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Market Alert: Japan Retail Market Opens for Full Competition on April 1, 2016

No joke, effective today all customer classes in Japan can choose a new electric supplier. This 85 million meter retail market is valued at about $71 billion dollars. For the opening bell some 260 companies have registered to become a retail provider, or what is known in Japan as a PPS, power producer and supplier. We expect many more competitors to enter the market.

Retail market opening is the first wave of what promises to be a complete overhaul of the entire Japan energy marketplace. Market reform, or as Japan calls it, liberalization, is moving quickly as the result of laws passed by the Japan Diet.

  1. Retail electric competition for all customer classes beginning April 1, 2016 – accomplished and on time
  2. Unbundling of utilities into separate business units (Distribution, Generation, Retail) due in 2018 – some utilities already doing this in practice
  3. Creation of a wholesale electric market due in 2020 – committees formed, work in progress
  4. Retail gas competition due in 2017 – work in progress

There are similarities and key differences between the US and Japan retail electric markets. Highlighting just a few:

  • In Japan, the distribution company no longer sells electricity, and the retailer is responsible for billing customers the distribution charges (like ERCOT).
  • In the US, distribution companies (except in ERCOT) still offer electricity at what is known by retailers as “the price to beat.” In Japan, the utility retail business unit sells electricity; however, the tariff (or price to beat) goes away in 2018 creating a truly level playing field with regard to pricing.
  • Due to the fragmented geography of open retail markets in the US, the national brand retailers (such as telecom companies) have stayed out of the US retail marketplace. In Japan, since all meters are eligible, several national brand retailers of other services (telecom, chain retailers, grocery, gas stations, gas utilities, etc.) have entered the retail electric market.
  • In the US, retailers rely on the wholesale real time and day ahead markets for price discovery, supply, balancing, scheduling and other supply side attributes. In Japan, until the wholesale market is open in 2020, supply is basically bilateral market driven and some retailers are creating partnering “pools” to manage scheduling and balancing.

Opportunity Knocks
For all those US technology, product and service companies who have perfected their solutions in competitive markets or with utilities undergoing overhaul, you have a distinct competitive advantage in Japan – the window of opportunity is NOW! Where else in the world can you find a once in a lifetime energy market transformation on this scale?

In our own experience since opening our Tokyo office almost two years ago, we have found that Japan is hungry for knowledge and market-tested solutions and is eager to partner with US companies. To learn more about the Japanese energy markets and to explore this opportunity for your company, contact Ross Malme at rmalme@skippingstone.com or call 770-676-0965.