New power producers and suppliers rise to about 14% market share
Three years have passed since the Japanese electricity market was fully liberalized in April 2016. It is one step of the market reforms adopted after the 2011 disaster and nuclear accident, and a big change for citizens and consumers. The share of power producer and supplier (PPS) companies (low voltage and high voltage overall) in terms of electricity sales increased from about 5% before full liberalization to 14.2% as of October 2018 (Fig. 1).
Fig. 1. Share of new producers
Source: METI materials
But as the presence of new power producers and suppliers is increasingly being felt in the market, the large utilities (the big traditional companies, not electricity retailers) are clawing back market share by offering huge discounts, which is seriously hurting the PPS industry.
Aggressive tactics by big utilities reveal systemic unfairness
According to PPS company insiders, many large contracts have been taken back by large power companies, having a severe impact on the new entrants. Especially in the service areas of Kansai Electric Power Co. and Kyushu Electric Power Co., the big utilities are enticing business back by offering huge discounts to former customers, including high-voltage users and local governments. PPS companies are facing tough conditions, as their sales efforts to attract customers end up wasted, they are forced compete on price, and their businesses come under financial pressure. Some customers say they support the concept of local production for local consumption, but simply do not have the financial leeway to afford it when they see the huge discounts being offered.
Big traditional utilities can afford to offer large discounts because they benefit from low-cost power sources such as large-scale hydropower (with zero fuel cost). But the reality is that the costs of building those power sources were borne by all electricity consumers under the full cost pricing method before market liberalization. It is not fair competitive behavior that those power sources can now be used by the major utilities to offer discounts as if they had paid to buy the hydropower. If such a situation continues and new PPS companies continue to lose their ability to compete or are forced to abandon their business models, the promises and hopes of electricity market liberalization will evaporate.
Fig. 2. How the mega-utilities can afford to offer mega-bargains
SDGs, ethical procurement and Power Shift
One aspect of this discussion looks more positive. A growing number of companies and business establishments are buying renewable energy with a priority on rationale other than on price. Large companies can use the “RE 100” program to procure renewable energy, but unique efforts are also being done by small and medium-sized enterprises that want to procure energy in ways that are compatible with their own business philosophy. It is not just companies with high environmental awareness doing this, but also well-established food processing companies, community-based pharmacy chains, children’s clothing brands, paper manufacturers, major department stores, outdoor brands, private schools and religious facilities (such as temples), law societies, radio stations, apartment buildings, cafes, pastry shops, bars, beauty salons, offices of civic groups, and so on.
They have various reasons and motives to procure electricity from renewable sources. Many want to procure materials from environmentally friendly sources, to support the UN Sustainable Development Goals, to promote the local economy, to avoid nuclear power, to avoid another accident like the one in Fukushima, and so on.
But caution is also needed. The RE100% plan is based on existing large-scale hydropower generation by the big power utilities. Some options that claim to be “renewable energy” are not truly sustainable (wood biomass by palm-based fuels and imported fuel, solar power on fields after large-scale logging, etc.), and some suppliers claim to have zero carbon dioxide emissions but will not disclose their power mix. These are sometimes advertised as being environmentally- friendly. Therefore, the buyer must beware.
It is important that users not only change their electricity source, but also to communicate to others about their reasons for switching. By such communication, there have been many cases of ideas and efforts spreading among other stakeholders in an industry, in an area, or among customers. We want to support the voices of citizens and consumers who want to shift to sustainable renewable energy, and create a chain reaction of ideas turned into concrete action.