• More than 250 companies to sell electricity in reformed market
  • Liberalization is next step to reform system through 2020

Japan’s 8.1 trillion yen ($71.6 billion) power market will become fully open to competition on April 1 after being dominated for more than 50 years by 10 regional monopolies. The following is a short question and answer on the shakeup.

What’s opening up?

Japan is liberalizing its low-voltage electricity market on April 1, allowing roughly 85 million households and small businesses -- representing about 38 percent of the market -- to choose electricity providers for the first time. In the 2000s, the nation reformed retail competition for high-voltage customers, or roughly 62 percent of the entire electricity market.

Who’ll be selling power to households?

More than 250 companies, including mobile carrier SoftBank Group Corp., city gas retailer Tokyo Gas Co. and oil refiner JX Holdings Inc., will be able to sell electricity from April 1.

Will electricity prices fall on April 1?

Likely, as power retailers are offering lower rates, along with packaged deals that provide discounts for mobile phone, Internet and cable television plans.

The long-term is less clear. The market opening will more closely correlate electricity prices to fuel prices, which may not necessarily lead to lower rates, according to Masakazu Toyoda, chairman of the Institute of Energy Economics Japan.

What’s the purpose of the liberalization?

The reorganization is part of a broader post-Fukushima reform to develop a more stable supply of electricity, lower rates and more choices.

The March 2011 earthquake, tsunami and nuclear meltdown led to rolling blackouts in Tokyo, revealing the vulnerabilities of the nation’s power system. The meltdown also led to the closure of the nation’s fleet of atomic plants, forcing utilities to import fossil fuels and raise household power rates.

How can power be traded in Japan?

Electricity can be traded on the Japan Electric Power Exchange (JEPX). Currently, more than 130 companies are registered to buy or sell electricity with JEPX.

About 1.5 percent of Japan’s power market traded on JEPX in the year ended March 2015. Until now, Japan’s electricity traders have been selling power to the high-voltage market. These customers, which include manufacturers and large buildings, have traditionally purchased electricity through bilateral contracts, preferring not to buy on an exchange.

In comparison, more than 80 percent of the power consumed in the Nordic region of Europe is traded through its exchange, known as Nord Pool. The Nordic market fully liberalized in the 1990s. Decades passed before the power exchange gained dominance.

What’s the importance of an electricity exchange?

An active power exchange is necessary to create a vibrant, liberalized market, according to Per Christer Lund, a former adviser to EPX who was involved in deregulating electricity markets in North America and Europe. A trusted physical reference price can be used for bilateral power sales contracts, as well as serving as the basis for a futures market.

“JEPX must have a much more official and much more significant role in the market,” Lund said by phone. “The market players need to recognize the importance of the power exchange.”

What products will be available on the exchange?

On April 1, JEPX will offers two types of spot-price contracts, as well as five types of forward contracts, which must be must be physically settled.

The Tokyo Commodity Exchange plans to list futures in the first quarter of 2017.

What other reforms are on the way?

Japan’s power market reform doesn’t end with the opening.

The 10 regional utilities will be required by 2020 to separate transmission, distribution and retail businesses. At the same time, the government aims to abolish the retail tariff, which regulates a base price for power sold by regional utilities and can fluctuate depending on fuel and operating costs.

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