First Electricity Reform Bill To Pass ... after Election

Japan's House of Representatives on June 13 2013 passed the first in a set of legislation intended to reform Japan's electricity system.  The legislation is headed to the House of Councillors, where it is also expected to pass.

The reform is to proceed in 3 arrows (just like the "three arrows" of Prime Minister Abe's economic policy, Abenomics).  I guess the LDP government is made up of archers.  The first "arrow" is as follows:

First, by the beginning of 2015, a new entity will be established that is responsible for the wide-area transmission grid.  This entity will be responsible for balancing demand across the country and will help to resolve the regional balkanization issues.  As I understand it, the existing transmission assets will remain under the ownership of the regional utilities, but the new entity will become the active player in running the grid, and will be tasked to address issues such as increasing the ability to transmit electricity in between east and west Japan (50 and 60 hz regions), as well as from areas such as Hokkaido that can support much greater renewables (wind and solar) generation than local demand requires.

There are lots of details to work out before we know whether this grid operator will be set up so as to function in a truly independent manner, or will just be a captive of the existing utilities, but at least the issues of independence are being highlighted.

Also, the law will place an obligation upon the utilities to provide access to their transmission/distribution grid, at regulated prices, for "self-consumption" of electricity.  This will allow a major industrial or commercial user to generate electricity at one location and consume it at a second, remote location.

Lastly, there is provision in the law for a more flexible system of demand control measures.  Apparently under current law the ministry can only issue "orders" to reduce consumption, violation of which involve serious penalties.  The new structure will allow more flexible arrangements, as companies have complained about the legal risk they face when they try, yet fail, to comply with a demand reduction request.

The second "arrow" is retail electricity competition, with electricity sales to small/residential users to be liberalized by 2016.  The third "arrow" is separation of generation and transmission functions by 2018 to 2020.  These last 2 arrows are not in the current legislation, as I understand it, but will be proposed in 2014 and 2015.  The utilities are still fighting a hard battle against the separation of generation and transmission, given its impact upon their current organization and financial structure.  The utilities hope that by 2015 they will have been able to restart substantial numbers of nuclear plants, there will be a comfortable margin of excess electricity supply and the demand for reform will dissipate.  We shall see.

There will be a difficult fight ahead, and the LDP's dominance if, as expected, they win a landslide in this summer's upper house election, will give the incumbent utilities a somewhat stronger hand politically.  But the utilities have failed to present a credible vision of what Japan's future electricity system would look like, of how it will respond to changes in technology, to a changing energy mix and a changing economic environment.  And like it or not, the utilities will not restart significant number of nuclear reactors over the next 12-18 months, and electricity rates will be going up, not down, the press will occasionally remind us all about problems at Fukushima, and this reform will be difficult to stop.

UPDATE 2013 6 27:

Yesterday, the Upper House of the Diet passed a non-binding censure motion against Prime Minister Abe, promoted by several small opposition parties and, at the last minute joined in by the DPJ, a last "in your face" gesture before the upcoming Upper House election.  The Upper House is still controlled by the DPJ and other opposition parties, and one result of this turn of events is the failure of the Upper House to act on the electricity reform bill.  This and other legislation will need to wait until later in the year, after the election in which the LDP is widely predicted to win in a landslide.