--The Asahi Shimbun, Feb. 17
EDITORIAL: Consumers should lead the charge to reform power industry

The process of putting the embattled Tokyo Electric Power Co. under state control will likely serve as the ace in the hole for efforts to reform the electric power industry.

The objective is to create an electric power market in which new entrants can compete on an equal footing with major players.

This would help ensure a stable power supply, the most formidable challenge facing Japan as it grapples with ways to lessen its dependence on nuclear energy.

First, there should be more companies that generate electricity.

Given the growing urgency to fight global warming, efforts must focus on renewable energy sources and natural gas.

At the same time, efforts must be made to reduce the redundancy of electric facilities and equipment by linking distant power plants with areas where demand for electricity is great.

To accomplish these goals, the government has no choice but to dissolve the current setup in which electric utilities have regional monopolies. This would also mean doing away with the system in which a single utility handles all power generation, transmission and distribution.

Since the 1990s, the market for power generation and distribution has been nominally opened to new entrants.

But major power suppliers with vested interests have resorted to various means to block the entry of new businesses.
Liberalization of the market is, in fact, in name only. The framework for the power industry needs to be drastically redesigned.

Changes are taking place, however.

The March 11 Great East Japan Earthquake and tsunami served as a wake-up call for quite a few companies and local governments. They now realize the risks of relying solely on TEPCO for power supply. Moves to switch contracts to new suppliers are gaining momentum.

For their part, those start-ups have been hoping to expand their power generation facilities to bolster their supply capability.

Clear direction needed

However, they remain skeptical of the government’s commitment to overhaul the power industry and are unable to decide whether to go ahead with their plans. Operators of renewables must be harboring similar doubts.

The administration of Prime Minister Yoshihiko Noda must make its stance on this issue explicit and announce that it will drastically liberalize the electricity market.

The administration would signal it is deadly serious about implementing bold reform if it sticks to its resolve to nationalize TEPCO.

If it is to encourage new investments in the power industry, the government must also create a mechanism that allows power companies to sell electricity freely.

The key to the creation of such a setup is the electricity wholesale market. An electric power exchange system has already been established to spur price competition through trading by adjusting demand and supply efficiently.

But the exchange has failed to generate the intended result because of the low volume of transactions. Utilities that control transmission networks are to blame for this because they are reluctant to invigorate the electricity market.

After the reactor meltdowns at the Fukushima No. 1 nuclear power plant and damage to thermal power plants created a power shortage last year, TEPCO restricted the use of transmission networks by other power companies to manage supply and demand in an integrated manner. As a result, trading at the exchange stopped.

Companies that had contracts with other suppliers were also affected by rolling blackouts implemented by TEPCO.

But they did not openly complain about or criticize TEPCO, apparently in fear that any sign of resistance would incur the wrath of this all-powerful utility.

Given this background, we cannot expect diversified players to enter the market. The government should not allow a single company to disrupt, for selfish reasons, stable power supply by competitors. Transmission networks must become part of an infrastructure that anyone can use equally.

This is why the transmission and generation of power needs to be separate.

Transmission networks for larger areas

The government is weighing three plans, from one that separates power generation, transmission and distribution to one in which different companies own each function.

Currently, transmission networks are owned by regional utilities. Apart from TEPCO, which will be brought under state control, a new law should be established to separate transmission networks from those utilities.

Even though it will take much time and effort, companies that are separate from electric utilities should handle transmission networks. That would ensure their independence. The final blueprint should be presented to the power industry so that the separation of the functions can be implemented in phases.

TEPCO should be split up into separate companies responsible for power transmission and generation, respectively. Then, the foundation for setting up a streamlined, neutral transmission company should be laid out. In this context, the cost structure of transmission networks must be made transparent.
New entrants have often complained about expensive fees for using transmission networks. The basis for cost calculation should also be made transparent.

Transmission network infrastructures can be used more efficiently when they cover wider areas.

However, different frequencies are used in western and eastern Japan despite the country’s small size, and lines connecting between utilities are not equipped to handle a large amount of electricity in the event of a power crunch. This situation is the inevitable outcome of the existing system in which regional utilities dominate.

Why not start by getting TEPCO’s transmission subsidiary to operate the transmission networks of Tohoku Electric Power Co. and Hokkaido Electric Power Co., both of which are in the 50-hertz zone. Since the Tohoku region and Hokkaido are particularly suited for wind-power generation, this could lead to the increased use of renewable energy.

A public watchdog is also needed to monitor the use of transmission networks. It should be authorized to coordinate supply and demand by working in tandem with the electricity wholesale market. If it is empowered to instruct power generation companies in emergencies, it would lead to the establishment of a power market where fairness is secured.


For households, the installation of “smart meters” should be promoted as soon as possible. Diversified fee structures should also be made available. If consumers can buy electricity generated by renewables and choose payment plans to suit their lifestyle, power companies will move to meet their needs.

The Fukushima disaster drove home to us the closed nature of the power industry and the harmful nature of maintaining regional monopolies. To clean up the mess left by the disaster, we, as a nation, have no choice but to shoulder a financial burden.

We need to reinvent the power industry, changing it from one manipulated by suppliers to one allowing consumers to take the initiative.

Our awareness of the urgency to revamp the power industry will pave the way for such reform.

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