Shinzo Abe’s pledge to spur 30 trillion yen ($302 billion) of investment in Japan’s electricity industry opens the way for a surge in clean energy projects at the expense of traditional utilities.
The prime minister endorsed proposals to deregulate an industry that produces power mostly from fossil fuels, as well as boost competition among generators and make it easier for wind and solar energy to be distributed to consumers. His speech yesterday in Tokyo didn’t mention restarting nuclear plants closed since the earthquake in 2011.
Utility shares in Japan tumbled, led by Tokyo Electric Power Co. (9501), which owns the reactors in Fukushima that suffered meltdowns after the earthquake two years ago. Abe’s remarks raise the chances the government will move to weaken the monopoly power producers now enjoy after elections for the upper house of Parliament set for the end of next month. That would benefit Marubeni Corp. (8002) and Softbank Corp. (9984), both of which are planning renewable energy investments.
“His push to liberalize power markets is a bold attempt to increase competition and bring in new market players,” said Nathaniel Bullard, an industry analyst at Bloomberg New Energy Finance in Hong Kong.
Tokyo Electric, also known as Tepco, fell 7.4 percent in Tokyo trading today, adding to yesterday’s 16 percent decline. The 17-member Topix Electric Power & Gas Index dropped for a second day, losing 3.5 percent. In contrast, the benchmark Nikkei 225 index fell 0.9 percent today.
Regional utilities Shikoku Electric Power Co. (9507) Inc., Hokkaido Electric Power Co. (9509) Inc., Kansai Electric Power Co. (9503) Inc., Tohoku Electric Power Co. (9506) Inc. also fell for the second day in a row.
“For 60 years after the war, one giant power company in each region has dominated from power generation to transmission to retail,” Abe said in the speech. “The times are changing. We are in the age where consumers themselves produce power.”
He discussed the emergence of fuel cells and power storage batteries and the “need to create more innovation” that would use those technologies to help integrate variable supplies of renewable energy into the transmission grid. He said he “will bring about the potential for such innovations” by “unbundling transmission and distribution” -- two businesses that currently are mostly integrated at utilities.
To be sure, Japan has made four previous attempts to restructure its electric utility industry, which has remained little changed since World War II, according a panel that advised the government in February. It was led by Motoshige Itoh, an economics professor at the University of Tokyo.
Abe also indicated coal would benefit from his policy, with the nation funding cutting-edge coal-fired power plants at home with technology that can be exported.
The earthquake in March 2011 led to an outcry among voters and the closure of Japan’s nuclear reactors, changing the government’s stance on energy policy to shift the nation toward cleaner sources of energy. More than 70 percent of respondents in an opinion poll by the Asahi newspaper in February said Japan should scrap nuclear power.
The government wants to pass the power reforms bill, which has been submitted to parliament, “by all possible means,” he said. Investment in wind, geothermal and other renewable sources will be accelerated by “drastically” speeding up environmental assessment processes, Abe said.
The speech was short on detail, since the government is working on a review of its energy policy due later this year. Abe’s party, which took office in December, is seeking to consolidate its grip on power in elections for the upper house of the Diet due around July 21.
The suggestion that Abe is moving to restructure the power generation business is a threat to the utilities, which were hoping that the government would allow them to restart nuclear plants. All except two of Japan’s 50 reactors have been shut since the earthquake, and they provided more than a quarter of the nation’s electricity.
“There may have been some selling on concerns about tougher competition,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo. “Shares were sold after aggressive buying of utilities including Tepco in May on expectations that nuclear reactors would be restarted.”
Instead, Abe signaled his support for the recommendations of the government advisory panel, which in February said ministers should push utilities to spin off their distribution networks. Japan’s 10 regional power companies own more than 70 percent of the nation’s generation capacity and control transmission and distribution networks.
One result is power prices twice as high as in the U.S. Japan’s households paid 23.2 cents per kilowatt-hour in 2010, compared with 11.6 cents in the U.S., the Ministry of Economy Trade and Industry said in a November 2012 report.
Since the earthquake, fossil fuels such as coal and natural gas have replaced nuclear power, driving up Japan’s trade deficit and making it more difficult for the nation to reduce the pollution blamed for global warming. Japan’s previous administration said it wouldn’t sign up to the next round of worldwide emissions curbs under the Kyoto Protocol.
Abe said renewables such as wind and geothermal may be part of the solution, giving environmental campaigners hope that clean energy technology will get a boost. Japan is forecast to rival China as the world’s biggest market for solar power this year, boosting sales for panel manufacturers such as Canadian Solar Inc. (CSIQ) and Sharp Corp. (6753) Marubeni is pushing to revive long-dormant geothermal drilling projects in Japan.
“Unless Japan pushes through power industry reform, the country won’t have the ground to develop clean energy,” Masako Konishi, climate and energy project leader for the environmental group WWF Japan, said by phone.
The 30 trillion yen of investment in the power industry as outlined by Abe will take place over the next 10 years and represents a 50 percent increase from levels in the past decade. No details were provided on where the money will be spent or how much of the investments will go to clean energy.
Masayoshi Son’s Softbank may also benefit, since the company has pledged to invest as much as 20 billion yen with investors in renewable energy project. Mitsubishi UFJ Financial Group Inc., Mizuho Financial Group Inc. (8411) and Sumitomo Mitsui Financial Group Inc. (8316) expect Japan’s solar market to be worth as much as 1.8 trillion yen in the next three years, spurring the institutions to write loans for developers.
Abe’s target may include investment in storage batteries, Mika Ohbayashi, director of the Japan Renewable Energy Foundation, said by phone. Japan has been promoting the development of storage batteries to help stabilize power generation that depends on the sun shining and wind blowing.
“Rather than storage batteries that are still expensive, we need to invest in new transmission lines to strengthen power infrastructure,” Ohbayashi said.
A pillar of power industry reform is the establishment of an independent system operator for power grids, said Hiroshi Takahashi, a senior fellow at Fujitsu Research Institute.
Setting up such an institution will help control the demand and supply of power, which in turn can help expand the market for clean energy, he said on June 4. Takahashi sat on the government-appointed committee that recommended the reform earlier this year.
Japan aims to capture a total 26 trillion yen worth of energy technology sales home and abroad in 2020, from the current 8 trillion yen, according to a draft strategy paper released by the Industrial Competitiveness Council after Abe’s speech.
“Japan will further strengthen areas where the country is good at so that investment in renewable energy will not be cost for the economy, but strength,” the document said.
Japan intends to become the first country to commercialize floating offshore wind power technology by around 2018, according to a timetable also released by the council. As for solar, the country aims to lower the generation cost to less than 7 yen a kilowatt-hour after 2030 from more than 30 yen currently, according to the timetable.
Reform, without specific commitments and targets for renewables, may not be enough, WWF Japan’s Konishi said.
“It’s possible to set ambitious targets for renewable energy and energy saving without setting targets for nuclear,” Konishi said. “Such targets will have an impact on investment by companies.”
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