Tuesday, June 5, 2012

Japan Electricity Deregulatory Initiatives Under Discussion

According to the May 30, 2012 evening Nikkei, it is now possible to identify a number of METI initiatives under consideration for future deregulation the electricity market based on yet another METI advisory committee (電力システム改革専門委員会 -- roughly translates as the Electric System Reform Specialist Committee).  Ideas being pursued include the following:

To energize (no pun intended) an existing exchange where utilities and new entrants (so called "PPS" or "power producers and suppliers") can trade electricity futures, in order to stabilize electricity price and supply and support competitive entrants. Currently, futures transactions cover only 0.6% of retail electricity demand.

This reform involves restructuring the exchange, which is capitalized 80-90% with equity from the regional utilities, and whose directors are also mostly sent from the utilities.  The proposal is for METI to return the capital and replace directors at the exchange with non-utility executives. Also, end users may be permitted to trade electricity futures on the exchange, and utilities may be required to provide bids for purchase and sale of electricity to make sure that there is always some "bid" and "ask" price.

At least as important, the committee proposes to advance to detailed discussion over the appropriate way to separate transmission grid from the utilities, and make transmission a common facility that can be used by all market participants on fair, objective terms, in order to encourage new generation entrants.  METI is studying currently whether to propose a "legal" or just a "functional" separation of transmission -- whether I believe means whether transmission (1) will be spun off into an independent company, or (2) will just be shifted into a separate unit within the existing utility, that has a mandate to treat internal and external customers equally.

There is also discussion about deregulating the generation market and electricity distribution down to the level of retail/residential consumers -- whereas any competitive market is now limited to users above 50 kilowatts.

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