for by the Central Electricity Generating Board. (creating desperately needed jobs in the process) The quickest, cheapest, safest way to do infrastructure build is central planning – it’s just a logistics thing – get over it!

          The current new build is complicated by the switch to renewables and it is crucial that the job’s done right first time, but that’s never going to happen when you have dozens of competing private concerns, each fighting for their own vested interests. It’s a barmy waste of money (‘competing’ for government incentives, subsidies and favourable market rules!), the technical decision-making is an abject failure (the UK has no idea what mix of renewables, gas, nuclear and CCS we ‘need’) and it takes an eternity to get new stuff up and running. (e.g. US offshore wind)

          And you think that free markets will work fine if the government keeps intervention to a minimum? – Like the ‘investment’ banking industry you mean? The neoliberal mantra has wrecked economies and bankrupted businesses around the world.

          • Bob_Wallace

            Great rant Dave.

            Content value low, but lots of words….

          • Dave2020

            Never mind Bob. One man’s rant is another man’s inconvenient fact of life.

            If you paid your power bills to my supplier, you’d have a different perspective. They saw nothing wrong in raising my direct debit by £6 a month without notification. It’s a business model based on “How can we get more income” not “How can we better serve the customer”. Last year they raised the fixed charge element in order to limit the ‘headline’ rise in the main tariff rate. A case of screw the little guy and encourage the profligate to use more gas.


            “It is unedifying stuff.”

            Comments Nos. 674 & 675 sum up the inconvenient ethical dilemmas. Far too many people in government and big business have no moral compass for their actions. It will always be so – it’s human nature and one reason many people don’t give a toss about the environment that we, on CleanTechnica, care so much about.

            “This is what happens when you create spurious competitive structures.” ‘Nuff’ said.

            Maggie Thatcher deserves only censure. “credit”! You’ve got to be joking James.

  • James Wimberley

    Margaret Thatcher should get some credit for pioneering the unbundling of electricity generation and transmission. I am not generally speaking a fan of hers,or even of her privatisations, but this one worked quite well and became the EU standard. It was even taken up in Texas.

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