TEPCO readies itself for Japan’s electricity market deregulation

Hiroshi Yamaguchi, EVP and CTO at Tokyo Electric Power Corporation (TEPCO) discusses the company's market liberalisation strategy.
Published: Tue 26 Jul 2016

In a keynote address at a conference in Japan earlier this year, Hiroshi Yamaguchi, executive vice president and chief technology officer at Tokyo Electric Power Corporation (TEPCO), shared the utility’s renewed vision toward becoming a forward-looking infrastructure company in response to Japan’s electricity system reform.

In an interview with Metering & Smart Energy International, we asked TEPCO to expand upon its market liberalisation strategy and subsequent steps in realising its vision to deliver ‘Energy for Every Challenge’.

What will TEPCO’s strategy be in the new deregulated market?

Over the years, we have provided electricity and services to our customers in the Kantō region, which covers one third of all customers in Japan. We have accumulated knowledge and developed trust with them. These are strengths that other companies do not have, which will help us to continue to develop high-value services that satisfy customers’ needs.

What are TEPCO’s plans to include a greater share of renewable energy in its generation mix?

Electric voltage in the distribution system and output fluctuation is known to present challenges in solar and wind energy generation. For solar power, we sought to address several technological issues related to improving electric voltage control and responding to reverse power flow at distributing substations. We also revised the guideline for technological requirements in grid interconnection in May 2013.

For wind power, we will utilise transmission lines between different regions in the 50Hz area to adjust electricity transmission in the Tokyo region, as well as perform a pilot test to expand the amount of electricity received from wind power in Eastern Japan. TEPCO will also maintain and expand its renewable generation mix by proactively updating small and aging hydroelectric power generators. We do not have any nuclear power stations that are currently in operation.

One of the key objectives of TEPCO’s newly formed fuel and power business, responsible for TEPCO’s fuel and thermal generation operations, is to drastically reduce fuel costs. Because we have been suppressing facility investments, we currently have many aging and inefficient thermal power plants. In view of full deregulation of the electricity retail market, it is essential that we replace these old power plants with more efficient ones before other electricity suppliers do so. After the Fukushima nuclear accident, we have relied on gas as a major source of fuel, but we need to reinforce coal-fired thermal power instead as a base power source, based on the understanding that coal costs rarely fluctuate and that coal-fired thermal power has less risk geopolitically.

How will TEPCO’s pricing model change in light of increased competition in the market?

Full deregulation of the electricity retail market commenced in April this year and many electricity rate plans have been announced from newcomers. Keeping in mind that the market will experience severe competition in pricing, we will proceed to expand our services and rate plans that safety, security, and convenience. We will continue to make our best efforts to be chosen by our customers.

Regarding TEPCO’s path to digitisation – are there any plans to deploy advanced meter infrastructure? What other smart grid initiatives are underway?

Approximately 4.5 million smart meters have been installed as of February 2015. We plan to install a total of 27 million smart meters by 2020. In addition to smart meter infrastructure rollout, we are progressing with various activities for renewable energy integration, using battery storage and wide electricity grid to control supply-demand and frequency.

• Advanced distribution network monitoring and control systems

• Surplus electricity countermeasure by active demand control integrating night-time demand creation, demand shift and solar energy output control

• Supply and demand control using battery storage

• Frequency control across the entire country

• Incentivised demand response

• Demand response using home energy management systems and home appliance operation control

• Yokomana smart city project to establish an energy circulating and low carbon city.

This enables us to expand existing grid capabilities and services beyond our remit.

What is the purpose of TEPCO’s smart meter operations centre?

We built our smart meter operations centre in July 2015 to manage security, operations, and maintenance of smart meters in an integrated and efficient manner. Major functions of the centre include:

• Total system management: Smart meter development plan management, network quality control (network connection rate etc.)

• Integrated processing centre: Opening of communications facilities, corresponding electricity meter information transmission service (B route) application.

• Security control: Single management and monitoring for the overall smart meter system security, initial responses to anomaly detection cases.

The importance for TEPCO to strike the balance between accountability and competitiveness was been highlighted on several occasions – can you expand on this in more detail?

In the midst of changes taking place in Japan’s energy market, it is essential that TEPCO utilises appropriate business strategies and makes improvements to the benefit of TEPCO Holdings group as a whole. This will enable us to continue fulfilling responsibilities for the Fukushima nuclear power accident and to maintain an inexpensive, stable supply of power.

TEPCO has adopted a new slogan. ‘Energy for Every Challenge’. What does this mean exactly?

As expressed in the word “challenge”, the objective of TEPCO Holdings group is to remain highly competitive as the consumers’ preferred supplier while fulfilling its responsibility to the Fukushima community. The word “Energy” represents not only our business domain of electricity or gas, but also our passion and power to support each person in their energy needs. 

How has TEPCO’s organisational structure been changed to be aligned with its new vision and strategy?

We transitioned to a holding company system on 1 April, 2016. Under Tokyo Electric Power Company Holdings (TEPCO), we have created three three independent businesses: fuel and thermal power generation, general power transmission and distribution, and retail electricity.

How will TEPCO manage its energy offering in electricity, gas and thermal energy?

TEPCO Energy Partner handles the retail electricity business as a member of Tokyo Electric Power Company Holdings Group. The top priority of TEPCO Energy Partner is to be profitable, and thus it is essential to procure power sources that are competitive enough to survive in the new challenging retail market. We would like to strategically procure power sources as inexpensively as possible using JERA, a thermal fuel joint venture between TEPCO and Chubu Electric Power Company, the wholesale market, and IPPs. We see the deregulation of the gas retail market in 2017 as a huge opportunity for us. As an integrated energy service company, we are considering how we can provide services to our customers through gas and electricity package plans.

Toward a smarter grid: Can you comment on TEPCO’s advanced electrical platform supporting a smart society?

We are aiming to achieve a smart society with wealth, safety, security, and convenience through suggesting and providing the most suitable energy usage for a customer or community. We are aiming to establish a new electricity business model incorporating several factors including power generation, power transmission and distribution, and retail in order to provide safety and security and, economic value, as well as convenience and comfort in electricity service delivery. In the electricity system reform, each operator plays a role to maintain the supply-demand balance.

Retailer: to secure supply to satisfy customer demand

Power generator: responsible to supply electricity to sales contractors

Transmission and distribution company: to maintain frequency in service areas as well as ensure security

Organization for Cross-regional Coordination of Transmission Operators Japan: to manage adequacy of the electricity grid in Japan. The system should satisfy both stability and efficiency while overcoming technological challenges in operations and facility construction.

Can you expand on the ‘seven cleverness’ priorities that will underline TEPCO’s future activities and operations?

We need intelligence or ‘cleverness’ to establish a system to satisfy both stability and efficiency, while overcoming technological issues to operate and facilitate systems that become more complicated due to various entities participating in the electricity reform. TEPCO Holdings’ operational strategy is based on seven pillars.

Cleverness 1: Efficient grid cooperation control over the characteristics of renewable energy

Cleverness 2: Optimization of supplydemand control, maximizing the merits over wide-area operations

Cleverness 3: Achievement of demand control, energy savings, and comfort using smart meters and demand response

Cleverness 4: Total optimisation and value adding, using various energy management systems and cooperating with aggregators

Cleverness 5: Optimal electricity trading in the market under appropriate risk management

Cleverness 6: Cybersecurity and its safe and secure use

Cleverness 7: Database integration and its common use.

We believe that digitization is a way to further develop the electricity system, and add new value with the use of smart grid, which connects power system components and various stakeholders and integrates operational data. The digitisation will enable us to connect with the outside world, speed up the cycle of value creation and create value together with customers. 

This interview first appeared in Metering & Smart Energy International Issue 2, 2016.

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