Japan will soon be making energy history by opening its power market and restructuring its electricity system under conditions where renewable energy and smart grid technology are increasingly attractive. The potential for technical and business innovation is unprecedented. As in other countries, recent reductions in the cost of renewable power have brought it closer to being competitive with conventional forms of power generation than ever before. As the market opens, new players enter the field, and the technology evolves, the resulting economic opportunity could be attractive for players in the conventional power generation industry, the renewable energy industry, and also for a range of smart grid and micro-grid related technologies and businesses.
The entire Japanese electricity market is set to open to full retail competition as of April 1, 2016, a move that could be more dramatic and transformative than any of the power industry restructurings to date. The large incumbent utilities will be expected to compete with independent power producers in a wide range of categories. In parallel with this commercial restructuring, much of the country’s electric infrastructure is being rebuilt as a direct or indirect result of the tsunami disaster of 2011. There are renewable energy incentives much like in other developed countries. However in Japan, small producers of electricity are in some cases being offered prices for their output that are above the country’s standard FIT prices.
The range of players who are planning to get into the power business in Japan spans a spectrum from small partnerships led by local administrations to major international companies. Considering that Japan is the fourth largest economy in the world, the coming transition may be one of the more significant business opportunities currently available for power generation in the developed world. Hudson Clean Energy Partners and Sky Solar Holdings recently announced a sizable new generation investment in Japan, saying it “will produce electricity that is cost-competitive with alternative forms of power generation,” noting that, “This is a perfect demonstration of how development of new solar PV generation capacity is now competitive with conventional forms of power generation.” Canadian Solar also announced generation plans. (See articles on pages 19 and 29, respectively, for more information on the Canadian Solar and Hudson investments.)
As an example of the depth of change expected, Yamagata prefecture recently announced that it is establishing the Yamagata Power Company in collaboration with several private entities. “The new company will be focusing on retail sales of electricity,” Hiroaki Sato, local energy development specialist, Prefecture Environmental Energy Division, said. “We will procure electricity from local, renewable energy generators. We don’t intend to own power generations.” Renewable energy writer Junko Movellan reports that its business model is similar to Community Choice Aggregation (CCA), in which Yamagata Power Company will be aggregating regional energy demand, as well as negotiating and securing alternative energy supply contracts on a community-wide basis. It will deliver electricity via the grid owned by Tohoku Power Electric Co., the regional Investor Owned Utility. The prefecture is planning to procure energy from local renewable generators, such as PV, wind, small hydropower and biomass.
“We will start selling electricity from next April,” Sato said. “Like Nakanojo, we are planning to sell electricity first to prefecture-owned facilities, and depending on our supply capacity, we will gradually expand our customer base. We are currently negotiating [power supply] with local renewable generators. Our goal is to provide reliable and secure electricity supply. [With PV and wind being strong candidates for the power supply], how to secure base-load power will be our next big task.”
Japan, which has no history of municipally owned power retailing, appears to be poised to enter an era of intense innovation in which new local and regional entities are established to manage power development initiatives, likely featuring heavy collaboration with private sector companies, and almost certainly incorporating technologies from the smart grid, micro-grid, and renewable energy fields to an unprecedented extent – considering that such technologies would have generally been too expensive to use as a basis for building new power systems in the past.
Interest in the coming market appears to be strong. As of August 12, 734 organizations had officially registered as PPSs (power producer and supplier) with the Japanese Ministry of Economy, Trade and Industry (METI). As the Trans-Pacific Partnership (TPP) moves forward, it is generally expected that there will be additional opportunities for economic interaction between companies based in Japan and those in North America.
In Japan, over 96 percent of the electricity market is currently served by ten vertically-integrated, investor-owned utilities. Movellan notes that the annual value of the retail market, defined as customers below 50 KW in size, is estimated at 7.5 trillion yen (US $73.1 billion). Although a federally financed FIT program has brought significant amounts of new renewable capacity onto the grid since 2012, it is possible that the relatively high retail power prices prevalent in Japan, combined with declining costs for new generation technology and market deregulation, could create significant opportunities for new generators in the market. However as outlined in the feature article (see for example below on this page), there are a number of institutional challenges for new entrants that could dampen the appeal of the Japanese market for many non-Japanese companies.
Many experts have noted that the electric grid was mostly built before the wide availability of micro-electronics and prior to the recent reductions in the cost of distributed generation. In rebuilding major parts of its infrastructure and opening up its market to new players, Japan may well have an historic opportunity to test and deploy new technologies for smart grid and DG integration on a wider scale than has been the case in any jurisdiction before.
Japan, in its recovery from the Tsunami of 2011 and the related disruption of the energy sector, may have a chance to set the course for much of the industrialized world in developing the smarter and cleaner power systems of the future.
See also the following related stories in this feature:
Japanese electricity deregulation: Breaking up regional monopolies or strengthening incumbents?
Japan electricity deregulation leads to birth of municipally owned electric utilities
Canadian investment in Japan’s energy sector
Trade opportunities in Japan
Trade reps outline opportunities for export to Japan
Researchers report PV below average electricity prices in Japan
Japan conflicted about coal
Canadian solar opens 8.6 MW of PV in Japan
Canadian Solar building 47MW solar in Japan