Japan/UK; Electricity Market reform Dialogue– January 2014
British Embassy Tokyo
UK electricity market reform (EMR) experts showcase our expertise. Japan is keen to learn from us and is adopting a number of our policies into their systems.
Jeremy Allen (Energy Market and Infrastructure, DECC), led an expert UK team to Tokyo to discuss Electricity Market Reform (EMR) on 14 – 15 January. Mark Mills, Legal Advisor, Ofgem and Robert Lane, Head of Regulated Industries, CMS Cameron McKenna joined him. Day one focussed on policy exchange with the Ministry of Economy, Trade and Industry (METI) and an expert committee advising them on market design. Day two involved outreach to wider stakeholders including MPs, media, the CBI equivalent (Keidanren), and the Power Industry. The Embassy also hosted a seminar for eighty business, think-tank, government and media representatives at which the team spoke.
Policymakers designing Japan’s new electricity market were deeply interested in both current UK EMR and our 1990s liberalisation. They were particularly interested in measures to secure supply, encourage competition and provide consumer choice. They want to ensure smooth switch-over of suppliers for households when the retail market is liberalised. And they were interested in how to encourage new nuclear build in a liberalised market They were keen to learn from UK experience, including on strike price setting.
The UK team emphasised that market liberalisation and the promotion of competition do not have to come at the expense of higher prices or lower levels of security of supply. They highlighted the importance of ensuring effective regulation and the role of the system operator (National Grid) in balancing supply and demand. And they underlined the importance of providing investors revenue certainty from their investments – including for nuclear. They outlined the strategic context for recent UK reforms – securing investment in low carbon electricity at lowest possible cost.
Role of Regulator
The expert committee were particularly interested in the role of regulation. Their discussions so far had focussed on technical and engineering aspects, without considering how to encourage consumer engagement in the market. Discussions with the UK team highlighted the important role played by independent regulators like Ofgem in protecting the interests of consumers and building a successful market. Mark Mills highlighted the importance of getting consumers to engage with the market, provide transparent information and make it accessible. Citing Ofgem’s recent decision to limit the number of tariffs suppliers could offer consumers, he explained that the principles were to achieve a simpler, fairer, and clearer system for consumers.
The Keidanren view (skewed towards heavy industry) supported nuclear restarts but was against reform of the electricity sector. They were concerned about maintaining security of supply and affordable prices whilst pursuing decarbonisation and liberalisation. They were not confident about securing investment for new generation or in the grid. The UK team explained that liberalisation in the UK had led to a significant reduction in prices for the first 10 years and that subsequent price rises had been because of resource price increases and would have been higher without liberalisation. They underlined the benefits that competition had brought to the UK market. ENNET (a new market entrant), sought advice from the UK on creating a level playing field for new entrants, such as access to grid. Government MPs were clear that Japan would forge ahead with EMR. Despite significant public concern about safety, overall there was consensus in their constituencies that Japan needed nuclear as well as renewables to cope in crises and manage demand. Japan’s future electricity grid would need to be decentralised and more versatile – requiring more small scale, locally controlled energy infrastructure.
The first in a series of three EMR bills passed the Diet in November . The second (for the establishment of National Grid and Ofgem equivalents) is due to be submitted to the Diet in March. The visit by the UK team has helped blow away misconceptions about liberalised markets causing higher prices, supply disruptions and unmaintained grid. It has also provided pointers on system design and the importance of clearly defined roles and responsibilities.
METI wants to maintain a close relationship with us in this area. A small delegation will visit the UK in February to discuss regulatory finance issues with DECC, Ofgem and others. METI plan to visit again in the summer to discuss market liberalisation.
The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.