Japan’s Ministry of Economy, Trade and Industry (METI) held an experts’ committee meeting on July 13 and proposed the general direction for the reform of electric energy industry. The proposal envisions to free the energy companies’ monopolies by unbundling generation and transmission of electric power as well as deregulating the retail of power. During the summer, METI is going to draw the Basic Energy Plan, which hopefully is going to reflect the proposal and its direction.
If actualized, it will bring the significant reform in the oft-blamed energy industry in Japan. The current system has created the competition-free environment for the ten major energy companies including Tokyo Electric Company (Tepco) and Kansai Electric Company (Kepco). The energy companies have argued that the bundling of generation and transmission of power is necessary for the stable supply of energy to all customers. However, a numerous incidents, especially since the Tohoku Earthquake, have revealed the nature of the Japanese energy companies that is self-serving and often disregarding of consumers.
Deregulating the retail of energy means that smaller energy companies can enter the market and vie for consumers. Consumers, in turn, are able to choose their own electric companies. For example, a couple in Tokyo can choose to buy their energy from electric companies in Tohoku. The greatest challenge for smaller energy companies to participate in the market was largely due to the major energy companies’ control over transmission of power. Once the proposal is implemented, it becomes easier for various energy companies to send the generated energy to different customers.
The debated issue is the means of unbundling generation and transmission. One suggestion is to create Independent System Operators (ISO) to centralize the control and regulation of power grid, electric lines, and substations. This is modeled after the American system.
Another suggestion is for the major energy companies to create holding companies that would concentrate on transmission. This second option obviously makes it more difficult for smaller energy companies to participate. Some experts have said that this is for the energy companies to continue the status quo of their monopoly.
The first option is not without some concern. The energy companies have been trying to draw a blue print of the Japanese ISO so that the important positions be occupied by the members of the major electric companies. In order to have smaller energy companies and new business to get involved, we must follow carefully the development and eagerly criticize if necessary.
In spite of the concerns and a possible blind alley, the proposal can bring about significant reform in Japanese energy industry. If the unbundling of generation and trasmission is accomplished, many renewable energy companies can enter the market. The demand for the renewable energy, alternative to the nuclear, is high among the population. Companies should focus to supply the clean and non-nuclear energy to tap the nuclear-conscience consumers.
Some companies should definitely tap into various renewable energy sources. Masayoshi Son of Softbank has started SB Energy to generate solar energy. The company’s Mega-Solar located in Kyoto started to generate energy. After September, the plant will be able to generate 4.2 million kWh, equivalent of 1,160 households’ energy usage.
More important than solar energy, Japanese (or even foreign) companies should look into the possibility of geothermal energy. Japan is the world’s sixth largest holder of geo-thermal energy after the US, the Philippines, Italy, Mexico, and Indonesia. However, Japan currently produces 530 MW geo-thermal energy, only 0.3% of the total energy generation.
There are some hinderance to the development of geothermal energy. Many locations suitable for the geothermal generation are national parks where constructions are prohibited. Other places are used by Hot-Spring tourist industry. But the recent report by Daiwa Institute of Research Holdings argues that the constructions in national parks can be careful of not hindering a view. As for the hot spring, there are new technologies such as Hot Dry Rock geothermal power (HDR) or Enhanced Geothermal Systems (EGS) being developed.
The potential for geothermal energy is great. The report by Daiwa argues that it can even be considered as a viable alternative to nuclear energy. In order for new energy business to flourish in Japan, the proposal must be implemented in the new Basic Energy Plan as well as for politicians to see the vision of the new energy industry.
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