For more than a decade, electricity policy in Japan has been guided by liberalization: retail deregulation in 2016, legal unbundling of transmission grids in 2020, and an insistence that competition would deliver lower prices and greater efficiency. That architecture is now largely in place. What is changing is policymakers’ confidence that competition alone can carry the system through its next phase.

Multi-trillion-yen investment needs to upgrade generation capacity, reinforce grids, and cut emissions – all within a relatively short infrastructure cycle – are colliding with volatile fuel prices, tight supply margins, and a fragmented market. The concern in Tokyo is no longer just the level of prices, but who bears fuel risk, who finances long-lived assets, and whether Japan’s utilities are structurally equipped to do both at once.

In meetings in 2025, industry experts and officials at the Ministry of Economy, Trade and Industry (METI) began to ask whether strict competition has gone too far – and whether a degree of coordination, once taboo, is unavoidable if the system is to remain stable.

The shift is subtle but consequential. Rather than dismantling liberalization, METI appears more focused on layering collaboration and diversification onto it: encouraging utilities to pool resources, broaden their business models, and share risks that markets have struggled to price. The challenge is how to do so without hollowing out competition, or drifting back toward the monopolies that reform was meant to dismantle.