The Journal The Authority on Global Business in Japan

In a bid to decrease prices and increase competition, Japan deregulated electricity retail sales to large end-users (commercial and industrial customers) between 2000 and 2005. In April 2016, electricity markets were fully deregu­lated, followed by gas retail sales in April 2017. Smaller retailers are now offering innovative options, but challenges remain as they compete with incumbents for market share.

On February 8 at the Tokyo American Club, two newcomers spoke about these challenges at an event co-hosted by the Energy and Alternative Investment Committees of the American Chamber of Commerce in Japan.

Ken Haig, co-chair of the Energy Committee, opened the event with some background.

“Really, it was an outcome of the disaster,” Haig began, referring to the Great Eastern Japan Earthquake and Tsunami of March 11, 2011, which led to the deregulation of the low-voltage (50kW and below) market.

“Within two years of the start of free-flow competition, to have upwards of five to 10 percent [of consumers switching power contracts] is actually a pretty impressive number.” He added that the increase has been steady, with an average of 360,000 households switching each month.

“It leads to a very different business environment. Think about, traditionally, how little your energy provider spent on marketing, and how much a part of the budget that is now. Think about the cost of regaining a customer who has left.”

MODELS
One difficulty for those entering the market is not having generation assets. However, the Ministry of Economy Trade and Industry is looking to make the whole­sale market more competitive through reforms, including unbundling utilities.

“[There] is an effort to take the tradi­tional power companies like TEPCO and break them up into separate generation, transmission and distribution, and retail companies,” Haig said. “The idea is that, eventually, the generation and the retail side will be fully competitive. The transmission and distribution com­panies are not supposed to favor one group or another, and that is eventually going to make things more competitive and drag down prices.”

Takahide Akiyama serves as president and chief executive officer of the electricity retail provider eREX Spark Marketing, Co., Ltd. (ESM), a joint venture founded in 2015 by Japanese biomass power generator erex Co., Ltd. and Spark Energy in the United States. Although ESM does not own generation plants, it benefits from erex’s biomass electricity generation plants. As the sales arm for the erex group, ESM provides electricity to residential and small business customers and has received more than 100,000 supply applications.

With no customer base in residential to start, the company decided to partner with retail companies with a strong customer base. “We have created a network of sales partners, such as local LPG sales companies and cable TV companies and companies like Nifty and MonotaRO,” Akiyama said.

In contrast, Minna Denryoku Inc. has no generation assets. The company’s chief operating officer, Seiya Miyake, explained that their offering focuses on those who have a strong preference for renewable energy and are targeting customers willing to pay more for it.

“In Japan, customers cannot select renewable energy, there is no system.”

His business—a peer-to-peer matching service—offers customers the right service to suit their renew­able energy needs while providing information about each generation asset.

THE CHALLENGE
When asked how smaller companies can find lower prices without the bargaining power of larger providers, Haig said, “Until you have a more liquid wholesale market, there are probably somewhat limited opportunities for any of these retailers to cut their price, because they are not going to make money.”

However, Akiyama encourages medium-sized companies to look at the opportunities to save on their electricity bills. “There are many small and medium-sized businesses which do not know how the deregulation will benefit them.”

Miyake said he often explains to customers how a solar project, for example, will benefit to the community, and both he and Akiyama have received a positive reception.

Maxine Cheyney is a staff writer at Custom Media for The ACCJ Journal.
Until you have a more liquid wholesale market, there are probably somewhat limited opportunities for any of these retailers to cut their price