Regulatory reform of the electricity industry in Japan: What is the next step of deregulation?

In Japan, competitive bidding for new generating capacity (IPPs) is in progress since 1996. Retail competition was introduced for large customers (contract demand over 2 MW) after March 2000. Although the liberalization is limited in part by the fact that the retail power market has only about 30% share of total electricity demand, the eligible customers now have a choice among the nine major utilities and ten new entrants. Since November 2001, the electricity industry committee has been discussing the next step of liberalization, including the opening of the market for medium-size industrial and commercial high voltage (6 kV) customers from 2004 and 2005 on. This paper presents the experiences so far acquired and the technical issues for further deregulation. The process includes the creation of nationwide power exchange and of a neutral organization to coordinate the transmission system by 2005. The paper deals with the characteristics of the new regulatory reform of the electricity supply industry in Japan during the period of 2003–2007. We show that it is important to understand the complexity of market behavior and design the market reform carefully.