BY TETSUJI TOMITA
Japan’s electricity retail market has reached the end of its first post-liberalization phase. Ten years after full retail opening in 2016, the basic achievements are clear: more suppliers, more customer choice, more tariff options, and a much larger wholesale market.
The next phase will test the depth of retailer capability. Market access and customer choice created the first wave of competition; and procurement strategy, hedging, balancing and the menu of decarbonization services will shape the next one.
The domestic electricity industry was historically built around vertically integrated regional monopolies. These former general electric utilities controlled generation, transmission and retail supply within their service areas, with tariffs approved through a cost-of-service regulatory framework. This model supported investment and reliability during the nation’s postwar growth period, but it offered little to no competition and consumer choice.
Reform came gradually. Retail competition was first introduced for large customers in 2000, then expanded to high-voltage commercial and industrial users in 2004 and 2005. JEPX was established in 2005, creating the foundation for wholesale electricity trading.
After the 2011 earthquake and Fukushima nuclear accident exposed weaknesses in the regional monopoly system, officials accelerated electricity system reform. OCCTO was established in 2015, full retail liberalization followed in April 2016, and legal unbundling of transmission and distribution businesses was completed in 2020. The irony is that liberalization made it easier to enter the electricity business just as the business was becoming harder to run.