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Economy

Liberalized electricity market no guarantee of cheaper rates

TOKYO -- Japan is set to liberalize its retail energy market next April, and companies from inside and outside the sector are preparing to take advantage of the opportunity. But with the country's nuclear reactors still idle and fossil fuel costs rising, households may not see their electricity rates fall after all. 

Anticipating competition

Japan's steel plants have regularly sold electricity generated with gas from their blast furnaces to power companies.

     With a liberalized market on the horizon, however, they are starting to get inquires from unexpected quarters.

     Jupiter Telecommunications, the country's largest cable TV service operator, started selling cable TV services and electricity as a package to condominiums and other large-lot users in 2012. It plans to sell electricity to smaller users from next spring and has been sending employees to steel plants and other power producers to secure suppliers. 

     Liberalizing the market for electricity will end the system of regional monopolies supplying power to households. Gas companies and telecom operators are among the non-electricity players looking to capitalize on the change.

     "We are targeting a market share of 10% in the Tokyo metropolitan area," Tokyo Gas President Michiaki Hirose recently announced.

     Power companies, meanwhile, are gearing up to expand beyond the regions they have monopolized until now. Tokyo Electric Power and Kansai Electric Power, looking to fend off expected competitors, have tied up with telecom companies SoftBank and KDDI, respectively, to sell electricity at a discount. 

Difficult math

The market liberalization is aimed at "lowering electricity rates by offering wider energy options through reform that crosses over market barriers," according to Prime Minister Shinzo Abe.

     Reining in rates is a major priority for the government. Nuclear power generation has been suspended since the earthquake and tsunami struck Japan in March 2011. In that time, electricity rates have risen about 30% for industrial users and 20% for households due to the high cost of fuel for thermal power generation.

     The government's moves are already bearing fruit, but given the delay in restarting nuclear power plants -- the "most economical source of electricity," according the Ministry of Economy, Trade and Industry -- expectations for savings should not be too high.

     Even if the nation's reactors are restarted on a full-scale basis, it is estimated that the cost of power generation would be more than 10.3 yen (8 cents) per kilowatt-hour -- up from the previous 8.9 yen or more -- due to expenditures related to meeting new safety regulations and decommissioning old reactors.

     Critics maintain that even this estimate is too low. Tepco, as Tokyo electric Power is known, has paid more than 4.7 trillion yen in compensation to people affected by the nuclear accident at its Fukushima Daiichi power plant. While the estimated power-generation cost assumes spending on post-accident measures will total around 9 trillion yen, the actual figure could end up being higher, according to a METI official.

     "After the market is liberalized, it will be tough to compete while also facing the risk of having to pay a huge sum in compensation," a Tepco official said.

     A decline in utilities' financial health would have a negative impact on the long-term development of nuclear power plants. If, as a result, the country continues to rely on thermal power generation, high fuel costs may wipe out the rate-lowering effects of a freer market. 

Balancing concerns

The number of solar power generators on Tanegashima has increased sharply, resulting in temporary restrictions on output.

Renewable energy, meanwhile, poses a different set of problems.

     On the evening of May 4, Kyushu Electric Power ordered one of the eight solar power generators on Tanegashima, an island in Kagoshima Prefecture, to halt its supply of electricity the following day. The request was necessary to prevent an excess of photovoltaic energy from overloading the grid and causing a widespread power failure, a company executive said.

     Solar power has flourished on Tanegashima, which is rich in nature and receives large amounts of sunlight. The output from solar power generation can fluctuate widely, however, as it is heavily dependent on weather conditions. 

     Cost is another concern. To promote the use of green energy, the state purchases solar, wind and other types of renewable energy at fixed prices.

     The government plans to have 64 million kilowatts of electricity generated by solar power in fiscal 2030, accounting for 7% of Japan's total output -- but it has already authorized solar power generation facilities with a combined capacity of 90 million kilowatts. The cost of purchasing all that electricity at fixed prices could exceed the projected 2.3 trillion yen by a wide margin, and the government is looking for ways to avoid putting that burden on the public.

     Public sentiment toward nuclear power has remained complicated since the Fukushima Daiichi nuclear crisis. Finding an acceptable compromise among safety, cost and supply stability for the nation's energy policy is no simple matter, but Japan has no time to waste in forming a reasonable public consensus on the issue.

(Nikkei)

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