deregulated energy market in japan...partial deregulation of retail market started from 2000 10 •...

Deregulated Energy market in japan

9/27/2018

Copyright (C) Kanden System Solutions Co.,Inc All Rights Reserved. 1

Agenda

₋ Introduction of KSS

₋ Why Japan, Why Now

₋ History of Deregulation and Current Situation

₋ Structure of the Electricity Industry

₋ Characteristics of Players in Japan Electric Market

₋ Operation and Rules of Retail Business

₋ Typical Products in the Deregulated Market

₋ Prospective Future Market

Copyright (C) Kanden System Solutions Co.,Inc All Rights Reserved.

Introduction of KSS

2


We are Kanden System Solutions ( KSS ) from Japan

KSS is an IT service and business consulting service provider, the subsidiary of

Kansai Electric Power Company ( KEPCO ) which is the 2nd largest utility in Japan.

- Establishment : April 1, 1967

- Capital : 90 million JPY ( 64K GBP)

- Sales : 31,525 million JPY ( 224 million GBP)

- Employees : 1,311

- Head Office : Osaka, Japan

Business Consulting

System Development

Infrastructure building

Operation & Maintenance

3

- Energy team- Public team- Enterprise team


Our service for energy industry

4

KSS service is originally from “Build Operation of Japanese Retailer ” , not only create

blueprint , but also support our clients one by one tenaciously.

We are expanding our service to support development of around

energy retail business and service.

e.g. VPP , evolutional products utilizing PV and Battery , new service

that makes more convenience for customer or retailer or Utility.

KSS have been providing support for oversea companies entering to Japanese retail market in the

last 2 years.

We also have experience that support entering the Japanese

market of oversea IT Service and energy relating products

providers etc.


Japanese

retailers &

others

Oversea

retailers

Other

overseas

projects

> 10 Projects

> 40 Projects

We have been supporting a lot of companies so far

5

Some Projects are ongoing

Include both Outbound / Inbound business


Why Japan, Why Now

6


Japan electricity market is a huge single market

7

GDP : 521 trillion JPY

( 3.7 trillion GBP )

Population : 127 million

Household : 63 million

Japan market is even bigger than

the de-regulated market in the U.S.

Electric Energy Sales : 823 TWh

Market Volume : 18 trillion JPY

(128 billion GBP)

• Industrial/Business :

10 trillion JPY

(70 billion GBP)

• Households:

8 trillion JPY

(57 billion GBP)


2022.04

* market share of new retailers

A big change is coming to Japan energy market

8

Establishment of OCCTO

2016.04 2017.04 2020.042015.04

Full retail liberalization


Legal unbundling of T&D sectors

Legal unbundling of pipeline divisions

Electric system reform

Gas system reform

We are here

Deregulation started smoothly and a healthier market is going to be developed.

2018.01

Share (%) *High-V : 5.2Low-V : 0

Share (%) *High-V : 8.3Low-V : 0.1



Wholesale exchange market reform is in progress.Retailers from oversea

began to enter Japan market.

* market share of new retailers

Share (%) *>= 100k㎥ : 11.7< 100k㎥ : 0

Share (%) *>= 100k㎥ : 13.1< 100k㎥ : 0

Share (%) *>= 100k㎥ : 13.0< 100k㎥ : 0

Share (%) *>= 100k㎥ : 18.5< 100k㎥ : 2.4


History of Deregulation and Current Situation

9


【50kW】(6,000V)

Partial deregulation of retail market started from 2000

10

• Ultra high-voltage for Industrial• Ultra high-voltage for business

Source: Ministry of Economy, Trade and Industry documents

Ma

r. 20

00 ～

• Ultra high-voltage for Industrial• Ultra high-voltage for business• High-voltage B• High-voltage for Business (above 500kW)

• Ultra high-voltage for Industrial• Ultra high-voltage for business• High-voltage B• High-voltage for Business• High-voltage A

• High-voltage B

• Low voltage• Electric light

• High-voltage for Business

• High-voltage A

• High-voltage A

• High-voltage for Business (below 500kW)



Ap

r. 20

04

～A

pr. 2

00

5 ～

Liberalized categories

【2,000kW】(20,000V)

【contract kW】(voltage)

【500kW】(100～200V)

Ultra high-voltage High-voltage

Low-voltage(regulated categories)


The market didn’t get hot at all

11

Main reasons why the retail market was not active• Electric power was difficult to procure in wholesale market.• Conventional utilities were not cooperative.

Transition of new retailer’s market share

Ultra High-voltage and High-voltage

Source: Electricity Research and Statistics

full liberalization


The disaster in March 2011 has changed the situation

12

People were forced to live without sufficient electric power.

Electricity system reform had proceeded by public opinion • The vertical integrated system should be reconsidered.• Regional monopolies should be abolished.• Deregulation should be improved more than before.

Stage 1 amendments

Great East Japan Earthquake Fukushima nuclear power plant accident

Stage 2 amendments

Stage 3amendments

Policy on Electricity System Reform

Enactment of2nd law amendments

Operation of OCCTO


Legal unbundling of T&D sectors

Apr 2, 2013Cabinet decision

Nov 13, 2013

Jun 11, 2014

Apr, 2015 Jun 17, 2015

Enactment of1st law amendments

Enactment of3rd law amendments

Apr, 2016 Apr, 2020


Retail market is booming after full deregulation

13

Source: Material from Research and Statistics of Electric power.

Total Ultra High-voltage /High-voltage Low-voltage


The total amount of switching is 9.7 million, and the total switching rate is 15.5%.

Deregulation has widely spread to Japanese people in 2 years

14

Area Number(K) Rate(%)

Hokkaido 263 9.5

Tohoku 228 4.2

Tokyo 3,055 13.3

Chubu 542 7.1

Hokuriku 36 2.9

Kansai 1,260 12.5

Chugoku 96 2.7

Shikoku 79 4.1

Kyushu 387 6.2

Okinawa - -

Total 5,945 9.5

Switching from Conventional utilityto New retailer

Area Number(K) Rate(%)

Hokkaido 21 0.7

Tohoku 80 1.5

Tokyo 914 4.0

Chubu 1,247 16.4

Hokuriku 29 2.4

Kansai 662 6.6

Chugoku 444 12.7

Shikoku 115 5.9

Kyushu 245 3.9

Okinawa 2 0.3

Total 3,758 6.0

Switching from regulated plan to liberalized plan in same utility

Source: Electricity transaction report. Data as of Feb, 2018

Residential and small business (Low voltage)


Many players rush into energy market

15

Source: created by KS-SOL, based on state of full retail liberalization of electricity issued each time.

0

100

200

300

400

500

600

2016.04 2016.07 2016.10 2017.01 2017.04 2017.07 2017.10 2017.12 2018.5

Number of registered retailer of electricity


Trading volume in JEPX is also increasing rapidly

16

Transition of the volume and the price of transaction from JEPX

Transaction Volume(GWh / day)

System Price(JPY / kWh)

Transaction Volume System Price

Percentage of Total Demand (same right vertical axis %)

System Price (average of 7 days)

Percentage of Total Demand (%)


Characteristics of gas retail market• Wholesale exchange market doesn’t exist.• It is difficult for new gas retailers to find a wholesaler so far.• Gas retailers are obliged to organize security division.

Gas retail market is following electricity retail market

17

Transition of new entrants

Gas pipeline service provider

Large-Volume gas retailer

Share of new entrant

Share of provision(%)

Amount of retailer

> 2 million ㎥Mar 1 1995~

> 1 million ㎥Nov 19 1999~

> 0.5 million ㎥Apr 1 2004~

> 0.1 million ㎥Apr 1 2007~

2 million ㎥

1 million ㎥

0.5 million ㎥

0.1 million ㎥

< 0.1 million ㎥

Mar 1995~

Nov 1999~

Apr 2004~

Apr 2007~

Large SmallContracted gas usage per year

Industry

Business

Industry (Medium-sized)

Industry (Small-sized)

Partial deregulation of gas retail market

Total

Kanto

Chubu・Hokuriku

Kinki

Kyushu

Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Transition of switching applicationsAmount (k)

s/w rate :2.4%

46

47

48

49

50

51

52

53

2017.06 2017.10 2017.12 2018.01 2018.03

Number of registered retailer of gas

2017


Structure of the Electricity Industry

18


Systems of IPP, TND and Retailer were respectively migrated to new license system

19

GenerateDivision

T&DDivision

RetailDivision

Utility IPP

NotificationSystem

PermissionSystem

Retailer

RegistrationSystem

License Type

Sell

Buy

Submit forecast

Submit forecastSwitching procedure


IPP accounts for about 17% of the total power in Japan market

20

Source: Agency for Natural Resources and Energy. Data as of Jan, 2018

There are 577 IPPs in Japan.

Main industries:• Steel maker• chemical maker• petroleum company

Resource and competence:• Surplus power generated

by their private facilities• Middle-sized LNG plants

under construction• Renewable energy power

plants

“Gross bidding”, promoted by government will ensure that the transaction in JEPX will be increased steadily.


←| 60hz

50hz |→

All Utilities are responsible for balancing electricity within their own territories.

Electric power is transmitted among these utilities by interconnection except Okinawa.

10 Utilities are operating T&D network of Japan

21

Hokkaido

Tohoku

Chubu

Hokuriku

Shikoku

Kyushu

Chugoku

Kansai

Tokyo

Okinawa


Low-entry barriers to enter electrics retail market

22

Apply for a license from METI (Ministry of Economy, Trade and Industry)• Expected power demand• Supply capability• Business implementation system

Enter into a power wheeling contract with the T&D in the target area.• Intra-area wheeling service contract• Power generation adjustment supply contract (FIT source)• Cross-area wheeling service contract with all T&Ds

Join OCCTO

Be a member of JEPX

Large investment in equipment is not necessary!

Requirements


OCCTO is responsible for Japan electricity industry as a Hub

23

T&D

IPP

Retailer

Provide useful and necessary systems.• Switching support system• Demand-supply forecast submitting

system Standardize system specifications.

Organization for Cross-regional Coordination of Transmission Operators, JAPAN

Coordinate and adjust the demand-supply balance among T&Ds.

Make long-term plans for maintaining and strengthening the transmission infrastructure, especially the Interconnection.


JEPX is the only electricity wholesale exchange market in Japan

24

Spot market (1 day ahead) : • Main exchange market using “blind single-price auction” method.

Intraday market(1 hour ahead) : • Continuous session like trading in stock exchange, usually used for

unexpected situation such as generation assets failure and rapid weather change.

Image of blind single-price auction


Characteristics of Players in Japan Electric Market

25


Reasons:• The low-voltage sector (residential and small business) is worth JPY 8 trillions. • Easy to get a license to start retail business.• Prevent rivals from taking their own customers.

Many players in electricity retail market come from various industries

26

Basic Strategy：The electricity could be sold as part of a bundle of their original services and products.


Some new retailers achieved great success, but some did not

27

Companies Reasons

Orix Electric

Power

Sell their bulk business in

apartment due to the concern

about expansion of their

business in the future.

Daito Energy Get out of the retail market

due to few profit from their

main customers who are

single.

Fukushima

Energy

Withdraw from the retail

market due to delay in dealing

with billing and customer

support business.

CompaniesNumber of

customers※

Tokyo Gas

1,200K

KDDI

1,000K

Osaka Gas

600K

JXTG Energy

300K

※Assumption by KS-SOL

5th ~ 10th : 100K

11th ~ 50th : 40K

51th ~ 100th : 5K


Know-how and expertise in electricity business are not enough

28

Strong and wide customer base

Expertise in advanced electricity market

• Lack of expertise in procurement from wholesale market• Insufficient know-how in balancing management• Few unique products which utilize electricity business• Not too many IT solution products and IT service vendors

Issues

This is a sort of opportunities.


Many new entrants from overseas are coming to Japan

29

Retail VPP

Battery / PV IT service

※some new entrants (around 10) are applying for the license.


Operation and Rules of Retail Business

30


Procurement from JEPX is steadily increasing

31

Main procurement for new retailer• PPA ( Power Purchase Agreement ) with IPP• JEPX • Backup power from utilities• Own power generation facilities

PPA with IPP Backup power from utilities JEPX

Rate of procurement from backup power from utilities Rate of procurement from JEPX

Source: submitted documents of 28th System Design Expert Meeting.

Ele

ctr

ic E

nerg

y

(10,0

00

kW

h)

Ra

te

(%)

Sep,2012 Mar,2013 Sep,2013 Mar,2014 Sep,2014 Mar,2015 Sep,2015 Mar,2016 Sep,2016 Mar,2017 Sep,2017


Retailers and IPPs are responsible for accurate forecast

32

Source: Report of system research about overseas electricity exchange market and real time market by MRI

Both retailers and IPPs need to submit forecast to OCCTO at least 1 hour ahead.

Forecast demand

Actualdemand

Retailer

Forecast supply Actual

supply

IPP

Imbalance fee

Imbalance fee

Planned Value Balancing

USA UK Norway

DenmarkSweden Finland

Japan

Balancing (Simultaneous Equal Amount)

France Germany

They will be charged imbalance fee for the difference between Actual and Forecast.


Necessary to comply with sales guideline for customer protection

33

Source: material from the 2rd System Design Specialist Committee of the Electric Market Surveillance Commission

1. Appropriate disclosure of information to consumers

i. Disclosure of general informationii. Explanation of important matters prior to contract

signing and issuance of documents before and after contract signing

iii. Appropriate method of disclosures such as power generation structure

2. Clear definition of sales and contract formsi. Difference between Brokers, intermediaries, and

agents of the electric retailerii. Electricity retailer’s responsibilities when

subcontracting processesiii. Sales/contract forms that comply with the Power

Generation Business Law

3. Clarification of contract detailsFollowings are prohibited:i. Non-transparent calculation of electric ratesii. Inappropriate contract termination iii. Items concerning predatory pricing with the aim of

forcing competitors out of the market

4. Response to complaints and inquiriesi. Obligation to respond to complaints and inquiries ii. Response to power outage inquiries

5. Contract Terminationi. Procedures for consumer-initiated contract termination ii. Procedures for retailer-initiated contract termination

Retailers are mandated to explain important matters to customers in accordance with the guidelines.

The retention of documentary evidence, usually for 3 months, was also mandated in terms of costumer protection.

The Guidelines for the Management of the Electric Retail Business


Switching procedure is processed by Switching Support System

34

Integrate retailer’s own system with Switching Support System using API (Application Programming Interface) provided by OCCTO.

Use Switching Support System directly on the website of OCCTO.

Switching SupportSystem

T&D

New Retailer

Current Retailer

Customer

③Requiretermination

②Apply forSwitching

⑥Provide service ⑤Notify the result

①Apply for power

④Apply forWheeling Service


Retailers access to T&D directly in order to get the usage data

35

Usage Data

Tentative Data

Provide information

Retailers always need to download the usage data from all T&Ds.

Get information

Customer

T&D A

Retailer

Send Invoice

T&D C

T&D B

Monthly usage including every 30-minute data To be used for bill calculation. Meter-reading is carried out almost every business day.

30-minute usage data Provided 1 hour later after the end time. To be used for demand forecast and information

provision to customers.

Get information


Typical Products in the Deregulated Market

36


Conventional products provided by utilities are as follows

37

Bill calculation formula

Electricity bill

＝Basic

charge＋

※ Meter charge have 3 tiers rate depending on usage.

Adjustments

Fuel adjustment charges(FAC)(kwh * X.XX JPY)±

Applicable discounts－

Renewable energy generation surcharges(FIT charge)

(kwh* X.XX JPY)＋

Time of use(TOU) products are usually provided for all-electric home. (no use of gas).

Metercharge(Supply charge)※

＋

FAC rate change every month (up / down) depending on fuel import cost such as LNG, Oil and Coal. It means that utilities have little risk.

(Basic charge rate and meter charge rate don’t change)


New retailers imitate utilities’ products and reduce rate so far

38

Fuel adjustment charges(FAC) is being copied to new retailers together.

Mirror Product is easy to make a comparison for customers and to design a low-risk product for new retailers too. However, it doesn’t make much money for retailers.

Rate structure is identical, but with reduced price.

Mirror Plan

New entrant retailers are expected to provide innovative products with wholesale trading under appropriate risk management.

• Example #1 : Fixed Charge Rate / Flat Rate• Example #2 : Holidays Free Rate

Electricity Consumption

Rates

Utility’s rate

New retailer’s rate


Utility and retailers representative tariff for residence

39

Meter-Rate Lighting BTEPCO

Contract category Unit Rate

(JPY)

Basic

charge

10A

1 contract

280.80

15A 421.20

20A 561.60

30A 842.40

40A 1,123.20

50A 1,404.00

60A 1,684.80

Meter

charge

< 120kWh

1kWh

19.52

120kWh~300kWh 26.00

> 300kWh 30.02

Contract category Unit Rate

(JPY)

Basic

charge

10A

1 contract

280.80

15A 421.20

20A 561.60

30A 842.40

40A 1,123.20

50A 1,404.00

60A 1,684.80

Meter

charge

< 120kWh

1kWh

19.49

120kWh~300kWh 24.89

> 300kWh 26.99

TOKYO GAS

Contract category Rate(JPY)

Basic charge 0.00

Meter charge 26.00

LOOOP

Zuttomo Plan 1S

Utility New Retailer

FIT charge (2.64 JPY/kwh) is charged for every customers whether utilities or retailers.

FAC : - 2.10 JPY / 1kWh FAC : - 2.10 JPY / 1kWh

FAC : - 2.10 JPY / 1kWh


Prospective Future Market

40


The switching rate in UK reached 25% in 2 years after the deregulation as a result of the competitiveness among utilities, so that the potential expansion in Japan market can be expected.

Conventional utilities are getting serious to acquire customers outside of their own regions

41

Hokkaido ElectricPower Company

Tohoku ElectricPower Company

Tokyo ElectricPower Company

Chubu ElectricPower Company

Shikoku ElectricPower Company

Okinawa Electric Power Company

Kyushu ElectricPower Company

Hokuriku ElectricPower Company

Chugoku ElectricPower Company

Kansai ElectricPower Company

The market is getting more competitive.


Retailers will have a wider range of procurement

42

Base Load market

Rules for using power interconnection

Capacity market

Supply and demand adjust market

Non-fossil value certificate market

2017 2018 2019 2020 2021～

☆schedule of execution

☆

☆ ☆

☆

☆ ☆

☆

☆

☆

start trading start delivery

start trading

start trading (FIT only)

start trading (All non-fossil power)

come into effect

start trading

Implement auction system

Implement hedge market *

Source: 29th Working Group of Regulatory Reform Promotion Meeting (Apr. 2018)

New electricity exchange markets will gradually start in 2018.

Future market (TOCOM, not JEPX)

* In order to fill the price gap among T&D territory

☆start trading


The rate of “After-FIT” will be much lower than Retailer’s product rate.

The expiration of FIT will start in 2019

43

JPY

It will be expected to expand installation of battery to residence. Therefore, retailers desire to develop new products such as a kind of TOU and new business such as VPP.

0

10

20

30

40

50

60

FIT price Sell price of "After-FIT" Purchase price

Electricity price

Loss

Selling power to conventional utilities

Current “After-FIT”It is better to consume power in their house


Unbundling T&D sectors makes market fair competitive

44

Generation

T&D

Retail

Holding company

Generation

T&D

Retail

Parent company

Subsidiarycompany

Type A Type B

Operatingcompany

Other utilities has not announced about restructuring of their organization. However anyway their T&D sectors will be also unbundled in 2020.

(Already unbundled in 2016) KEPCO


The switching rate is expected to reach the level of 20%~30%

45

UK

FR

JP

FR: Deregulated in 2007

UK: Deregulated in 1999

1 Year 2 Year 3 Year 4 Year 5 Year

Switching rate in residential and small business field

Time after deregulation

Source: Domestic Retail Market Report 2007 (Ofgem)


Gas wholesaler for new entrant retailers is appearing

46

There is no doubt that new gas wholesalers will show up in other area, especially big markets such as Osaka and Chubu in the near future.

New wholesaler(TOKYO GAS area) New retailer

Tokyo Energy Alliance

CD Energy Direct

Established by TEPCO and NITIGASin Aug. 2018

Established by CEPCO and OSAKA GAS in Apr. 2018


Utilities desire to find overseas opportunity

47

Over The Past

In The Near Future

• Invest for LNG/Coal power generation plants in developing countries.

• Invest in fields where Japanese utilities can take advantage of their strength for both of Western countries and developing countries Effective operation for hydro and fuel

generation High quality TND network without black-

out For Now

• Invest for renewable energy in Western countries.• Build transmission and distribution network in

developing countries as export of infrastructure

We are looking for business opportunities in UK, too.

Bios of KSS speakers

General Manager, Business Consulting Dept.Katsuya Takekawa (Kay)

Held various positions life insurance companies, IT service provider, and consulting firms, before accepting his current position. His handling of numerous services for social infrastructure companies have so far earned him a robust background in project management. In the present, he has launched a business and is actively engaging in services for energy companies in Japanese deregulated market.

Manager,Business Consulting Dept.Kazuyuki Ishibashi(Bash)

He is presently holding the position through venture businesses and system integrator. He is an expert on energy liberalization, new business development, M&A and project investment evaluation. He has experience in PPS-launching projects. In the present, he provides consulting services on launching businesses to many entrepreneurs who wish to enter energy business.

48Copyright (C) Kanden System Solutions Co.,Inc All RightsReserved.

Email: [email protected]

Email: [email protected]

mailto:[email protected]




SANKEI NEWS (news paper) THE NIKKAN KOGYO SHIMBUN (newspaper)

This is the Know-how book for entities into an electricity retail business in Japan.It is well-reputed since it was released, and it gets a lot of media attention.

It became “Amazon ranking No.1”

in the energy category right afterit was released on Jan. 21, 2016.

Our Guidebook is the bestseller

49


関電システムソリューションズ株式会社


Energy Trade Mission to Japan

2019

Date: Monday 28 January – Friday 1 February 2019

Speaking opportunity in two seminars in Tokyo (Ambassador’s Residence, ENEX trade fair)

Networking Reception Exhibit at ENEX Trade Fair in the UK pavilion for three days

For more details, please visit:http://www.exporttojapan.co.uk/event/energy-trade-mission-japan-2019-uk-companies

Application deadline: 31 October 2019

http://www.exporttojapan.co.uk/event/energy-trade-mission-japan-2019-uk-companies

deregulated energy market in japan...partial deregulation of retail market started from 2000 10 •...

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