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Ensuring Electricity Security
in Japan’s Electricity Market Reform Project
Yuki SADAMITSU Director of Industrial Research JETRO, London
Special advisor to METI
June 12, 2014 IEA ELECTRICITY SECURITY ADVISORY PANEL (ESAP)
FIRST HIGH LEVEL PLENARY MEETING
Table of contents
1. Planned actions on Japan’s electricity market reform
2. Ensuring electricity security in Japan’s EMR project
1
PLANNED ACTIONS ON JAPAN’S ELECTRICITY MARKET REFORM
<1>
2
Problem revealed by 3.11
• Negative aspects of regional monopoly system with 10 big and vertically integrated EPCOs were revealed in the Great Earthquake 3years ago:
1. Lack of system to transmit electricity beyond regions 2. Little competition and strong price control 3. Limit in handling the change in energy mix including the increase in renewables
Hokkaido [2012] 5.52 GW
Tohoku [2012] 13.72 GW
Kansai [2012] 26.82 GW
Hokuriku [2012] 5.26 GW
Kyushu [2012] 15.21 GW
Chugoku [2012] 10.85 GW
Shikoku [2012] 5.26 GW
5.57GW 16.66GW
5.57GW 2.4GW
5.57GW 0.3GW
0.6GW
12.62GW
1.2GW
DC Tie line
BTB
DC Tie line Chubu
[2012] 24.78 GW Tokyo
[2012] 50.78 GW 1.4GW
Frequency in West: 60Hz
FC
* DC – direct current, FC – frequency conversion
Frequency in East: 50Hz
3
小売全面 自由化
(参入自由化)
Nov. 13, 2013
1st reform
Roadmap for Electricity Market Reform in Japan
Cab
inet D
ecisio
n o
n th
e P
olicy
on
Electricity Syste
m R
eform
Apr. 2, 2013
Cabinet Decision
Abolishment
of retail tariff
Legal unbundling of
transmission
/distribution sector
(※At around 2015:Transition to new regulatory organizations)
【1st Step】 2015
【2nd Step】 2016
【3rd Step】 2018-2020
2nd reform
3
rd reform
The
1st B
ill
4
(1st bill) 2013
Establishment of the
Organization for Cross-
regional Coordination of
Transmission Operators (OCCTO)
Full retail
competition Period of transitional arrangement for retail tariff
(2nd bill) 2014
(3rd bill) 2015
• 2 April 2013, Cabinet decided the “Policy on Electricity System Reform” to realize three objectives in Japan’s market with a three-step approach.
• 3 objectives: (1) Securing a stable supply of electricity (2) Suppressing electricity rates to the maximum extent possible (3) Expanding choices for consumers and business opportunities
The
2n
d Bill : u
nd
er d
iscussio
n
1st step: Establish the OCCTO
• Establish the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) by about 2015
5
5.57GW 16.66GW
5.57GW 2.4GW
5.57GW
0.3GW
0.6GW
12.62GW
1.2GW
DC Tie line
BTB
DC Tie line 1.4GW
Frequency in West: 60Hz
FC
* DC – direct current, FC – frequency conversion, TDSO – Transmission and Distribution System Operator
Frequency in East: 50Hz
JEPX OCCTO
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
TDSO
Generation
Retail
Kyushu
Chugoku
Shikoku
Hokuriku
Chubu
Tokyo (TEPCO)
Tohoku
Hokkaido
Kansai
(Power Exchange) (Coordination of TDSOs )
6
Liberalized Sector (50kW~2,000kW)
Regulated Sector (~50kW)
Large factory Large building
Building
Medium factory Small Factory
Residential Customer Small shop
Market Volume ; 7.5 trillion (=$ 75bn, €55bn) Number of contracts
Residential Customers : 76.8m Small shops and offices: 7.4m
2nd step: Full Retail Competition
• Expand retail competition to the residential sector around 2016, opening a new market
• Maintain regulated tariffs to 10 big EPCOs until around 2018-2020
Share of total power: 63%
Share of total power: 37%
3rd step: Unbundle the T/D sector
• Unbundle the transmission/distribution sectors of big EPCOs by ITO-style (legal unbundling) at around 2018-2020
送配電設備
Generation
company Retail company
Transmission/
Distribution company
(System operation) (Transmission/
distribution facilities)
Holding company
• Regional monopoly • Network tariff • Responsibility for maintaining frequency
& providing LR service • Code of conduct
Competitive Competitive Regulated
7
ENSURING ELECTRICITY SECURITY IN JAPAN’S EMR PROJECT
<2>
8
Japan’s supply and demand balance
10 big EPCOs’ capacity – Submitted supply plans based
Estimated peak demand
168GW Thermal 147GW
Renewable 3GW+ α
+8GW
Nuclear ??
184GW+α
Thermal 139GW
Supply
Renewable 3GW
177GW
Nuclear 0GW
2016 2014 (Summer) 2010
Thermal 127GW
Renewable 0.3GW
Nuclear 35GW
Hydro 35GW
Hydro 35GW
Hydro 34GW
198GW
*: in comparison of demand in 2014 summer
Reserve capacity
8GW
Reserve margin
5%
Reserve capacity*
16GW + α
Reserve margin* 10% + α
Full retail competition
• Supply and demand balance has been very tight especially in summer since Fukushima accident.
• Estimated capacity in 2016 when full retail competition starts: • Even without counting nuclear restarts and additional renewables, almost 10% of
reserve margin will be expected • 18 nuclear plants (18GW) have already applied to the safety inspection
(Note) All numbers are rounded off.
RES integration in Japan
• Although RES is increasing after introducing Feed-in Tariff scheme in 2012, the share of RES excluding hydro is under 2%.
• However, there already exist some challenges on grids especially for tie lines.
Composition of annual electricity generated in Japan Combined total capacity of renewable energy
generating facilities
940.8TWh
Source: ANRE,METI 10
Ensuring electricity security in Japan’s EMR project
• While expecting sufficient capacity in 2016 when full retail competition starts, the Government decided to include measures to secure long-term electricity supply: 1. Promote cross-regional electricity supply by OCCTO <2015>
2. Ensure adequate capacity investment
a. Obligation for all retailers to secure adequate capacity <2016>
b. Auction for the long-run generation capacity by OCCTO <2016>
c. Further discussion on capacity mechanism (capacity market etc.)
- Ensure procurement of enough quantity in the electricity market
- Prepare for the possible shortage of long-run capacity as a safety net for the electricity market
- Enhance the incentive to establish and maintain generation plant
11
Promote cross-regional electricity supply by OCCTO <2015>
• Main functions of OCCTO to be established in 2015: 1. Aggregate and analyze the EPCO’s supply-demand plans and grid plans, and
order to change EPCO’s plans such as tie lines construction Eg. Frequency conversion b/w Tokyo and Chubu : 1.2GW 2.1GW ? ? DC tie line b/w Hokkaido and Tohoku: 0.6GW 0.9GW ? ?
2. Order EPCOs to reinforce generations and power interchanges under a tight supply-demand situation
Hokkaido [2012] 5.52 GW
Tohoku [2012] 13.72 GW
Kansai [2012] 26.82 GW
Hokuriku [2012] 5.26 GW
Kyushu [2012] 15.21 GW
Chugoku [2012] 10.85 GW
Shikoku [2012] 5.26 GW
5.57GW 16.66GW
5.57GW 2.4GW
5.57GW 0.3GW
0.6GW
12.62GW
1.2GW
DC Tie line
BTB
DC Tie line Chubu
[2012] 24.78 GW Tokyo
[2012] 50.78 GW 1.4GW
Frequency in West: 60Hz
FC
* DC – direct current, FC – frequency conversion
Frequency in East: 50Hz
12
Obligation for all retailers to secure adequate capacity <2016>
Actual supply
Actual demand
Retailer A Retailer B Retailer X
The gap (shortage)
Actual supply
Actual demand
The gap (surplus)
・・・
・・・
Actual supply
Actual demand
The gap (shortage)
TDSO
Compensate the shortage Buy the
surplus
Compensate the shortage
Retailer A
Purchase plan for supply
The demand Increases to ‘110’, when accident happens.
Actual demand
Reserve margin which retailer A should have secured for upward demand (additional supply necessary for fulfilling the obligation)
Forecast the demand
Actual supply
Some years or months ahead
At the actual supply and
demand
Forecast the demand as ‘100’
Purchase the supply same as forecasted demand (=‘100’)
• All retailers are legally obliged to ensure adequate capacity (incl. reserve margin) to match their demand.
• Government checks all retailers’ plans at both points of registering to enter the market and of submitting 10-year supply and demand plan each year
• TDSO will balance the gap b/w actual supply and actual demand in the imbalance mechanism.
13
Auction for the long-run capacity by OCCTO <2016>
• OCCTO will call for bids when supply power shortage is likely to occur because of insufficient investment.
• OCTTO will pay for their capacity (MW), through recovering from network fee. • The detailed design is under discussion.
OCCTO
Generation company A
Generation company B
Generation company C
Bid
Bid Bid
Decide the constructor by bids
Compensate part of the cost
All Consumers
Pay the cost as network fee
Construct the power plant and sell the electricity
Selling electricity
Call for bids for constructor of power plants
Revenue Retailers / Power exchange
14
15
Thank you!
REFERENCE
16
17
Oil
Renewable etc.
LNG
Coal
Nuclear
LNG mainly compensates for the decline of nuclear power.
25%
48%
Coal
Energy mix in Japan
• All of 50 units of nuclear power plants are in stoppage as of September 17, 2013. • 18 units (in blue square) are under review for restart by Nuclear Regulation Authority in accordance
with new safety regulation.
1 2 3 4 5 6 7
1 2
1 2
1 3 2
1 2 3 4
1 2 3 4
1 2
1 2 3 4
1 1 2 3
1 3 2
1 2
5 6
1 2 3 4
3 4 5
1 2 3
NPP in operation
NPP in Stoppage
Under review by Nuclear Regulation Authority(NRA)
Nuclear Power Plants Suspended
18
History of Market Reforms in Japan
No. Year enforced Overview
1 1995 • Open the IPP (Independent Power Producer) market • Allow specified-scaled and vertically integrated power
generators
2 2000 • Introduce partial retail competition • Accounting separation of transmission/distribution sector
3 2005 • Expand retail competition • Establish the wholesale power exchange (JEPX) and its
supporting body for transmission in wider areas
4 2008 • Modify the rule of wheeling rates
No competition in the electricity market before 1995: 10 vertically integrated GEUs (General Electricity Utilities) dominated and controlled the market.
METI embarked series of reforms...
19
Large demand area
Suitable area for wind farm
20
OCCTO’s role for RES integration
• OCCTO has a role to resolve the imbalance between RES well-endowed area and large demand area 1. One stop reception desk for network access 2. Order to reinforce the main transmission lines including tie line capacity 3. Cross-regional frequency adjustment by transferring high-frequency fluctuation
from an area, in which the TSO cannot afford to control it, to large demand area
Hokkaido [2012] 5.52 GW
Tohoku [2012] 13.72 GW
Kansai [2012] 26.82 GW
Hokuriku [2012] 5.26 GW
Kyushu [2012] 15.21 GW
Chugoku [2012] 10.85 GW
Shikoku [2012] 5.26 GW
5.57GW 16.66GW
5.57GW 2.4GW
5.57GW 0.3GW
0.6GW
12.62GW
1.2GW
DC Tie line
BTB
DC Tie line Chubu
[2012] 24.78 GW Tokyo
[2012] 50.78 GW 1.4GW
FC