Trade policy review report by the secretariat

5.3  Energy

5.3.1  Features

1.1.  Japan imports nearly all its basic energy requirements in the form of natural gas, crude oil, coal, and oil products. Domestic oil production, at 0.005 million bbl/day and reserves of about 44 million barrels are small compared to consumption of 4.7 million bbl/day.¹⁸⁸ One of the main sources of energy used to be from nuclear plants, which accounted for over 15% of total energy supply and over 30% of total electricity production in 2005, but this declined sharply following the accident at the Fukushima nuclear plant in 2011 and the subsequent shut down of other nuclear power plants leading to greater imports of natural gas and a reduction in energy consumption (Table 4.18).¹⁸⁹

1.2.  Most energy imports are in the form of crude oil which is refined in Japan. Most of the refined products are consumed domestically for transport, commercial and public services, and residential use but some are exported. In 2013, total refinery capacity was 4.123 million bbl/day and refinery throughputs were 3.453 million, down from 4.645 million and 4.118 million respectively in 2003.¹⁹⁰

Table 4.49 Total primary energy supply, 2005-12

('000 tonnes of oil equivalent (toe))

	2005	2006	2007	2008	2009	2010	2011	2012
Coal	110,046	111,433	116,363	113,572	101,273	115,116	107,531	112,178
Crude oil	215,701	207,722	211,644	202,602	185,411	185,314	181,067	183,087
Oil products	27,467	25,818	18,038	11,243	15,415	17,009	25,802	27,107
Natural gas	70,565	77,454	83,046	83,715	80,732	86,014	100,062	105,292
Nuclear	79,421	79,095	68,756	67,270	72,905	75,114	25,520	4,154
Hydro	6,576	7,527	6,365	6,575	6,613	7,070	7,155	6,492
Geothermal, solar, etc.	3,837	3,738	3,729	3,482	3,682	3,522	3,704	3,781
Biofuels and waste	6,807	6,928	7,170	6,821	6,381	9,647	10,116	10,191
Total	520,421	519,695	515,111	495,278	472,412	498,808	461,956	452,281

Source: International Energy Agency online database. Viewed at: http://www.iea.org/statistics/ [November 2014].

5.3.2  Electricity

5.3.2.1  Features

1.1.  From 2005 to 2012, total electricity production and consumption was quite stable at about 1 million GWh each year. Since then production has declined, and the fuel mix has changed as production from gas increased while production from nuclear declined. Consumption has also been relatively stable, peaking at just over 1 million GWh, but has declined sharply since 2011: reaching 923 GWh in 2012 (Table 4.19).

Table 4.50 Production and consumption of electricity, 2005-12

(GWh)

	2005	2006	2007		2008		2009		2010		2011		2012
Production
Gas	243,819	267,430		294,203		286,867		287,865		300,751		375,046		397,219
Coal	300,829	292,757		307,903		292,124		281,733		299,134		281,936		303,230
Oil	135,164	113,913		154,494		131,209		86,083		91,668		150,976		181,289
Hydro	86,350	97,340		84,234		83,504		83,832		90,682		91,709		83,645
Biofuels	15,340	15,339		16,095		15,448		14,346		29,095		29,150		30,241
Nuclear	304,755	303,426		263,832		258,128		279,750		288,230		101,761		15,939
Waste	7,060	7,299		7,275		7,322		7,457		7,114		8,170		8,332
Solar – pv	1,493	1,794		2,015		2,251		2,758		3,800		5,160		6,963
Wind	1,754	2,210		2,624		2,946		3,616		4,017		4,677		4,838
Geothermal	3,226	3,081		2,043		2,750		2,886		2,632		2,676		2,609
Total production	1,099,790	1,104,589		1,134,718		1,082,549		1,050,326		1,117,123		1,051,261		1,034,305
Losses	50,430	50,225		50,989		51,312		50,526		49,387		49,007		45,386
Consumption
Industry	341,141	343,763		349,440		309,901		289,367		328,191		286,678		275,883
Transport	19,057	18,771		18,854		18,829		18,815		18,917		18,739		18,645
Residential	283,080	279,594		290,999		286,189		286,016		305,265		290,208		287,343
Services	332,334	339,890		349,068		346,373		338,143		342,665		337,806		333,058
Agriculture	969	864		925		882		876		895		858		893
N.e.s.	1,493	1,794		2,015		2,251		2,758		3,795		5,119		6,877
Total consumption	978,074	984,676		1,011,301		964,425		935,975		999,728		939,408		922,699

Source: International Energy Agency online database. Viewed at: http://www.iea.org/statistics/ [November 2014].

1.2.  Up to 1995, electricity in Japan was provided by ten vertically integrated regional utilities companies with monopolies on generation, transmission, distribution and retail in their respective regions. All regions provide retail at 100 V, but the three regions in the east operate at 50Hz and seven in the west at 60 Hz. Although the sector has been gradually reformed over the past twenty years, the regional utilities are still the main producers, transmitters, distributors, and retailers, while interchange between some of the regions remains limited and the three frequency converters between the 50 and 60 Hz areas have a total capacity of only 1.2 GW (Chart 4.6). Okinawa is not connected to the others and operates at 60 Hz retail.

Chart 4.16 Electricity regions, peak demand and interconnections, 2012

Note: Font, circle and line sizes are illustrative and not proportional.

Source: METI.

1.3.  Each regional electricity utility has a monopoly on the retail of electricity to general consumers of less than 50 kW in its region. For other consumers, there are three other types of retailers: (i) general electric utilities; (ii) Power Producer and Suppliers (PPS) that may provide supply to consumers with contracts for more than 50kW; and (iii) specified electricity utilities may supply electricity to specified customers. In addition, wholesale electric utilities supply electricity to the general electric utilities. In most cases, the regional utilities are required to allow interconnections and provide a wheeling service for their networks. Since the reforms were introduced, the proportion of electricity generated by the general electric utilities has declined, from about 75% in 1994 to about 68% (Table 4.20).

Table 4.51 Power production in Japan in FY1994 and FY2012

(million kWh)

	FY1994	FY2012
General electric utilities	727,102	742,288
Wholesale electric utilities	122,158	68,256
Specified electric utilities	..	1,347
Power producers and suppliers	..	10,063
Private generation	115,071	271,996
Total	964,330	1,093,950

.. Not available.

Source: The Survey of Electric Power Statistics of Japan.

5.3.2.2  Policy and legislation

1.1.  The Agency for Natural Resources and Energy and its Advisory Committee for Natural Resources and Energy in METI are responsible for energy policy, planning, and legislation as well as regulation of the industry. The Nuclear Regulation Authority in the Ministry of the Environment is responsible for supervision of nuclear power plants. METI has the authority to issue licences to electricity utilities, and to approve power sales' tariffs for the general electricity utilities and the specified electricity utilities. It may also issue service-related orders to electricity companies, including orders:

• 
  to the general electric utilities and specified electricity utilities to improve operations;
  
• 
  to a general electric utility to supply another utility in the case of emergencies, and to provide a wheeling service;
  
• 
  to determine the price and contract period for electricity from renewable sources; and
  
• 
  to a utility to enter a purchase or interconnection agreement with a producer of electricity from renewable sources.¹⁹¹
  

1.2.  The Electric Power System Council of Japan (ESCJ) is the neutral transmission organization. The Council is made up of representatives of electric utilities, PPS, wholesale electricity suppliers, "auto-producers" (private generators), and "neutral members" (appointed based on nominations by the Board of Directors of the ESCJ). The ESCJ is responsible for: developing rules for the development of the electricity system including access to power, and the operation of power systems; dispute resolution; coordination of load-dispatching operations; and data collection and dissemination.¹⁹²

1.3.  Japan Electric Power Exchange (JEPX) is a non-profit private entity which was established in 2003 and composed of members from the electricity companies to operate the power exchange system. About 10,446 GWh was traded by JEPX in 2013.

1.4.  The principal legislation regulating the electricity sector is the Electricity Business Act of 1964 since when it has been amended a number of times in line with the policy of partial liberalization of the sector:

• 
  In 1995 the Act was amended:
  
  • 
    To abolish the approval system for entering the wholesale business and to provide the legal bases for the establishment of the auction system for power purchasing;
    
  • 
    To allow the establishment of Specified Electricity Utilities to use their own generation, distribution, and transmission systems for direct delivery to customers in some areas; and
    
  • 
    To introduce 'Optional Supply Provisions' into the tariff system;
    
• 
  In 1999, the Act was revised again:
  
  • 
    To allow partial liberalization for extra high voltage power for industrial and commercial users (between 20 kV and 2 MW) in the retail sector; and
    
  • 
    To provide for a transition from an approval system to a notification system for some cases such as decreasing the electricity price;
    
• 
  The 2003 reforms:
  
  • 
    Expanded liberalization gradually to reach customers contracted for 50 kW by 2008;
    
  • 
    Enhanced regulation to ensure transparency in transmission and distribution and introduced accounting unbundling for the general electricity utilities to separate accounting of generation, transmission and distribution activities;
    
  • 
    Established the Electric Power System Council of Japan; and
    
  • 
    Established the Japan Electric Power Exchange;
    
• 
  The 2008 reforms focused on further regulatory changes such as activation of JEPX, and reforming the competitive conditions for accessing transmission lines;
  
• 
  The 2013 amendment provided for the establishment of the Organization for Cross-regional Coordination of Transmission Operators (OCCTO), which is to be established in 2015; and
  
• 
  In June 2014, the Act was amended again to allow for full retail competition planned for introduction in 2016.
  

1.5.  Despite the gradual reform of the electricity sector from 1995 to 2008, it was reported in 2012 that the regional utility companies (or general electric utilities in Chart 4.6) continued to generate over 70% of total electricity and most transactions by independent power producers were bilateral long-run contracts, with the regional utilities and JEPX transactions accounting for less than 1% of total electricity generated. Similarly, PPS had a market share of only about 2% of the retail market.¹⁹³

1.6.  The 2013 and 2014 amended acts to the Electricity Business Act have followed the government's Electricity System Reform agreed in April 2013 with the objectives of securing a stable supply of electricity, suppressing electricity rates to the maximum extent possible, and expanding consumer choice and business opportunities.

1.7.  The first step of the Electricity System Reform was provided for in the 2013 amendment to the Electricity Business Act and the subsequent Cabinet Order of June 2014 to establish the OCCTO in April 2015. OCCTO is to be a government authorized organization with the authority to aggregate and analyse supply and demand, the grid plans of the electric power companies. It will also have the authority to order changes to these plans, including ordering companies to reinforce generation and power interchanges under tight supply-demand situations. The second step of the reform, full retail competition, will begin around 2016 under the 2014 amendment and the government will decide whether to abolish the regulations for the retail tariff around 2018-20 or later depending on the competition status at that time. The third step will be the legal unbundling of the transmission and distribution sectors from the generation and retail sectors, the intention being to secure the neutrality of the transmission and distribution sectors.¹⁹⁴