Power Market Deregulation and Japan’s Nuclear Industry

2014 ended as it began, with all of Japan’s nuclear reactors switched off. The first nuclear restarts are expected later this year, however Japan’s energy market is reforming; it is in the process towards full market liberalisation. Japanese utilities, which have held positions as regional monopolies are starting to look at partnerships to develop their business in the liberalised market; several new entrants are also joining the market. Liberalisation of the retail market will take place between 2016 and 2018 and unbundling will happen between 2018 and 2020.

There are already examples of changes taking place amongst some of the top players in the Japanese energy market:

Kansai Electric and Tokyo Gas

In light of the changing market, two of Japan’s primary utility companies, Kansai Electric and Tokyo Gas entered into negotiations in December 2014. Discussions ensued towards cooperation over two areas of mutual-interest; fuel for thermal power generation and the building of a power plant in Tokyo. As each company aims to maintain their current monopolies in order to establish their positions in the new market, both sides have an area of mutual interest; expansion. Whilst operations of nuclear reactors remain suspended, this partnership and continued cooperation will impact efforts towards cutting costs and increasing company presence.

Hitachi and ABB

Also in December 2014, Japan’s Hitachi and Swiss firm ABB announced plans for a joint venture to market power transmission equipment. With each firm recognised as a global leader in electrical equipment using advanced technologies, this venture will integrate respective specialities in order to penetrate the Japanese market. Benefiting from electricity reforms across Japan in the wake of the Fukushima incident, this venture aims to create and sell high voltage systems within the Japanese market that will transmit electricity across regions.

Looking to the future, the Hitachi-ABB joint venture may also include the construction of smart grids. In an era where renewable energy such as solar or wind power gains increasing importance, smart grids will gain a vital role in transmitting such renewable energy through grids to users. A substantial increase in demand for smart grids is foreseeable alongside the necessity and greater reliance on renewable energy sources. Whilst Hitachi will be the majority stakeholder with 51% in the venture and ABB 49%, the coming together of these two companies will create a new dynamic as the Japanese market gradually opens up.

Tokyo Electric and Chubu Electric

Tokyo Electric Power Co (Tepco) and Chubu Electric Power Co consolidated ties in November 2014 after the two companies finalised an agreement to jointly procure LNG.
Following this, discussions have continued and ties deepened, resulting in indications for a follow up agreement. In early February 2015, negotiations were being pursued regarding wider fuel procurement and joint fossil fuel plant management. The joint venture and partnership has already established Tepco and Chubu as a major global importer of LNG; it is yet to be seen what will come from strengthening ties further. You can find out more about Japan and LNG here.

Nuclear Restarts in Japan

Four reactors are forerunners to restart and are expected to be switched on this year. Two reactors at Sendai Nuclear Power Plant in Kagoshima prefecture, West Japan, are currently expected to come online in the summer having cleared initial regulatory stages and received both public and local government approval. A further two at Takahama, Fukui prefecture, passed initial regulatory approval in late December 2014 and are expected to restart after the Sendai plants.

The first restart applications were submitted in July 2013 – if the first restart happens in the summer, the regulatory process will have taken around 2 years to complete. The first restarts will undoubtedly take longer than subsequent ones with this being the first-of-its-kind process.

Opportunities for UK companies

Discussions on the future make-up of the Japanese energy mix began last month. The outcome is not expected until late spring/early summer, but many are already predicting that nuclear will make up 15-25% of the mix and half or more of Japan’s 48 operable nuclear reactors will not come back online. The potential decommissioning of reactors presents prospects for international collaboration, with significant opportunities for UK decommissioning companies.

To find out more about how the UK already supports decommissioning in Japan, watch our in-house expert Dr Keith Franklin, Head of the Nuclear Team at the British Embassy Tokyo discussing with John Clarke, Chief Executive Officer of the Nuclear Decommissioning Authority (NDA) about how the UK is working with Japan on the decommissioning of Fukushima Daiichi.

Reforms in the energy market and new company collaborations present opportunities for new entrants. Experience of UK energy market liberalisation and reform can provide valuable lessons learnt, for potential Japanese partners. Grid development, energy storage and renewables, in particular, have been cited by Japanese contacts as areas where overseas companies could provide valuable insight and gain opportunities. This is only the only the beginning for Japanese firms opening up to new commercial alliances, connect with us today to understand the potential for your business in tapping into these markets in 2015 and beyond.

Article by British Embassy Tokyo Climate Change and Energy Team, February 2015.