Homebuilders, Restaurants Herald Cracks in Japan’s Power Market

July 7, 2014 by  
Filed under Solar Energy Tips

Watami Co., a restaurant chain in
Japan known best as a hangout for salarymen, is getting into the
business of selling power — and it isn’t alone.

The number of companies registered to sell electricity in
Japan has more than doubled to 274 from 106 in September,
according to the latest Ministry of Economy, Trade and Industry
data. The list includes everything from restaurants like Tokyo-based Watami to homebuilder Misawa Homes Co. (1722)

Some of the new entrants are taking advantage of above-market rates Japan began offering to producers of clean energy
two years ago. The incentives, combined with the government’s
promise to open the retail market to more players to spur
innovation and competition, promise healthy returns for small-sized energy producers previously shut out of the market by
Japan’s utilities.

The situation is like “the early days of the Internet when
everyone from non-profit organizations to major companies became
a provider,” said Tetsunari Iida, executive director of the
Tokyo-based Institute for Sustainable Energy Policies. “There
are vague expectations that there will be very big
opportunities, though it isn’t clear what they are.”

The rush comes ahead of reforms that promise by 2016 to
open up the nation’s electricity market for small and
residential users, a market estimated by the government to be
worth 7.5 trillion yen ($74 billion). Small users, in this case,
are defined as electricity consumers with contracts below 50
kilowatts.

Monopoly System

Currently, Japan’s 10 utilities have effective monopoly
over the segment, while the market for larger power users such
as factories is already open to competition after the government
partially liberalized the power retail market in 2000 and 2005.
The new reforms, pushed through following the 2011 Fukushima
disaster, will complete the opening of the retail market along
with efforts to break up the monopolies.

The change, approved by Japan’s parliament in June, will
allow new entrants to supply 84 million homes, small stores and
offices, offering more options for power users in return.

Electricity prices in Japan, which relies on imports for
most of its energy needs, are more than double those of the U.S.
and also above levels in the U.K. and France, according to a
trade ministry white paper published in June based on 2012
figures. Japan has had to rely more on fossil fuel imports since
the shutting of its 48 operable nuclear reactors for safety
checks since Fukushima.

Power Prices

“There will be a series of companies expected to enter the
power retail market as large power companies raise prices and
the market opening moves forward,” research company Teikoku
Databank Ltd. said in a May 8 report on new entrants.

SoftBank Corp. (9984)’s energy unit and automakers Honda Motor Co.
and Nissan Motor Co. are among the companies to have already
registered as power retailers.

Watami, the restaurant chain, decided to enter the retail
market earlier this year with an eye to eventually supply clean
energy to its group facilities, said Kohei Koide, an official
developing solar and wind projects for the company’s clean
energy unit.

Panasonic Corp. (6752) and Epco Co. (2311), an energy-management company,
set up a venture in January to sell solar power aggregated from
residential rooftops. The venture wants to attract customers by
offering to buy solar power from their rooftops at an attractive
rate and giving energy-saving tips, Yoshiyuki Furukawa, a
Panasonic official in charge of the project, said.

Risk Lowered

For power producers, the above-market rates for clean-energy producers introduced in July 2012 lowers the risk of
developing renewable projects and means companies have the scope
to pursue business opportunities to find suppliers themselves,
Iida said.

Some non-utility power companies are offering to buy solar
power at a higher rate than that set by the government. They can
do that because clean-energy buyers get reimbursed after the
avoidable cost is deducted, allowing them to virtually source
electricity at a rate cheaper than the wholesale rate.

Panasonic’s venture is offering to buy solar power 1 yen
higher than the government-set tariff per kilowatt hour.

“Those who installed panels will be happy if we buy the
power at a rate as high as possible,” Furukawa said. “Those
without panels will also benefit because we sell the power we
buy cheaper.”

Market Opportunities

So far, the market served by non-utility power companies is
only slightly more than 4 percent of all generated power in
Japan, according to government figures for the year through
March 31. Some municipal governments are among the customers
already buying power from the companies, known collectively as
power producers and suppliers, or PPS.

While more and more companies are registering as power
retailers, the number actually selling power stands at only 55
for now, according to trade ministry data for April. Some may
exit the market as competition intensifies after the market’s
opening is complete, Iida said.

For Panasonic, which supplies battery cells to Tesla Motors
Inc., the goal isn’t to become a major power supplier, company
executives say. Rather, the electronics maker wants to build a
customer base ahead of the eventual sale of power storage
systems to homes equipped with solar panels, Furukawa said.

Panasonic anticipates storage system prices will likely
fall in the next 10 years at the same time energy prices rise,
creating a bigger opportunity for development outside the
traditional monopoly power model.

“We anticipate consumption of energy produced at home will
significantly expand in ten years,” Furukawa said.

To contact the reporter on this story:
Chisaki Watanabe in Tokyo at
cwatanabe5@bloomberg.net

To contact the editors responsible for this story:
Reed Landberg at
landberg@bloomberg.net
Iain Wilson, Abhay Singh

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