Innovation of the Electric Power Industry in Japan s post-fukushima Era February 27, 2012 Kazuhiko Toyama CEO Industrial Growth Platform, Inc. Member of Japan Association of Corporate Executives (Doyukai), Vice chairman of Study Group on Reform of Electric Power Systems
3.11 Earthquake Tsunami, and destruction of power plants Tsunami Fukushima 1
3.11 Aftermath Fundamental questions emerged Can we say current power systems/infrastructures are designed/operated trustworthy enough?? Can we say power companies (typified by TEPCO) have been properly governed/operated?? 2
3.11 Aftermath Doubt about power companies mantra Vertically integrated systems and regional monopolies are indispensable for stable supply of electricity. Remember that increase of market competitiveness will risk electricity universality as a lifeline. Smart meters may not pay, for people keep using air-conditioning. It s hot and humid here. Sure?? 3
3.11 Aftermath Astonishing power-save driven by users ( 10 3 MW) 70 60 Peak 2010 Heads-up alert Rolling blackout Usage restriction : 50 40 Ave. 18.9% power-save! 30 Peak 2011 20 July-1-4 - Aug-1 Sep-1 4
Current Market Structure Oligopoly by 9 giant power companies Generation 96.4% 3.6% Wholesale suppliers PPS Private generation Transmission Distribution & Retail 9 regional electric power companies w/ exclusive rights Wheeling service PPS Consumption Other customers EHV and HV (over 50kw/6000V ) Private generation 5
Current Market Structure Regional monopoly by each xxpco # of Revenue Consumer (billion USD) (000 ) Hokkaido 6.6 3,960 Tohoku 18.8 7,690 Tokyo 60.1 28,600 Chubu 26.1 10,450 Hokuriku 5.8 2,080 Kansai 29.3 13,430 Chugoku 12.2 5,200 Shikoku 6.2 2,830 Kyushu 16.7 8,440 TTL 181.7 82,680 9 Utilities by Service Area - 6 - As of FY2010, 1USD=80JPY 6
Opportunity for Rational Discussions Examples of primary issues Optimal system structure on a national scale Beyond monopolies and vertical integration Interchange of electricity across regional borders Innovative initiatives to optimize supply-demand Power usage/cost Info. disclosure for new entries Broader choices for users to democratize the market Long-overdue Sealed discussions Power companies has been that powerful, economically & politically 7
Opportunity for Rational Discussions Doyukai aims to take the initiative Key Agendas Market System TEPCO Governance Japanese Trade Union Confederation Rengo Japan Business Federation KeiDanren Japan Association of Corporate Executives Doyukai 8
Doyukai Propositions : Nov.18,2011 Basic principles in reforming the market Stable, low-cost power supply is a key, but now we know current system is not the one for the future. Observed changes of consumers mindset and behavior will strongly boost innovations in power market Competitive pricing mechanism, and demand control by peak-cut will reduce total cost of electricity through optimization of electricity usage and waste elimination Competitiveness will also promote technology innovation and new product/service introduction to make the market start growing again 9
Doyukai Propositions : Nov.18,2011 Short-term actions to get things rolling Expedite implementation of smart meters Provide users with information on electricity consumption/price to give incentives for power-saving efforts Standardize specifications of interface, communication or data formats, without excessive focus on Japanesque features Establish power exchange market to enable restraint of excess generation and reduction of total electricity usage Visualize and share cost structures for current system Ensure transparency to maintain public governance Offer data for feasibility calculations for new entries Secure fairness of competition 10
Doyukai Propositions : Nov.18,2011 Long-term actions to move forward (1/2) Separate transmission from generation and operate in wider area, under stronger government supervisions Ensure fair access, while assuring cost transparency and security Expand area of services, e.g. west Japan and east Japan Establish ISO or other neutral organization as operating entities Introduce incentive mechanisms that reward management efforts Promote competition among generation and distribution & retail by encouraging new entrants In generation, diversify sources, maintain stability and cost In downstream, diversify services/plans and demand control Take measures to allow new entrants to compete w/ existing ones Induce innovation on power storage technologies 11
Doyukai Propositions : Nov.18,2011 Long-term actions to move forward (2/2) Reassume total cost and clarify risk reality for nuclear power plants Analysis and verification of risks, disasters or terrorisms, not only by provability but impact Utilize nuclear plant accident experience to reassume and visualize total cost to including used fuel handling cost and decommissioning cost Create augmented interface and mechanism to let consumers make choice, as a key driver of reform Educate consumers to act on their own initiative to use products/ tech., e.g. smart meter and energy management system, w/ awareness that their change in mindset & behavior could lead to elimination of waste and actualization of innovation Establish power exchange market to enable consumers to join 12
METI Release : Dec.27,2011 Coincidental similarities (1/2) Construct more competitive and open electricity market to realize cheaper and stable electricity supply, by studying specific measures on following points; 1. Enhance the supply-demand adjustment function through the market mechanism and introduce relevant rates & services 2. Establish a mechanism where consumers can choose the supplier and power sources 3. Review regulations for power generation, also activate the wholesale electricity market to increase options for retails 4. Review rules on network connection and power transmission to further utilize distributed energy technologies 5. Establish a mechanism to ensure an appropriate reserve capacity and stable supply capacity in competitive environment 13
METI Release : Dec.27,2011 Coincidental similarities (2/2) Cont d 6. Unleash barriers related to electricity supply beyond regional borders to activate competition in wholesale electricity exchange 7. Establish a mechanism for network operation and supply-demand adjustment in a wider area and use the supply capacity efficiently 8. Ensure neutrality of power transmission sector, introduce rules & mechanisms for fair competition (legal separation and ISO in sight) 9. Compliance obligations for safety, investment on adequate infrastructure, universality, supply responsibility, etc. 10. Consider the time schedule for the system design to realize stability and efficiency of the system * Major Issues for Discussion by the Task Force on the Reform of Electric Power Systems 14
Conclusion Key concepts for the future Efficiency and Stability through smart rule-based competitions Fair competition at generation, distribution & retail Monitored/supervised wide-area transmission platform Effectiveness and Innovation through user enhancement Wider user choices for supplier, product/service, etc. Adequate rules/regulations to activate horizontally specialized competition by diverse players 15
Conclusion An analogy : what happened in telecom 80s Reform Upstream Disintegration of mega-carrier, long distance and local access 90s ~ Revolution in Downstream Internet, as a new platform for personal empowerment Promoted birth of new telecom carriers for wide-area More efficient market but no major impact yet (preliminary stage) Geometric diffusion of mobile product/applications Innovation Where is Electric Power Industry now? 16
Conclusion : A Potential of Japan as An Innovation Leader of Power Industry Reform the market system quickly to avoid another Galapagos tragedy System (Regulation, Institution) Currently vertical integration and regional monopoly. What s next?? Real Innovation Technology Generation (solar, wind..), Smart grid (grid control/ev/storage/ HEMS/smart meter/cloud), Energysaving tech. (Market/Social) Needs Cost of fossil fuels (scarce natural resource), Concerns regarding nuclear power, Carbon emission issue 17
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