For decades in Japan, the world’s fourth-largest electricity market, just 10 utilities met the country’s power demand. Today these “vertically integrated regional utilities” -- each one owns its own construction firms and even equipment manufacturers -- face significant and growing competition.
A bit of context: Power demand from Japan’s 10 big utilities peaked a decade ago, as it did in the US and many other developed markets. Today’s demand is down 15 percent from 2007.
Part of that decline is due to greater efficiency. Part is due to Japan’s very high awareness of electricity consumption -- and efforts to conserve -- since the 2011 Great East Japan Earthquake and the ensuing shutdown of its nuclear-reactor fleet.
Just as important -- and perhaps more significant going forward -- is the entry of new non-VIRU power retailers into Japan’s newly liberalized market.
In 2000, Japan began the process by liberalizing the market for consumers with more than 2 megawatts of demand. Such large commercial and industrial electricity users account for more than a quarter of Japan’s total electricity demand, but as the chart below shows, fundamental demand growth has more than compensated for any sales lost to big consumers.
Last April, when Japan opened electricity competition to all users, the market became much more dynamic. At this point, electricity demand from more than 400 deregulated retailers has risen by two-thirds.
These non-VIRU retailers have diverse corporate roots. The largest is Ennet, a joint venture between two natural gas distributors (Tokyo Gas and Osaka Gas) and NTT Facilities, which develops renewable energy and manages electricity on behalf of its telecommunications company parent, NTT. Ennet has been especially successful, thanks to its access to power-generation assets and its ability to sell to cost-sensitive commercial and industrial consumers.
Tokyo Gas is now also competing as an electricity retailer, and has become the sixth-largest provider. Tokyo Gas has a reputation for excellent customer service, and its offerings include solar power and fuel cells. Another telecommunications company, KDDI, the eighth-largest retailer, has been successful because of its large customer base, and because it can bundle electricity, telephone and internet services. KDDI and a number of the other new power providers offer loyalty points, as airlines do, and KDDI even has its own credit card.
Some non-utility retailers are strictly residential providers. Daito Energy, a subsidiary of home builder Daito Trust Construction, offers renters prices that are 5 percent lower than VIRU rates, then bills for electricity use on rent statements. Tokyu Power Supply, a subsidiary of rail company Tokyu Corp., doubles its rail user loyalty points for customers of its bundled electricity and internet services.
The emergence of big, well-capitalized players with existing customer relationships might suggest that the non-VIRU retailers market is consolidating. It is not.
In 2013, when non-VIRU firms could target only large consumers, the top 10 firms accounted for more than 80 percent of the market. As of March, they had just 55 percent.
By last April, non-VIRU companies already met more than 10 percent of commercial demand. Since the beginning of full competition a year ago, industrial demand for non-VIRU power has barely changed, but retail power demand has risen to four percent, from zero. Now, almost 10 percent of Japan’s electricity consumption is met by companies other than power utilities.
For decades, Japan’s vertically integrated regional utilities had no competition. They now have 400 competitors. With demand for those non-utility services up 80 percent in one year, Japan is proof that even in established electricity markets, competition can spread like a virus.
By Nathaniel Bullard & Miho Kurosaki
Nathaniel Bullard is an energy analyst, covering technology and business model innovation and systemwide resource transitions. Miho Kurosaki is an energy analyst who covers the power market in Japan and Korea. -- Ed.
