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Japan: Electricity market reforms

Tomohiro Koyasu

On April 1 2016 the retail electricity market in Japan will be fully liberalised to enable all consumers, including those in the household sector, to choose their preferred electricity supplier. This reform of the power industry is one of the steps taken by the government to address the vulnerabilities of the previous system, which was almost completely monopolised by regional electricity companies. These weaknesses were exposed following the Great East Japan Earthquake and the resulting nuclear disaster in 2011.

To secure a stable supply of electricity, suppress electricity rates as much as possible, expand choices for consumers and increase business opportunities, a bold reform package is now steadily being carried out. This market reform focuses on the following three stages:

  • enhancement of nationwide system operations;
  • full liberalisation of the retail electricity market and power generation; and
  • measures to secure impartiality of the transmission/distribution sector from the generation and retail sectors through the separation of legal entities.

The second stage of the reforms, which was approved in 2014 and will come into effect on April 1 2016, is to fully liberalise entry into the retail electricity market in Japan. In this regard, household consumers will be able to select their preferred electric company, rate plan, and options depending on the power source. Along with full liberalisation of the retail electricity market, full liberalisation of power generation is to be implemented, as well as initiatives to raise trading volumes of electricity at wholesale power exchange markets.

After full liberalisation of the retail market is implemented, power producers and suppliers will be able to sell electricity to households, which will greatly increase their pool of potential customers. Also, if the wholesale electricity market is energised and the number of transactions in that market increases, power producers and suppliers will be able to procure electricity through that market. From this perspective, new market opportunities for foreign investors may arise. However, the electricity market in Japan is in a period of great reform and it is important to understand the legal framework and the relevant risks.

Tomohiro Koyasu

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