Bumpy Road Ahead
Glenn R. George is a senior vice president in NERA’s Global Energy, Environment, and Network Industries Practice, where he advises clients on the economics of electric power, natural gas, and related markets as they evolve in response to political, regulatory, and technological change. He has three decades of experience in the global energy sector as an engineer, policymaker, entrepreneur, investment banker, economic consultant, regulatory expert, and strategist. He advised the Government of Japan on the new electric power market rules which went into effect in April of this year. Dr. George holds an engineering degree and an MBA, both from Cornell University; a PhD from Harvard University, with a focus on regulatory economics; and is a registered Professional Engineer in the District of Columbia.
Hans-Martin Ihle is a senior consultant in NERA’s Global Energy, Environment, and Network Industries Practice and is based in the Tokyo office. Mr. Ihle has nearly ten years’ experience in the design and implementation of auctions and competitive market mechanisms. He advises NERA clients on auctions and regulatory issues in energy, telecommunications, and other sectors worldwide, with a focus on the Asia-Pacific Region. Mr. Ihle holds a Masters in Economics from the University of Cambridge, where he specialized in industrial organization, game theory, and applied econometrics.
Miura Wataru is an associate analyst in NERA’s Antitrust Practice in Tokyo. Using his knowledge and expertise in accounting, economics, and corporate finance, Mr. Wataru advises clients on high-profile antitrust cases and litigation procedures. He recently undertook a major evaluation of the damages caused by the Fukushima Daiichi incident. Mr. Wataru holds a Bachelors in Economics from the University of Waseda.
The tragic earthquake and tsunami in March 2011 were followed by the nuclear accidents at the Fukushima Daiichi plant. This led to a major re-evaluation of electric power market arrangements and infrastructure in Japan.
During that period, some areas of Japan experienced rolling blackouts. All nuclear power plants, which together provided around 25 percent of Japan's electricity, had been taken offline.
The Japanese electricity market was long dominated by 10 vertically integrated local electric power companies, EPCOs. There has been insufficient interconnection capacity between the different local markets to support a robust competitive wholesale power market,1 which is shown in Figure 1. The figure provides an overview of the 10 local markets, as well as the interconnection capacity between them.
Natural gas-fired generation, fueled by imported liquefied natural gas, LNG, replaced nuclear in the energy mix. This led to significant increases in the price of electricity for consumers.
According to the Institute of Energy Economics, Japanese industrial customers were charged 20.4 cents per kilowatt-hour in 2012 on average. Residential customers paid 29.0 cents.