Deregulated Energy market in japan

Transcription

1 Deregulated Energy market in japan 9/27/2018

2 1 Agenda Introduction of KSS Why Japan, Why Now History of Deregulation and Current Situation Structure of the Electricity Industry Characteristics of Players in Japan Electric Market Operation and Rules of Retail Business Typical Products in the Deregulated Market Prospective Future Market

3 2 Introduction of KSS

4 3 We are Kanden System Solutions ( KSS ) from Japan KSS is an IT service and business consulting service provider, the subsidiary of Kansai Electric Power Company ( KEPCO ) which is the 2 nd largest utility in Japan. - Establishment : April 1, Capital : 90 million JPY ( 64K GBP) - Sales : 31,525 million JPY ( 224 million GBP) - Employees : 1,311 - Head Office : Osaka, Japan Operation & Maintenance Business Consulting - Energy team - Public team - Enterprise team System Development Infrastructure building

5 4 Our service for energy industry KSS service is originally from Build Operation of Japanese Retailer, not only create blueprint, but also support our clients one by one tenaciously. KSS have been providing support for oversea companies entering to Japanese retail market in the last 2 years. We are expanding our service to support development of around energy retail business and service. e.g. VPP, evolutional products utilizing PV and Battery, new service that makes more convenience for customer or retailer or Utility. We also have experience that support entering the Japanese market of oversea IT Service and energy relating products providers etc.

6 5 We have been supporting a lot of companies so far Japanese retailers & others Oversea > 40 Projects retailers Other > 10 Projects overseas projects Some Projects are ongoing Include both Outbound / Inbound business

7 6 Why Japan, Why Now

8 7 Japan electricity market is a huge single market GDP : 521 trillion JPY ( 3.7 trillion GBP ) Population : 127 million Household : 63 million Japan market is even bigger than the de-regulated market in the U.S. Electric Energy Sales : 823 TWh Market Volume : 18 trillion JPY (128 billion GBP) Industrial/Business : 10 trillion JPY (70 billion GBP) Households: 8 trillion JPY (57 billion GBP)

9 8 A big change is coming to Japan energy market We are here Electric system reform Establishment of OCCTO Full retail liberalization Legal unbundling of T&D sectors Share (%) * High-V : 5.2 Low-V : 0 Share (%) * High-V : 8.3 Low-V : 0.1 Share (%) * High-V : 12.1 Low-V : 4.6 Share (%) * High-V : 16.2 Low-V : 7.7 * market share of new retailers Gas system reform Full retail liberalization Retailers from oversea began to enter Japan market. Wholesale exchange market reform is in progress. Legal unbundling of pipeline divisions Share (%) * >= 100k m3 : 11.7 < 100k m3 : 0 Share (%) * >= 100k m3 : 13.1 < 100k m3 : 0 Share (%) * >= 100k m3 : 13.0 < 100k m3 : 0 Share (%) * >= 100k m3 : 18.5 < 100k m3 : 2.4 * market share of new retailers Deregulation started smoothly and a healthier market is going to be developed.

10 9 History of Deregulation and Current Situation

11 Partial deregulation of retail market started from 2000 Ultra high-voltage High-voltage Low-voltage (regulated categories) Mar ~ contract kw (voltage) Ultra high-voltage for Industrial Ultra high-voltage for business 2,000kW (20,000V) High-voltage B 500kW High-voltage for Business High-voltage A 50kW (6,000V) Low voltage Electric light (100~200V) Apr ~ Apr ~ Ultra high-voltage for Industrial Ultra high-voltage for business High-voltage B High-voltage for Business (above 500kW) Ultra high-voltage for Industrial Ultra high-voltage for business High-voltage B High-voltage for Business High-voltage A High-voltage A High-voltage for Business (below 500kW) Low voltage Electric light Low voltage Electric light Source: Ministry of Economy, Trade and Industry documents Liberalized categories 10

12 11 The market didn t get hot at all Transition of new retailer s market share Ultra High-voltage and High-voltage full liberalization Source: Electricity Research and Statistics Main reasons why the retail market was not active Electric power was difficult to procure in wholesale market. Conventional utilities were not cooperative.

13 The disaster in March 2011 has changed the situation Great East Japan Earthquake Fukushima nuclear power plant accident People were forced to live without sufficient electric power. Electricity system reform had proceeded by public opinion The vertical integrated system should be reconsidered. Regional monopolies should be abolished. Deregulation should be improved more than before. Stage 1 amendments Enactment of 1 st law amendments Operation of OCCTO Stage 2 amendments Policy on Electricity System Reform Enactment of 2 nd law amendments Full retail liberalization Stage 3 amendments Enactment of 3 rd law amendments Legal unbundling of T&D sectors Apr 2, 2013 Cabinet decision Nov 13, 2013 Jun 11, 2014 Apr, 2015 Jun 17, 2015 Apr, 2016 Apr,

14 13 Retail market is booming after full deregulation Total Ultra High-voltage /High-voltage Low-voltage Source: Material from Research and Statistics of Electric power.

15 14 Deregulation has widely spread to Japanese people in 2 years Residential and small business (Low voltage) Switching from Conventional utility to New retailer Area Number(K) Rate(%) Hokkaido Tohoku Tokyo 3, Chubu Hokuriku Kansai 1, Chugoku Shikoku Kyushu Okinawa - - Total 5, Switching from regulated plan to liberalized plan in same utility Area Number(K) Rate(%) Hokkaido Tohoku Tokyo Chubu 1, Hokuriku Kansai Chugoku Shikoku Kyushu Okinawa Total 3, Source: Electricity transaction report. Data as of Feb, 2018 The total amount of switching is 9.7 million, and the total switching rate is 15.5%.

16 15 Many players rush into energy market 600 Number of registered retailer of electricity Source: created by KS-SOL, based on state of full retail liberalization of electricity issued each time.

17 16 Trading volume in JEPX is also increasing rapidly Transition of the volume and the price of transaction from JEPX Transaction Volume (GWh / day) Transaction Volume Percentage of Total Demand (same right vertical axis %) System Price System Price (average of 7 days) System Price (JPY / kwh) Percentage of Total Demand (%)

18 17 Gas retail market is following electricity retail market Partial deregulation of gas retail market Large Contracted gas usage per year Small Amount of retailer Transition of new entrants Share of provision(%) Mar 1995~ Industry 2 million m3 1 million m3 Gas pipeline service provider Large-Volume gas retailer Share of new entrant Nov 1999~ Business 0.5 million m3 Apr 2004~ Industry (Medium-sized) 0.1 million m3 Apr 2007~ Industry (Small-sized) < 0.1 million m3 > 2 million m3 Mar ~ > 1 million m3 Nov ~ > 0.5 million m3 Apr ~ > 0.1 million m3 Apr ~ Number of registered retailer of gas Amount (k) Transition of switching applications Mar Apr May Jun Jul Aug Sep Oct Nov Dec s/w rate : 2.4% 2017 Total Kanto Chubu Hokuriku Kinki Kyushu Characteristics of gas retail market Wholesale exchange market doesn t exist. It is difficult for new gas retailers to find a wholesaler so far. Gas retailers are obliged to organize security division.

19 18 Structure of the Electricity Industry

20 19 Systems of IPP, TND and Retailer were respectively migrated to new license system License Type Utility IPP Notification System Submit forecast Generate Division Permission System T&D Division Submit forecast Switching procedure Sell Retailer Registration System Retail Division Buy

21 20 IPP accounts for about 17% of the total power in Japan market There are 577 IPPs in Japan. Main industries: Steel maker chemical maker petroleum company Resource and competence: Surplus power generated by their private facilities Middle-sized LNG plants under construction Renewable energy power plants Source: Agency for Natural Resources and Energy. Data as of Jan, 2018 Gross bidding, promoted by government will ensure that the transaction in JEPX will be increased steadily.

22 21 10 Utilities are operating T&D network of Japan All Utilities are responsible for balancing electricity within their own territories. Hokkaido Electric power is transmitted among these utilities by interconnection except Okinawa. Kansai Hokuriku Tohoku Chugoku Tokyo Kyushu Shikoku Chubu 60hz 50hz Okinawa

23 22 Low-entry barriers to enter electrics retail market Requirements Apply for a license from METI (Ministry of Economy, Trade and Industry) Expected power demand Supply capability Business implementation system Enter into a power wheeling contract with the T&D in the target area. Intra-area wheeling service contract Power generation adjustment supply contract (FIT source) Cross-area wheeling service contract with all T&Ds Join OCCTO Be a member of JEPX Large investment in equipment is not necessary!

24 23 OCCTO is responsible for Japan electricity industry as a Hub Organization for Cross-regional Coordination of Transmission Operators, JAPAN IPP T&D Provide useful and necessary systems. Switching support system Demand-supply forecast submitting system Standardize system specifications. Coordinate and adjust the demand-supply balance among T&Ds. Make long-term plans for maintaining and strengthening the transmission infrastructure, especially the Interconnection. Retailer

25 24 JEPX is the only electricity wholesale exchange market in Japan Spot market (1 day ahead) : Main exchange market using blind single-price auction method. Intraday market(1 hour ahead) : Continuous session like trading in stock exchange, usually used for unexpected situation such as generation assets failure and rapid weather change. Image of blind single-price auction

26 25 Characteristics of Players in Japan Electric Market

27 26 Many players in electricity retail market come from various industries Basic Strategy: The electricity could be sold as part of a bundle of their original services and products. Reasons: The low-voltage sector (residential and small business) is worth JPY 8 trillions. Easy to get a license to start retail business. Prevent rivals from taking their own customers.

28 Some new retailers achieved great success, but some did not Companies Number of customers Companies Reasons Tokyo Gas KDDI Osaka Gas JXTG Energy 1,200K 1,000K 600K 300K Orix Electric Power Daito Energy Fukushima Energy Sell their bulk business in apartment due to the concern about expansion of their business in the future. Get out of the retail market due to few profit from their main customers who are single. Withdraw from the retail market due to delay in dealing with billing and customer support business. 5 th ~ 10 th : 100K 11 th ~ 50 th : 40K 51 th ~ 100 th : 5K Assumption by KS-SOL 27

29 28 Know-how and expertise in electricity business are not enough Issues Lack of expertise in procurement from wholesale market Insufficient know-how in balancing management Few unique products which utilize electricity business Not too many IT solution products and IT service vendors This is a sort of opportunities. Strong and wide customer base Expertise in advanced electricity market

30 29 Many new entrants from overseas are coming to Japan Retail VPP some new entrants (around 10) are applying for the license. Battery / PV IT service

31 30 Operation and Rules of Retail Business

32 Electric Energy (10,000kWh) Rate (%) 31 Procurement from JEPX is steadily increasing Main procurement for new retailer PPA ( Power Purchase Agreement ) with IPP JEPX Backup power from utilities Own power generation facilities Sep,2012 Mar,2013 Sep,2013 Mar,2014 Sep,2014 Mar,2015 Sep,2015 Mar,2016 Sep,2016 Mar,2017 Sep,2017 PPA with IPP Backup power from utilities JEPX Rate of procurement from backup power from utilities Rate of procurement from JEPX Source: submitted documents of 28th System Design Expert Meeting.

33 32 Retailers and IPPs are responsible for accurate forecast Both retailers and IPPs need to submit forecast to OCCTO at least 1 hour ahead. Retailer IPP Imbalance fee Actual demand Forecast demand Forecast supply Imbalance fee Actual supply They will be charged imbalance fee for the difference between Actual and Forecast. Planned Value Balancing USA UK Norway Balancing (Simultaneous Equal Amount) France Germany Sweden Japan Denmark Finland Source: Report of system research about overseas electricity exchange market and real time market by MRI

34 33 Necessary to comply with sales guideline for customer protection The Guidelines for the Management of the Electric Retail Business 1. Appropriate disclosure of information to consumers i. Disclosure of general information ii. Explanation of important matters prior to contract signing and issuance of documents before and after contract signing iii. Appropriate method of disclosures such as power generation structure 2. Clear definition of sales and contract forms i. Difference between Brokers, intermediaries, and ii. iii. agents of the electric retailer Electricity retailer s responsibilities when subcontracting processes Sales/contract forms that comply with the Power Generation Business Law 3. Clarification of contract details Followings are prohibited: i. Non-transparent calculation of electric rates ii. Inappropriate contract termination iii. Items concerning predatory pricing with the aim of forcing competitors out of the market 4. Response to complaints and inquiries i. Obligation to respond to complaints and inquiries ii. Response to power outage inquiries 5. Contract Termination i. Procedures for consumer-initiated contract termination ii. Procedures for retailer-initiated contract termination Source: material from the 2rd System Design Specialist Committee of the Electric Market Surveillance Commission Retailers are mandated to explain important matters to customers in accordance with the guidelines. The retention of documentary evidence, usually for 3 months, was also mandated in terms of costumer protection.

35 34 Switching procedure is processed by Switching Support System Integrate retailer s own system with Switching Support System using API (Application Programming Interface) provided by OCCTO. Use Switching Support System directly on the website of OCCTO. Customer 1Apply for power New Retailer 2Apply for Switching Switching Support System 6Provide service 5Notify the result 4Apply for Wheeling Service T&D Current Retailer 3Require termination

36 35 Retailers access to T&D directly in order to get the usage data Usage Data Monthly usage including every 30-minute data To be used for bill calculation. Meter-reading is carried out almost every business day. T&D A Get information Send Invoice T&D B Get information Retailer Provide information Customer T&D C Tentative Data 30-minute usage data Provided 1 hour later after the end time. To be used for demand forecast and information provision to customers. Retailers always need to download the usage data from all T&Ds.

37 36 Typical Products in the Deregulated Market

38 37 Conventional products provided by utilities are as follows Bill calculation formula Adjustments Electricity bill = Basic charge + Meter charge (Supply charge) + ± + Fuel adjustment charges(fac) (kwh * X.XX JPY) Renewable energy generation surcharges(fit charge) (kwh* X.XX JPY) Meter charge have 3 tiers rate depending on usage. - Applicable discounts FAC rate change every month (up / down) depending on fuel import cost such as LNG, Oil and Coal. It means that utilities have little risk. (Basic charge rate and meter charge rate don t change) Time of use(tou) products are usually provided for all-electric home. (no use of gas).

39 38 New retailers imitate utilities products and reduce rate so far Rates Utility s rate Mirror Plan New retailer s rate Rate structure is identical, but with reduced price. Electricity Consumption Fuel adjustment charges(fac) is being copied to new retailers together. Mirror Product is easy to make a comparison for customers and to design a low-risk product for new retailers too. However, it doesn t make much money for retailers. New entrant retailers are expected to provide innovative products with wholesale trading under appropriate risk management. Example #1 : Fixed Charge Rate / Flat Rate Example #2 : Holidays Free Rate

40 Utility and retailers representative tariff for residence Utility New Retailer TEPCO Meter-Rate Lighting B TOKYO GAS Zuttomo Plan 1S Basic charge Meter charge Contract category Unit Rate (JPY) 10A A A A 1 contract A 1, A 1, A 1, < 120kWh FAC : JPY / 1kWh kWh~300kWh 1kWh > 300kWh Basic charge Meter charge Contract category Unit Rate (JPY) 10A A A A 1 contract A 1, A 1, A 1, < 120kWh FAC : JPY / 1kWh kWh~300kWh 1kWh > 300kWh FIT charge (2.64 JPY/kwh) is charged for every customers whether utilities or retailers. LOOOP Contract category Rate(JPY) Basic charge 0.00 Meter charge FAC : JPY / 1kWh 39

41 40 Prospective Future Market

42 41 Conventional utilities are getting serious to acquire customers outside of their own regions The market is getting more competitive. Hokkaido Electric Power Company Kansai Electric Power Company Hokuriku Electric Power Company Tohoku Electric Power Company Chugoku Electric Power Company Kyushu Electric Power Company Chubu Electric Shikoku Electric Power Company Power Company Okinawa Electric Power Company Tokyo Electric Power Company The switching rate in UK reached 25% in 2 years after the deregulation as a result of the competitiveness among utilities, so that the potential expansion in Japan market can be expected.

43 Retailers will have a wider range of procurement New electricity exchange markets will gradually start in ~ Future market (TOCOM, not JEPX) Base Load market start trading start trading start delivery Rules for using power interconnection Implement auction system Implement hedge market * * In order to fill the price gap among T&D territory Capacity market start trading come into effect Supply and demand adjust market Non-fossil value certificate market start trading (FIT only) start trading (All non-fossil power) start trading Source: 29th Working Group of Regulatory Reform Promotion Meeting (Apr. 2018) schedule of execution 42

44 43 The expiration of FIT will start in 2019 JPY 60 Electricity price Loss The rate of After-FIT will be much lower than Retailer s product rate. 0 FIT price Sell price of "After-FIT" Purchase price Current Selling power to conventional utilities After-FIT It is better to consume power in their house It will be expected to expand installation of battery to residence. Therefore, retailers desire to develop new products such as a kind of TOU and new business such as VPP.

45 44 Unbundling T&D sectors makes market fair competitive (Already unbundled in 2016) KEPCO Type A Type B Holding company Parent company Generation Retail Operating company Subsidiary company Generation T&D Retail T&D Other utilities has not announced about restructuring of their organization. However anyway their T&D sectors will be also unbundled in 2020.

46 45 The switching rate is expected to reach the level of 20%~30% Switching rate in residential and small business field FR: Deregulated in 2007 UK: Deregulated in 1999 UK FR JP 1 Year 2 Year 3 Year 4 Year 5 Year Source: Domestic Retail Market Report 2007 (Ofgem) Time after deregulation

47 46 Gas wholesaler for new entrant retailers is appearing New wholesaler(tokyo GAS area) New retailer Tokyo Energy Alliance Established by TEPCO and NITIGAS in Aug CD Energy Direct Established by CEPCO and OSAKA GAS in Apr There is no doubt that new gas wholesalers will show up in other area, especially big markets such as Osaka and Chubu in the near future.

48 47 Utilities desire to find overseas opportunity In The Near Future We are looking for business opportunities in UK, too. For Now Invest in fields where Japanese utilities can take advantage of their strength for both of Western countries and developing countries Effective operation for hydro and fuel generation High quality TND network without blackout Over The Past Invest for renewable energy in Western countries. Build transmission and distribution network in developing countries as export of infrastructure Invest for LNG/Coal power generation plants in developing countries.

49 48 Bios of KSS speakers General Manager, Business Consulting Dept. Katsuya Takekawa (Kay) Held various positions life insurance companies, IT service provider, and consulting firms, before accepting his current position. His handling of numerous services for social infrastructure companies have so far earned him a robust background in project management. In the present, he has launched a business and is actively engaging in services for energy companies in Japanese deregulated market. Manager, Business Consulting Dept. Kazuyuki Ishibashi (Bash) ishibashi-kazuyuki@ks-sol.jp He is presently holding the position through venture businesses and system integrator. He is an expert on energy liberalization, new business development, M&A and project investment evaluation. He has experience in PPS-launching projects. In the present, he provides consulting services on launching businesses to many entrepreneurs who wish to enter energy business.

50 49 Our Guidebook is the bestseller This is the Know-how book for entities into an electricity retail business in Japan. It is well-reputed since it was released, and it gets a lot of media attention. It became Amazon ranking No.1 in the energy category right after it was released on Jan. 21, SANKEI NEWS (news paper) THE NIKKAN KOGYO SHIMBUN (newspaper)

51 関電システムソリューションズ株式会社

52 Energy Trade Mission to Japan 2019 Date: Monday 28 January Friday 1 February 2019 Speaking opportunity in two seminars in Tokyo (Ambassador s Residence, ENEX trade fair) Networking Reception Exhibit at ENEX Trade Fair in the UK pavilion for three days For more details, please visit: Application deadline: 31 October 2019