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Friday, Sep. 2, 2011
Restructuring power distribution
Japan's 10 power companies have enjoyed regional monopolies under government protection, controlling not only electricity generation but also electricity transmission from power stations to transformer substations and distribution to individual users.
This system is coupled with the government-backed price setting mechanism, in which the power companies are allowed to pass on the investment cost plus a certain margin (company profits) to consumers, thus enabling them to enjoy stable profits — a factor behind electricity bills that are higher than in other major industrialized countries.
The fiasco at Tokyo Electric Power Co.'s Fukushima No. 1 nuclear power plant has exposed the defects inherent in the system. Because there is only one dominant power supplier in one region, the system cannot ensure stable power supply once a major accident like the Fukushima nuclear crisis happens.
The system also hampers the entry into the electricity market of small-scale power generating entities utilizing renewable energy sources.
Since the Fukushima nuclear crisis began, the opinion has emerged within the government calling for breaking up the power companies' exclusive control over both power generation and power transmission and distribution.
The opinion has it that the current system of operating large power plants in the countryside and sending large amounts of electricity to urban areas is likely to become dysfunctional once a large accident happens, and that dispersing a large number of smaller power supply bases utilizing renewable energy sources and setting them up near electricity-consuming areas will reduce risks.
For the proposed system to take root, it is important to separate power transmission from distribution operations, to permit new power generation entities to use the distribution system freely and to let customers choose power suppliers.
This would help promote the spread of power generation through renewable energy sources. Development of renewable energy sources, powerful batteries and a smart grid will enliven economic activities.
The government, politicians and people should actively discuss changing the power industry structure.