Electricity market in Japan
In 1938, the Japanese government nationalized all electric power companies to secure the electric power supply during the Second World War. After the war, the Allied Powers restructured the Japanese system, including the electricity market, and the main ten regional electric utilities were privatized. The electricity market was further liberalized, but competition remained limited since retailers of low voltage electricity mainly sell their electricity locally to homes or small shops.The market continues to be dominated by ten regional electric utilities, with Tokyo Electric Power Co., Inc., also known as TEPCO, representing the largest electric power company. The company is known for the nuclear accident at its Fukushima Daiichi nuclear power plant in Fukushima Prefecture in 2011.
Japan's vulnerable energy supply situation
The nuclear disaster in 2011 affected the electricity market insofar as nuclear energy was replaced with fossil fuels. Adding up to a share of around 65 percent, natural gas and coal remain the largest energy sources in electricity production. Since Japan lacks domestic reserves of fossil fuels, it is heavily dependent on imports. This caused a decline in the self-sufficiency rate of primary energy, as well as an increase in electricity costs for homes shortly after the disaster.Even though Japan diversified its suppliers for liquefied natural gas (LNG), in 2021, gas shortages related to supply chain disruptions due to the COVID-19 pandemic resulted in decreased LNG inventories and a rise in power costs in Japan. Furthermore, the cold winters in recent years increased the electricity demand for heating and worsened the gas shortage, highlighting the vulnerability of the current energy system.
Since Japan is an island nation, prospects for importing electricity from neighboring countries are poor. Therefore, the country needs to restructure its energy sector to ensure a stable electricity supply.
Energy policy in Japan
To ensure energy security, reduce electric power costs as well as energy-related carbon dioxide emissions, Japan's current energy policy aims to replace fossil fuels with renewables and nuclear energy. The Japanese government intends to reach a renewable energy share of up to 38 percent, and a nuclear energy share of around 22 percent by 2030. Furthermore, it plans for the country to be entirely emission-free by 2050.While the nuclear share of electricity generation remained at around five percent in recent years, the share of renewable energy in electricity production increased to over 20 percent. Solar energy represented the largest renewable energy source both in terms of energy production as well as the number of electric power plants.
