JAPAN Law and Practice Contributed by: Rintaro Hirano, Yutaro Fujimoto, Yurika Masakane and Yutaro Kato, Nagashima Ohno & Tsunematsu
to revise the Master Plan (and the network con- struction plan, accordingly). Integrated Market Under Discussion As TSOs often run short of control reserves, the trading prices of control reserves tend to be high even when a sufficient quantity of kWh’s is sold on the JEPX spot market. In order to provide a solution for this situation, ANRE and OCCTO have been discussing the establishment of a market integrating kWh trades at the JEPX spot market and control reserve trades at the balanc- ing market. An integrated market will seek to optimise kWh trades and control reserve trades overall. There are many undecided issues sur- rounding the idea of an integrated market, and it remains under discussion (possibly starting in 2030). If the integrated market is established, it could alter many aspects of the existing electric- ity trading systems, such as bid rules and pricing in the various markets, balancing mechanisms and curtailment rules. 1.8 Unique Aspects of the Power Industry As the vertically integrated major utilities enjoyed a regional monopoly for nearly 50 years, the real- ity is that these major utilities (and their affiliates) continue to control the dominant share of the retail market in their region. Consequently, from the beginning of the liber- alisation of the retail sector, the question of how to secure an environment where new-entrant electricity retailers will be on an equal footing with major utility retailers has been an important issue. Among the unique aspects of the power industry in Japan is that while the government continues to establish regulations to address that issue, it is also strongly encouraging the major utilities to voluntarily develop solutions to support new-entrant retailers. For example, the
government has requested that the major utili- ties voluntarily commit themselves to supplying their surplus electricity to the JEPX at marginal cost and to performing wholesale transactions without discriminating between their group companies and others. In particular, in order to evaluate whether and to what extent major utilities comply with their commitment to such non-discrimination in wholesale transactions, EGC established detailed criteria in 2023. While these criteria are not a requirement under the statutes, EGC publicly announced the evalua- tion regime so that it can urge the major utilities to comply with their commitment. At the time of writing, many major utilities had been evaluated as being fully compliant with the non-discrimi- nation criteria. Other unique characteristics of Japan’s power industry include the following: • there is no interconnection with other coun- tries, which means that the electricity demand must be satisfied by electricity generated by power generation facilities in Japan; and • there are two types of electrical frequency in Japan (50 Hz in eastern Japan and 60 Hz in western Japan) and thus a frequency conver- sion facility is necessary to transmit electricity between eastern and western Japan. 2. Market Structure, Supply and Pricing 2.1 The Wholesale Electricity Market In Japan, an electricity retailer procures electric- ity by entering into a power purchase agreement with an electricity generator or through the elec- tricity wholesale markets. The JEPX is the elec- tricity wholesale market in Japan. Trades avail- able on the JEPX as wholesale electricity are:
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