Energy transition Japan: 'We have to disrupt ourselves,' says TEPCO

Strategic investments in partner companies are helping Japan's largest utility to reinvent itself in a competitive deregulated energy market.
Published: Mon 24 Apr 2017

It has been a year since Japan deregulated its electricity market - both in generation and retail, making it the world’s largest deregulated electricity market.

And large utilities like Tokyo Electric Power Company (TEPCO) are beginning to see the opportunities that deregulation can offer.

Japan’s deregulation process started in 2000 but the market fully opened in 2016, five years after the Fukushima Daiichi power station disaster left Japan questioning the safety of nuclear, as well as presenting long-lasting challenges for its energy sector and economy.

The government saw an open market as a way in which to resolve many of these concerns. Firstly, it would reduce current electricity prices which became the highest in the world following the collapse of the Fukushima plant.

With the majority of its nuclear reactors now sitting idle, Japan had no choice but to replace this shortfall with fossil fuels like oil and LNG, which now account for the 85% of the energy mix.

By creating a competitive consumer market, the government wanted to modernise the energy sector as well as boost an ailing economy and advance innovation in smart energy technologies at home and abroad.

For Japan, an open market would be key in creating the change it needs to create a sustainable energy sector.

Japan's energy transition - a ‘turning point’

While energy industry commentators describe the deregulation process as slow and steady, it is already creating a number of opportunities in the electricity sector and disrupting many traditional business models.

New entrants from a wide variety of sectors are expressing interest in the energy retail industry and are introducing new business models that bundle costs like mobile, Internet and electricity.

As these new players enter the market, companies are compelled to push for efficiency which will encourage technological improvements in devices like smart meters, home and building energy management systems and efficient power generators.

With more renewable companies entering the market, the renewables sector is also seeing much-needed innovation and development.

With so much change taking place, traditional retail businesses have no choice but to create new business models if they want to prosper in the future.

Hirokazu Yamaguchi, Head of Global Innovations, TEPCO Holdings, told Engerati in an interview that the introduction of the open market was a ‘turning point’ for the business.

“When the market fully opened, within a year we lost over one million of our retail customers to the competition. TEPCO has been searching for new ways to retain and acquire customers.

“We have been looking abroad for ideas especially when it comes to finding new and innovative services to create a higher level of customer loyalty.”

The electricity utility which serves the greater Tokyo area has been making strategic venture investments to give itself the competitive edge it needs in today’s market, says Yamaguchi.

The utility worked alongside data company Opower, now a subsidiary of Oracle, to gain a better understanding of their customers’ needs.

Now, TEPCO is looking to make minority investments in other solutions companies such as distributed wind leasing company United Wind, residential solar power and battery company MOIXA, and big data analytic software company Via Science.

Commenting on these new investments, Yamaguchi says: “TEPCO wants to partner with these companies to create innovative and sustainable business models.

“Our aim is to be the leading utility company in Japan. We are also learning from forward-thinking and innovative utilities like British Gas, Energie, E.ON and Origin to name a few.”

TEPCO invests in Via Science

Taking the example of TEPCO’s strategic investment into Via Science, the electric power supplier said in a statement in December 2016 that it will gain experience in Via Science’s proprietary causal analytics software, which offers recommendations to improve maintenance, service staffing, cybersecurity and resiliency planning.

Commenting on the deal, Yamaguchi said: “To find the team and technology best able to handle the unique challenges in the energy industry, our innovation group evaluated large and small analytics companies across North America, Europe and Asia.

“Via Science’s direct experience with US energy agencies and their ability to support our challenges, such as high volumes of data, regulatory transparency requirements and very long-term risk planning needs for multi-billion dollar investments, made them the best match for TEPCO and our customers.”

TEPCO is also a member of Free Electrons ESB, a venture investment accelerator, where ideas around innovative companies and their activities are shared and discussed to further the utility-venture company partnership.

He says: “TEPCO is always trying to improve its current business model. We have to disrupt ourselves to stay ahead of the competition.”

Read more about market liberalisation in Asia - Energy deregulation: Transforming Asia's energy sector - as part of Engerati's regional focus ahead of Asian Utility Week, Bangkok, Thailand in May 2017.

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