Japan to Allow Local Power Companies to Supply Renewable Energy Directly to Homes and Factories

The Ministry of Economy, Trade, and Industry (METI) plans to set up a licensing system to allow local companies in Japan to supply renewable energy directly to consumers in selected regions, using their own distribution network.

This is a major policy shift that will allow new players to enter the country’s power distribution market, which is currently dominated by a few large companies. Actual implementation will take place during the first half of this decade, before 2025. The goals are to promote the growth of renewable energy sources, spur new business development in the sector, and minimize the risk of power outages during natural disasters. This is according to a report by the Nikkei newspaper.

Liberalization following Fukushima

Japan is highly dependent for its energy needs on oil, coal, and natural gas (LNG) imported from overseas. Before the 2011 Great East Japan Earthquake and Fukushima nuclear disaster, the country was 81.2% dependent on fossil fuels. In 2017, the dependency ratio rose to 87.4% because of increased power generation using thermal power plants that had to make up for the loss of nuclear power plants that were shut down for safety inspections.

Since the disruption caused by the Fukushima disaster Japan has taken rapid measures to de-regulate the electricity supply market. In 2012, the government introduced the feed-in-tariff scheme, which encourages utility operators and companies to purchase and invest in renewable energy, and in 2016, individual and small business customers have been able to choose their own electricity supplier from over 250 competing supply companies.

Currently, these electricity retailers are permitted to supply electricity to consumers over power lines that are owned by ten large, regulated companies.

Licenses for suppliers to manage own lines

Under the new policy, a licensing system will allow companies (other than the major players) to manage and operate their own lines, thereby creating smaller distribution networks throughout the country. However, companies will only be allowed to supply power to customers in the region where they generate the power, whether it is solar or wind: basically, local production for local consumption. The system will also be limited to towns with populations of a few 100,000 people.

Diversifying power supply in case of natural disaster

One of the key reasons the government is taking this next step in liberalizing the industry is to create smaller, more nimble distribution networks in case of major natural disasters. Typhoon 15, which struck Chiba in September 2019, crippled up to 640,000 households for weeks, as TEPCO (the power company serving the Kanto region) was unable to rapidly repair downed power lines and steel poles. The theory is that smaller companies will be able to do repairs more quickly and the cost of resuming supply can be dispersed more widely.

Sources: Nikkei newspaper, November 7, 2019, “Japan’s Energy 2018” (Agency for Natural Resources and Energy), “Energy in Japan” (Wikipedia)