As Japan's electricity reform kicks off, Germany serves as warning (updated)
29/04/2016 07:15
* Over 740,000 retail power users have switched supplier
* Tepco customers lead defections after 2011 nuclear crisis
* Wholesale power trading volumes jump as market opens
* Japan aims to avoid pitfalls of Germany's market opening
(Adds link to graphic on liberalisation of power market)
By Aaron Sheldrick and Vera Eckert
TOKYO/FRANKFURT, April 29 (Reuters) - Four weeks into
Japan's power market shakeup aimed at boosting choice and energy
security, the utility at the centre of the 2011 nuclear crisis
has borne the brunt of consumer defections, with nearly 470,000
users switching electricity providers.
The move underscores the anger at Tokyo Electric Power
(Tepco), operator of the wrecked Fukushima power station, but
has helped provide a solid start for the government's efforts to
spur competition in its power sector.
Japan's reforms mark the biggest liberalization since
Germany's over a decade ago. Their ultimate success, however,
will depend on avoiding some of the pitfalls that still dog the
German power market including high retail prices, weakened
former state utilities, and high use of coal.
Sparked by the 2011 earthquake and tsunami which highlighted
problems in transferring electricity across regions and led to
the shutdown of nuclear reactors, the reforms are part of Prime
Minister Shinzo Abe's plans to boost an economy in the doldrums.
From April 1, the government ended regional monopolies that
were formed after World War Two, opening up retail gas and
electricity markets to competition. It hopes the changes will
help create a thriving wholesale market, driving down prices for
industrial and retail customers alike.
In the first month of the new marketplace, more than 740,000
Japanese retail electricity users switched to new suppliers,
according to the national grid monitor OCCTO, and wholesale
trading volumes on the Japan Electric Power Exchange (JEPX)
surged, albeit from a tiny base.
"The number of customers switching is encouraging and the
pick-up in JEPX activity levels is also welcome news as building
capacity in the wholesale market will be key to ensuring success
in liberalised markets," said Tom O'Sullivan of energy
consultancy Mathyos Japan.
However, Japan needs to avoid the problems that beset
Germany's liberalisation, particularly a collapse in wholesale
power prices due to a flood of subsidised green energy that
gutted its big utilities.
"They are very cognizant of what has happened in Germany.
They have been in there, they met government officials and
industry practitioners," O'Sullivan said. "I think the chances
of success are 50/50 at this stage."
GERMANY: MODEL OR WARNING?
Japan and Germany's power markets share many similarities -
declining demand, subsidies for renewable energy, a dormant or
declining nuclear sector, and energy-intensive industries.
Germany's experience, however, has reaped mixed results.
Huge subsidies mean renewable energy sources account for
nearly a third of the power mix, but the capacity glut has cut
wholesale prices by 70 percent since 2008. This drove down costs
for the country's chemical, automobile and other industries, but
slashed revenues for major utilities.
Smaller businesses and households, however, have been hit
with steep retail costs in order to finance renewable subsidies,
while industry enjoys a raft of exemptions.
Japan, too, has posted explosive growth in subsidized
renewable energy, particularly solar, since preferential rates
were introduced in 2012. Solar now meets as much as 10 percent
of power demand.
Critics say subsidies must be rolled back fast to avoid the
creation of a renewables capacity glut that erodes wholesale
power prices and, with it, revenues for conventional power plant
operators.
"When renewables are 3 percent of the power mix, they need
support payments, but when they reach 20 percent, you have to
make the change towards supporting capacity only by competitive
means," Peter Reitz, chief executive of Germany's EEX
DB1Gn.DE , told Reuters.
In Germany, renewable subsidies, taxes and other government
levies accounted for 54 percent of retail power prices last
year, and within that supporting feed-in tariffs was the biggest
single item totalling 24 billion euros ($27 billion).
In Japan, government sanctioned preferential rates for
renewable energy supplies added about 1.3 trillion yen ($11.7
billion) to electricity bills in the year through March, double
the year earlier, according to the industry ministry.
With their revenues eroded, German utilities have switched
to using the cheapest form of generation, meaning that a country
that is proud of its green energy revolution still relies on the
dirtiest fossil fuel, coal, to meet about 40 percent of demand.
In Japan, coal use has also hit records as utilities
similarly switched to the cheapest substitute for nuclear, with
thermal coal imports rsing for a fourth straight year in 2015.
The country has, however, moved to cut the price of its
subsidies for renewables to reflect lower input prices, with
some tarriffs down by more than a quarter since 2012.
The public is broadly seen as behind the reforms to build a
greener economy and a decentralised power system.
Tokyo Electric Power 9501.T (Tepco), meanwhile, has so far
lost about 2 percent of its customers. It could take a $90
million hit to its pre-tax profit for the year to March 2017,
according to the Nikkei newspaper.
"This is a tough battle but we have to pool our strengths
and fight hard," Tepco President Naomi Hirose told Reuters.
($1 = 111.0900 yen)
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
GRAPHIC: Liberalisation of Japan's power market http://tmsnrt.rs/1rdCjXc
GRAPHIC: Outlook for nuclear restarts http://tmsnrt.rs/1UTT0Tk
FACTBOX: Japan's construction plans for new gas power stations
urn:newsml:reuters.com:*:nL3N17118C
FACTBOX: Japan's construction plans for new coal power stations
urn:newsml:reuters.com:*:nL3N16X0RE
FACTBOX: Japan's power reforms; rules and trading systems
urn:newsml:reuters.com:*:nL3N16Q1O8
FACTBOX: Price war breaks out as power market opens up
urn:newsml:reuters.com:*:nL3N16V2MH
TABLE: Japan's switching power customers http://tmsnrt.rs/1Tahwdg
CHART-German power prices can go negative http://tmsnrt.rs/1TaiVAE
CHART-German utility performance http://tmsnrt.rs/1Tajri7
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Additional reporting by Osamu Tsukimori; Editing by Henning
Gloystein and Richard Pullin)
((aaron.sheldrick@thomsonreuters.com; 81-3-6441-1320; Reuters
Messaging: aaron.sheldrick.thomsonreuters.com@reuters.net))
Keywords: JAPAN POWER/TRADING