Renewables Update

Series: Considering the True Acceleration of Electricity System Reform
Vol.1: Launch of a series of columns to study the current discussions on electricity system reform in Japanese

29 November 2016 Mika Obayashi, Director, Renewable Energy Institute

Since the accident at TEPCO’s nuclear power plant in Fukushima, a series of measures for electricity system reform has been or will be implemented in Japan, such as the establishment of the Organization for Cross-regional Coordination of Transmission Operators, OCCTO, and the Electricity and Gas Market Surveillance Commission in 2015, the implementation of full retail liberalization in April 2016, and legal unbundling of power generation and transmission/distribution planned for April 2020 (TEPCO already unbundled them in April 2016). The Feed-in Tariff system implemented in 2012 to promote renewable energy deployment is also one of the measures designed to change the shape of the electricity market.

In reality, however, the trade volume of the wholesale electricity market still remains at a low level, accounting for only around 2.6% of the total electricity demand (as of June 2016). After the implementation of retail liberalization, only 3.3% of the contracting households have switched their suppliers from major utilities to new power suppliers (as of November 2016). On the other hand, renewable energy such as solar PV has rapidly increased. In areas of specific utilities, there are some days when the share of renewables reach around 80% of the demand ― nearly 70% generated by vulnerable renewables, PV and wind, as was mentioned in our column ). It is obvious that more flexible grid operation and market design are urgently needed.

Under these circumstances, in September 2016, the Ministry of Economy, Trade and Industry, METI, announced the establishment of the Policy Subcommittee for Acceleration of Electricity System Reform (hereinafter called “Acceleration Subcommittee”) and started discussions. Since the subcommittee is intended to accelerate electricity system reform, its discussions are supposed to be aimed at the advancement of reform. However, as far as the contents of ongoing discussions are concerned, the main focus seems to be on the relief measures for major utilities, especially their nuclear power business. These discussions seem to move against the reform. However, as far as the contents of ongoing discussions are concerned, the main focus seems to be on the relief measures for major utilities, especially their nuclear power business. These discussions seem to move against the reform.

The most important issue to be discussed is how to finance the costs for handling the aftermath of TEPCO’s Fukushima nuclear accident, including decommissioning, decontamination and compensation, as well as the costs for decommissioning other nuclear power plants, in the liberalized market. Now, it has been gradually made clear that the costs related to the Fukushima accident will be extraordinarily high, the costs for other plants will be lower than that but higher than 1 trillion yen, and these costs will be imposed on consumers by additional wheeling charges (charges for using transmission lines) of PPS.

At the same time, under the name of the development of the electricity market, the implementation of new systems involved in the core of the system reform, such as a capacity mechanism, base load power source market and the non-fossil value trading market, is being discussed.

As clear issues and numerical values have not been provided by METI, and media reports on the discussions have changed repeatedly, general consumers do not know what is being discussed and remain left behind. It looks as if the government is trying to obscure the focal issues by discussing many systems at the same time in a short period. Especially, discussions on the electricity system reform contain many technical contents and terms that are not familiar to Japanese consumers.

Therefore, Renewable Energy Institute has decided to publish a series of columns on the issues discussed in the Acceleration Subcommittee and other meetings to organize and explain the ongoing discussions and give an insight into possible issues. This is the first column in the series, and future columns will deal with issues such as “the concept of accounting for decommissioning nuclear power plants,” “handling of the aftermath of TEPCO’s Fukushima accident, including decommissioning, decontamination and compensation,” “capacity mechanism,” “the non-fossil value trading market” and “base load power source market” as well as “the viewpoint from Europe” and “the viewpoint of Japanese consumers.”

 The table below shows details of the meetings held in September 2016 or later and their main issues based on media reports and other information available as of mid-November 2016. (The table below was updated on 14 December 2016 after new information was released).


We hope that this series will provide materials for discussion on the acceleration and accomplishment of electricity system reform in Japan.

Meetings Main issues Direction of discussion
TEPCO Reform and 1F Issue Committee (TEPCO Issue Committee),
Ministry of Economy, Trade and Industry
Costs for handling the aftermath of the reactors affected by the Fukushima nuclear accident: 2 trillion yen→8 trillion yen To be included in the TEPCO wheeling charges
Compensation and decontamination costs for the Fukushima nuclear accident: 7.9 trillion yen →11.9 trillion yen (or 15 trillion yen? Some forecasts even higher) Additional wheeling charges of TEPCO, other major utilities and PPS?
Stock sales (about 1.5 trillion yen?)
Subcommittee on the Policy for the Accomplishment of Electricity System Reform
Strategic Policy Committee,
Advisory Committee for Natural Resources and Energy,
Ministry of Economy, Trade and Industry
Finance and Accounting WG How to cover the costs for handling the aftermath of the accident, including decommissioning, decontamination and compensation, which are discussed in the TEPCO Issue Committee Same as above
Accounting process of the costs for the unplanned decommissioning of nuclear power plants younger than 60 years old: 1.3 trillion yen? Additional wheeling charges of TEPCO, other major utilities and PPS?
Market Development WG Capacity market: Subsidization of fossil fuel power plants on kW basis, when they are not producing power Financial assistance to conventional coal-fired power plants as well?
Base load power source market: The targets are nuclear power, coal, hydropower, etc. Trading in favor of nuclear power and coal?
Non-fossil value trading market: Nuclear power, FiT renewables, hydropower, etc. Trading without considering the risks of radioactive waste and accidents of nuclear power plants?
Advisory Committee on Nuclear Damage Compensation System, Japan Atomic Energy Commission, Cabinet Office Nuclear power producers’ liability for compensation Reached a tentative agreement to bear unlimited liability
(on 16 November 2016)
* The contents of the table are organized by the Renewable Energy Institute based on the discussions in media reports, councils, public meetings, and other sources.