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Friday, Oct. 28, 2011

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Mini utilities: Solar power panels cover house roofs in a neighborhood in Ota, Gunma Prefecture, in September 2009. KYODO PHOTO

Is Yokohama 'smart city' plan blueprint for new power grid?

Renewable energy project could challenge utilities' monopolies

The Washington Post

Two years ago, Yokohama launched a small-scale environmental experiment, encouraging residents to install solar panels on their roofs and buy pricey equipment to track how much energy they use.

Yokohama's goal was simple: to save power and cut carbon emissions in the metropolis.

But since the Fukushima nuclear disaster transformed the way the country thinks about energy and power companies, Yokohama's "smart city" project has taken on added importance. What began as a modest environmental plan is now seen as a controversial blueprint for a system in which the monopolistic utilities would lose absolute control of the power grid.

In Yokohama, households with both solar panels and meters act as micro-size power companies that generate electricity, use what they require and, in some cases, sell surplus electricity back to Tokyo Electric Power Co.

The model contrasts sharply with the one that has served Japan for decades, as 10 privately owned utilities established regional fiefdoms that are largely reliant on coastal nuclear plants and allow little room for renewable energy projects, as they would cut into profits.

Although nuclear power and renewable energies are not mutually exclusive, many domestic investors and industry analysts blame the long dominance of the utilities and their cohorts, including the pronuclear bureaucracy in Tokyo and the heavy machinery giants that build nuclear plants, for the frailty of the renewable energy sector.

An emerging bloc of clean energy supporters is now seeking a share of the country's ¥15 trillion electricity market, calling for a loosening of the rules that hold them back in the current system.

Japan partially deregulated its energy industry 16 years ago, but the changes were insignificant and the 10 regional power utilities still control 98 percent of the market, with exclusive rights to supply households and responsibility for generating and transmitting power. They also control the grid itself, which upstarts can access only by paying a tax of 15 to 25 percent on all electricity they distribute.

"So in reality, there is still a monopoly at each stage," said Hiroaki Ikebe, president and chief executive of Ennet Corp., a power firm created in 2001. "To allow new companies to compete, the government should have more significantly handicapped the 10 utilities."

But for the authorities, wholesale changes to the power industry pose at least as many problems as they could potentially solve. Influential business lobbies favor the status quo as their firms supply the utilities. More importantly, the government has a particular incentive to help Tepco, the biggest of the 10 utilities and the operator of the crippled Fukushima No. 1 nuclear plant. With tens of thousands of people displaced by the radiation spewed by the power station's wrecked nuclear reactors, Tepco owes about ¥3.6 trillion in compensation for damages.

It also owes trillions of yen to financial institutions that are clamoring to be reimbursed. Tepco's best chance of meeting these obligations depends on its ability to keep operating without additional competition from new power firms.

"If you truly deregulate, you gain economies of scale and all these new entrants," said Andrew DeWit, an energy policy expert at Rikkyo University in Tokyo. "But what happens to Tepco's ability to pay these compensation costs?"

With about 70 percent of the public now opposed to nuclear power, once obscure questions about energy policy have become part of everyday discourse. Facing energy shortages due to idled nuclear reactors, the government this summer encouraged people to cut their consumption by 15 percent. Television monitors in subway cars and shopping malls displayed real-time data about regional energy usage.

And for the first time, prominent figures have started pushing for an increase in renewable energies, which currently account for 9 percent of Japan's energy, mostly from hydropower. Last month, Softbank Corp. founder and President Masayoshi Son, the nation's richest man, proposed a "supergrid" that could efficiently transmit renewable energy across the country. The infrastructure could allow clean energy to meet 60 percent of Japan's electricity needs by 2030, he said.

"The next battle in Japan is for grid connections," said Tetsunari Iida, executive director of the Institute for Sustainable Energy Policies. "The monopolies have tried to constrain access to the grid."

The central government has stopped well short of proposing changes to the grid, but in the summer it passed a bill designed to encourage the growth of renewable energy. The feed-in-tariff bill, which takes effect next July, requires utilities to purchase a certain amount of energy from renewable energy providers at a yet undecided price. Industry analysts have called it a promising first step.

The Yokohama model represents a more drastic option, turning the electricity companies into bystanders rather than buyers. But the pilot project is still far too small to pose a threat. Municipal officials say that by 2014, 9,000 homes in the city will have solar panels, up from the current 5,000. The panels will be capable of generating a combined 27 megawatts of electricity — one-fortieth of a standard nuclear reactor's capacity.

And even Yokohama is at the mercy of Tepco. The city is still negotiating with the utility about rental fees for use of an electrical storage facility, and is also struggling to obtain detailed historical data on power usage that would provide context for an assessment of energy savings. In the past, municipal official Naoshi Nagura said, Yokohama received no data about annual energy consumption and never bothered to ask for any.

"So far, Tepco has been cooperative, to an extent," Nagura said. "But if the whole thing comes together, with each household setting up solar panels, it will infringe on Tepco's profits and cause problems for them.

"I wouldn't say Yokohama is directly promoting deregulation," he added. "But the current situation is pretty one-sided. We want to have a multilateral relationship in terms of energy use. Ultimately, the goal is to create a community where our city can use electricity in the most efficient way and not have any waste."

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