The Yomiuri Shimbun
Recent electricity shortages faced by Tokyo and its vicinity after several power plants were damaged in the Great East Japan Earthquake have shed light on the weaknesses of the nation's power distribution systems.
Ten electric power companies have virtual monopolies in their respective regions, and this small country is divided into two zones with different power frequencies. These are points on which Japan's power industry differs from its counterparts overseas.
Japan's electricity history began in 1886, seven years after Thomas Edison put electric light bulbs into practical use.
Under the modernization policy of the government during the Meiji era (1868-1912), factories sprang up across the nation, along with demand for electricity to power them. This led to the birth of hundreds of small and midsize electricity suppliers.
In the Taisho era (1912-1926), these smaller utilities merged or were taken over until only five were left. During this realignment, Toho Denryoku emerged as the leader. The firm was led by Yasuzaemon Matsunaga, who was nicknamed the "king of electric power." Toho Denryoku was a predecessor to today's Kyushu Electric Power Co., Kansai Electric Power Co. and Chubu Electric Power Co.
But in the early Showa era (1926-1989) when the military gained power, the government in 1939 established a state-controlled company, Nippon Hassoden K.K. (Japan Electric Generation and Transmission Company), to control the power supply.
Matsunaga, who was a free market advocate, opposed the state takeover and retired from the business.
After World War II, the Allied Powers' General Headquarters demanded the government restructure the electricity utilities, saying state control of the power supply had indirectly helped the nation continue the war.
Although Matsunaga was more than 70 years old at the time, he accepted the post of chairman of a governmental council tasked with realigning the power industry.
The panel divided the nation, except Okinawa Prefecture, into nine blocs and established one private power company in each bloc. Matsunaga wanted to utilize the expertise of the private sector but avoid excessive competition.
GHQ supported his idea and Nippon Hassoden was divided into nine companies in 1951.
Because power demand in Japan was surging at the time, Matsunaga believed a huge capital investment would be needed to meet the nation's growing needs. He forced through a plan to raise electricity bills by more than 70 percent and was renicknamed the "devil of electric power."
When Okinawa Prefecture was returned to Japan in 1972, Okinawa Electric Power Co. was established, bringing the number of power utilities to today's 10.
There are also companies that wholesale electricity to the 10 firms. These include Electric Power Development Co. (J-Power), established in 1952 to supplement the nine main companies' generation capacity; and Japan Atomic Power Co., established in 1957 as the nation's nuclear power pioneer.
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Liberalization cut rates 20%
The government began liberalizing the electricity market in the 1990s amid the economic slowdown that followed the collapse of the economic bubble. Various industries, frustrated by Japan's expensive power rates--which were then twice or three times higher than U.S. and European rates--had demanded introduction of competition into the electricity market.
In the first round of liberalization, the Electricity Business Law was revised in 1995, enabling private companies to enter the wholesale market and sell electricity to major power companies over long periods of time.
Kobe Steel, Ltd., which was hit hard by the Great Hanshin Earthquake of January 1995, was blessed by the deregulation. The company became one of largest independent power producers (IPPs) in the country, using two coal thermal generators with a capacity of 700,000 kilowatts each at its Kobe works.
The retailing of electricity was liberalized in 2000.
Large-lot power consumers with contracted wattage of at least 2,000 kilowatts, such as major factories and department stores, became able to sell electricity freely after being certified by the government as power producers and suppliers (PPSs).
In 2004, liberalization was expanded to include midsize factories with contracted wattage of at least 500 kilowatts. From 2005, small business operators such as small-town factories and multitenant buildings with contracted wattage of 50 kilowatts or more became able to sell electricity.
Overall, the liberalizations covered 63 percent of all the nation's electricity sales.
To coincide with the expanded liberalization of the electricity market, the Japan Electric Power Exchange started operating in 1995. The exchange gathers information on electricity surpluses and shortages and mediates spot transactions and forward transactions of electricity.
Thanks to the liberalizations, electricity rates in Japan dropped by about 20 percent to levels below those of Italy and Germany, where high crude oil prices pushed up power rates.
However, only 46 PPSs remain, including some trading houses and a subsidiary of a major gas company. The amount of electricity they sell accounts for only 3 percent of the liberalized portion of the power business. Therefore, the regional monopolies by 10 major electricity suppliers continue.
Furthermore, small-lot electricity supplies to general households have not been liberalized. Based on the principle of maintaining a stable supply of electricity, the Economy, Trade and Industry Ministry plans to study whether this field of business should be liberalized, with a conclusion expected in 2013.
(Apr. 25, 2011)
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