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Deregulation Gives Japan's Energy Market a Charge

June 8, 1999

Households that generate their own electricity have begun selling it to power companies; though the quantities are not large, households equipped with solar panels are selling a growing volume of surplus electricity to these buyers. Waste treatment plants that generate electricity by burning garbage are selling more and more of their surplus to the power companies as well. Furthermore, since 1995, when restrictions on electric power wholesaling were relaxed, companies, such as steel manufacturers, have been entering the power-generation business one after another. If this trend takes hold, the mainstream, it can be expected to bring many benefits; for example, it could alleviate the problem of finding sites for new power plants and could lower rates by increasing competition.

Sudden Growth in Power Supply from Incineration Facilities
There has been a sharp rise in power generation from new energy sources that reduce the burden on the environment by minimizing CO2 emissions or by recycling resources. The impetus for this trend is a program instituted in 1992 that encourages electric power companies to purchase the excess electricity generated privately. Also, in 1997, the government passed the Law Concerning the Promotion of the Use of New Energy to provide subsidies and other support measures.

According to the results of a 1996 survey by the New Energy Foundation, an organization affiliated with the Ministry of International Trade and Industry, electric power generated by local governments and other new sources reached about 3 million kilowatts, equaling the average output of three nuclear power plants and accounting for 1.4% of the electricity generated by all power plants in Japan. Of this amount, 78% was generated on a small scale by a means long used to generate electric power: the natural flow of water, such as that for irrigation purposes. Solar energy generated only 1,300 kilowatts and wind power only 3,000 kilowatts of electricity, but the incineration of garbage to generate electricity has grown sharply in recent years.

Solid-waste treatment plants generate electricity from the heat produced by burning garbage. Of the approximately 2,000 such plants in Japan, about 160 now generate electric power by this means. Together, they produce about 650,000 kilowatts of electricity. Local governments are increasingly turning their waste treatment plants into power-generating facilities, and there are now 19 plants in Tokyo Prefecture, 17 in Osaka Prefecture, 14 in Kanagawa Prefecture, and 12 in Saitama Prefecture that generate electricity. The amount of electricity produced by these plants is about three times that of five years ago, and is equivalent to the amount consumed by 200,000 households. The plants use the bulk of this power themselves and sell only about a third of it to electric power companies. However, MITI estimates that by fiscal 2010, the amount of electricity generated by these plants will reach 4 million kilowatts, thanks to an increased number of power-generating incineration plants and better equipment. The volume sold to power companies is expected to grow accordingly.

Another noteworthy trend is the emergence of arrangements by private citizens to generate electricity for their own use. A citizens' group in Tokyo's Edogawa-ku is now engaged in facility, financed by citizen donations and lending from non profit groups. The citizens' group is installing solar panels on the roof of a new building under construction at a local temple, and plans to generate 5 kilowatts of electricity, of which some will serve as the power source for the temple's reception hall, and the remainder will be sold to the Tokyo Electric Power Company. After using this revenue to pay back its loans, the citizens' group will apply future revenue toward constructing its second and third power-generating facilities. By building these clean energy installations that leave no undesirable legacy for future generations, the citizens' group hopes to help arrest global warming.

New Market Entrants
Meanwhile, in an effort to foster competition in the electric power industry, where monopolies have always prevailed, and to alleviate the problem of finding sites for new power plants, the Japanese government has lifted restrictions on the large-scale wholesaling of self-generated electric power by companies outside the industry. Since this deregulation in 1995, companies from the steel, cement, petroleum, chemical, and paper and pulp industries have been jumping into the electric-power-generation business one after another.

The electric companies determine how much they are willing to purchase and solicit bids, then sign sales contracts with the selected companies. A petroleum refinery in Kyushu became the first to enter the electric power wholesale business under this system. This refinery, which invested 25 billion yen to build a power plant on some of its idle land, has sold 137,000 kilowatts of electricity since April 1999. Under its current contract, the refinery will supply electric power for the next 13 years.

According to this refinery, the advantage of selling electricity wholesale is that "While profit margins are slim, it's a stable source of income." The power company, meanwhile, says it is happy to do business with this new wholesaler because "The cost is lower, since the bid price doesn't include the costs of land and transmission lines."

Thus far, Japan's nine power companies have purchased some 7 million kilowatts of electricity from wholesalers and say they hope to meet over 10% of future increases in demand through such sources. Electric power is much more expensive in Japan than in Europe and the United States, where wholesale arrangements have been in place for a long time. Ideally, the entry of new sellers into the market will lower prices for everyone.

Trends in JapanEdited by Japan Echo Inc. based on domestic Japanese news sources. Articles presented here are offered for reference purposes and do not necessarily represent the policy or views of the Japanese Government.