Japan’s Power Market Regulation Failure? New Entrants Face Tough Test

September 28, 2022|Electricity Market

Japan’s retail electricity market may be facing its greatest crisis since the end of World War II. Rapidly rising energy prices over the past six months have forced many electricity retailers into bankruptcy or to exit the market, leaving many customers scrambling to find other service providers.

At the center of this upheaval are companies that sprung up since 2016, the Power Producer and Suppliers (PPSs). These companies came in to challenge the regional utilities, betting that deregulation and a shift to cheaper or renewable power sources such as solar would ease the incumbents’ grip on the market.

As long as the power prices were trending down for most of the last six years, that premise held. As a result, hundreds of PPS firms took over nearly a quarter of Japanese power sales. The recent jump in fossil fuel prices, however, has bucked the trend. PPS firms without their own power resources, along with their sophisticated business models or price- hedging capabilities, have crashed. Many are now losing money in a market that combines heightened price volatility with pockets of supply disruption.

Japan has 737 PPS firms registered today. As many as 70-80% of those active in the market are unlikely to survive the ongoing flux and uncertainty. This winter could precipitate industry consolidation.

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