JAPAN Law and Practice Contributed by: Yutaro Fujimoto, Yurika Masakane, Hirokazu Tanaka and Yutaro Kato, Nagashima Ohno & Tsunematsu
as members of OCCTO, are required to operate their business in accordance with the Network Codes and directions from OCCTO. EGC The Electricity and Gas Market Surveillance Commis- sion (EGC) was established on 1 September 2015. EGC’s primary mission is to monitor trades made in the energy market and propose better regulations to promote competition. In order to achieve its mission, EGC, as an advisory body to METI: • issues warnings to operators of electricity busi- nesses when EGC detects improper trades through daily market surveillance; • examines and reviews the rate of transmission and distribution tariffs and regulated retail tariffs set by major utilities; and • proposes regulations to promote competition or protect consumers. 1.6 Recent Changes in Law or Regulation Response to Severely Tight Supply-Demand Balance and Sharp Price Spike In December 2020 and January 2021, Japan expe- rienced a severely tight balance between the sup- ply and demand of electricity. This caused a historic price spike in the JEPX spot market (the new record of JPY251.0/kWh was set on 15 January 2021, the highest price since the JEPX foundation) and also triggered a high imbalance fee. This, in turn, caused a financial crisis for a number of retailers and some commenced bankruptcy procedures. The government listed the following as the major reasons for that incident: a significant increase in the demand for electricity due to extraordinarily cold weather, curtailment of electricity production arising from an LNG shortage, growing dependence on LNG power plants due to the recent abandonment of many oil power plants, the suspension of nuclear power plants, and the expansion of the use of photovoltaic and wind power, the supply of which fluctuates. Further, since 2021, as in other countries in the world, the economic recovery from the COVID-19 pandemic,
decrease in upstream investment in fossil fuels due to the decarbonisation trend, extreme weather con- ditions and the Russian invasion of Ukraine have all led to extreme supply-and-demand pressures and increased fuel and electricity prices. As a result, in March 2022, the government for the first time issued a warning to people in the Tokyo area with regard to electricity supply-and-demand pressures. Learning from the above, the government issued guidelines for electricity generators in respect of good practice in fuel procurement, and suggested hedging trades in markets such as the forward market, futures market and base-load market (see 2.1 The Whole- sale Electricity Market ), as well as issuing another set of guidelines to explain and demonstrate basic risk assessment methodology and good practice for risk management in the electricity field. In addition, the government created a framework for the relevant parties (ie, electricity companies, OCCTO and the government) to deal with the tight supply-and- demand balance, such as emergency power and fuel accommodation and an urgent call to increase power generation. Further, on 13 May 2022, the Diet passed a Bill to amend the Electricity Business Act (the “2023 Amend- ment”) which changed the ex-post filling obligation for the abolishment of certain generation facilities to a prior filling obligation so that the government can secure sufficient time to deal with electricity supply shortages. The 2023 Amendment came into force on 1 April 2023. Changes to the Electricity Business Act in 2026 In reply to the changing international energy situa- tion, including issues in the Middle East and increas- ing electricity demand due to the progress of DX and GX, a Bill to amend the Electricity Business Act (the “2026 Amendment”) was submitted to the Diet in 2026. The purposes of the 2026 Amendment are (i) to secure supply capacity through the promotion of large-scale transmission line development and large- scale power generation facilities, as well as (ii) to cre- ate an environment conducive to the stable and sus- tainable development of the electric power industry. Specifically, the 2026 Amendment enables OCCTO
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