Japans Electricity Market Reforms

TOKYO, Nov 27 (Reuters) – Trading of a Japanese power market derivative offered by the European Energy Exchange (EEX) has surged in the six months since its launch, as overseas traders and investors pile into the world’s fourth-biggest electricity market.

The surge highlights growing overseas interest in the once-closed sector after reforms prompted by the 2011 Fukushima nuclear disaster gradually opened it up.

Here is a timeline of changes: 1886 The sector’s origins date from the formation of private firm Tokyo Electric Light Co. in the late 1800s, followed by others in the wake of the late 1860s Meiji restoration.

The period set the stage for the division of the electric power grid on the basis of two frequencies, 50 Hertz in the east, used by early generators supplied by German equipment makers and 60 Hz in the west, where generators were supplied by a predecessor of U.S. firm General Electric Co.

Japan is thus the only major industrialized nation with two grids that can only be connected through limited capacity converters.

After the massive earthquake and tsunami disaster of 2011, this quirk meant that the east, where massive amounts of generation capacity had been knocked out, was starved of power, since too little could be transferred from the west to bridge the shortfall.

EARLY 1930s More than 800 utilities compete for business, driving mergers in the depression era that left just five utilities by the late 1930s.

1939 As Japan prepares for war, the government took control of utilities, forming the Japan Electric Generation and Transmission Co. and electricity distribution businesses separated into nine blocks.

1951 Nine regional monopolies were created as assets of the state generation and transmission company passed to distribution firms.

1966 Japan’s first nuclear power plant starts operation.

1972 Japan’s 10th regional “EPCO” was created in the southern islands after it got control of Okinawa.

1995 The first stage of freeing up the industry allowed the operation of private electricity generators.

2000 Customers receiving high-voltage (20 kilovolts) supplies were allowed to seek alternatives to regional monopolies.

APRIL 2004 Customers with demand of 500 kilowatts or more were freed to seek different power suppliers.

APRIL 2005 Demand ceiling reduced to 50 kilowatts or above for customers seeking different power suppliers.

MARCH 2011 Massive earthquake and tsunami kill nearly 20,000 in the northeast, setting off the Fukushima nuclear disaster and forcing emergency shutdown of many other nuclear plants. Damage to power plants including hydroelectric dams alongside coal and gas-fired stations caused power shortages. The worst nuclear disaster since Chernobyl eventually shut down the entire nuclear sector and many reactors are still being relicensed.

JULY 2012 Law changed to prescribe rates for renewable power supplies that were among the world’s most generous at the time. The so-called feed-in tariffs brought a surge of investment in solar farms. APRIL 2015 Creation of the Organization for Cross-regional Coordination of Transmission Operators (OCCTO), to monitor and adjust supply and demand of electricity nationwide. APRIL 2016 Electricity market almost fully freed up with any supplier allowed to sell electricity to the roughly $75 billion residential market. More than 600 supplies register to sell electricity, clawing market share from the old regional monopolies, which are still allowed to sell electricity based on a regulated market. Stiff competition drives many new entrants bankrupt. NOVEMBER 2018 Law adopted to promote and create a framework for developing offshore wind projects, but by November 2020 no major auctions have been completed. SEPTEMBER 2019 Tokyo Commodity Exchange launches electricity futures, but trading volumes prove to be thin.

APRIL 2020 Regional monopolies legally split into generation and transmission businesses, as government delays end to regulated tariffs for monopolies.

MAY 2020 European Energy Exchange launches derivative contract based on spot price of electricity on the Japan Electric Power Exchange. Volumes surge as foreign traders join the market. JUNE 2020 Electricity traded on the Japan Electric Power Exchange amounts to more than 40% of nationwide sales.

Reporting by Aaron Sheldrick; Editing by Clarence Fernandez

Source: Reuters

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