The Ministry of Economy, Trade and Industry(METI) is compiling the details of each committee’s review for the revision of the Electricity Business Law, which will be submitted to the ordinary Diet in January 2020.
One of the major controversies in this regard is the licensing of distribution grids (also referred to as microgrids). Specifically, the law intends to establish a new “distribution company” that maintains and operates a distribution system that has been transferred or rented from a general transmission and distribution company, and that supplies and distributes as a new business type.
METI stated that the reason for the establishment of a new business is that it is desirable to participate in grid operation using decentralized energy in specific areas in response to prolonged large-scale power outages due to recent disasters in order to strengthen resilience. However, I don’t think it has been considered enough, and raises some important questions:
・ How to regulate the supply of new entrants
・ How to prevent the entry of cream skim in areas with high demand density
・ What are the conditions for transfer and lending of general power transmission and distribution companies?
The Commission’s discussion does not answer such questions and imposes the final guarantee supply on the general transmission and distribution company.The equipment maintenance obligation of the distribution company is separately determined in the contract with the general transmission and distribution company , etc., the burden associated with entering the business is limited to general transmission and distribution companies, and measures to promote new entry are given priority.
Why introduce a distribution license quickly?
What is the true target?
This is where the interest of the power industry lies.
The first thought is strong intention of Ministry of Internal Affairs and Communications. There are two backgrounds of their request for a decentralized grid.
First is the strong demand of the NTT Group. In June 2019, the group established NTT Anode Energy Co., Ltd., which is responsible for smart energy solutions. NTT has acquired a majority stake in Ennet through the company, and has shown a strong desire to enter the network business beyond the power generation and retail framework. Second is the request of local governments. The frequent occurrence of disasters has increased the desire of local governments to participate in the decentralized grid for various reasons, such as strengthening energy supply, creating local jobs, reducing carbon emissions, and local production for local consumption movement. With this background, the Ministry of Internal Affairs and Communications, puttinf Minister Sanae Takaichi at the forefront, has strongly promoted the establishment of a distribution grid business. It is true that this movement is the background of this new system.
But this is not all. METI has another big aim.
It is well known that the METI is planning to restructure the 10-power system since 3.11. “Restructuring” has two meanings. The first is the separation of Power, Grid & Sales, and the second is Grid integration.
METI believes that network consolidation is indispensable to achieve power competition at the national level. They believe that if the network is separated into nine Grids of incumbents, power competition will not work due to insufficient interconnection capacity between incumbent Grid companies, effectively protecting the old regime. For this reason, METI considers network integration (one company nationwide or two companies at 50Hz / 60Hz each) and strengthening of interconnection lines led by OCCTO to be the missing link in power restructuring.
Considering the network as a means of connecting power sources, it can be imagined that bureaucrats aim only at power transmission facilities. In other words, for the purpose of power reorganization, a “network” is a power transmission facility that connects power sources, therefore, distribution is out of the interest of METI.
As a result, a new step of separating distribution licenses will be created as a milestone in network integration. They are trying to achieve a separation of transmission and distribution licenses by overburdening a large number of operators in the distribution business and promoting a de facto separation of transmission and distribution.
It will be a bit of a quick talk, but the early amendments to the Electricity Business Act in the early 2020s will allow the separation of transmission and distribution licenses. This, coupled with the strengthening of OCCTO, will probably inevitably lead to substantial consolidation of the transmission sector and the next power restructuring.