Security Issues of Electric Power Supply in Japan May 2005 Hiroshi Iwano Agency for Natural Resources and Energy (ANRE), Ministry of Economy, Trade and Industry (METI), JAPAN

Ⅰ. Introduction Ⅱ. Energy Supply Structure and Portfolio of Power Supply Sources Ⅲ. Transmission and Distribution System and the Governance of the System Ⅳ. The Next Stage for the Establish- ment of Flexible and Robust Energy Supply System

Ⅰ. Introduction 1. Overview of the Japanese Electric Industry 2. The Breakdown of Primary Energy Supply & Electric Power Sources 3. The Current Balance of Electric Demand and Supply in Japan 4. Introduction of the Bidding System for wholesale Supply 5. Partial Liberalization of Retail Supply 6. Recent Regulatory Reforms in Japan 7. The principle of the Regulatory Reform Ⅱ. Energy Supply Structure and Portfolio of Power Supply Sources Ⅲ. Transmission and Distribution System and the Governance of the System Ⅳ. The Next Stage for the Establishment of Flexible and Robust Energy Supply System

1. Overview of the Japanese Electric Industry 10 General Power Utilities (GPUs), vertically-integrated generation, transmission and distribution segments, with their franchised areas under public service obligation. Japanese network system does not form mesh network, and interconnection capabilities between GPUs are sometimes said to be weak. Japanese network is isolated with no international connection. Scarce indigenous resources brings about heavy independence on imported energy resources. Alternating Current 50 Hz 0.6GW Direct Current 60 Hz 2.8GW 1.3GW 4GW 0.3GW 1.2GW 0.9GW 1.4GW 1GW Hokkaido 5.0GW Tohoku 15GW Tokyo 62GW Kyushu 17GW Chugoku 12GW Shikoku 5.7GW Kansai 30GW Chubu 26GW Hokuriku 5.4GW 2.5GW 5GW Alternating Current Direct Current Okinawa 1.5GW

2. The Breakdown of Primary Energy Supply & Electric Power Sources （図１） （図２） Trends for Primary Energy Supply Trends for Electric Power Sources of GPU Hydro, Renewable Hydro, Renewable Pumped Hydropower Nuclear Natural Gas Oil Coal LNG LPG Coal Oil Nuclear FY FY (Source) Agency of Natural Resources and Energy (Source) Agency of Natural Resources and Energy

3. The Current Balance of Electric Demand and Supply in Japan Peak electric demand in summer 2004 was 175,820MW, and the installed capacity was 232,010MW. The reserve margin was 32%. Electric Demand and Installed Capacity (Summer, 2004) MW Wholesale New Entrants (PPS) GPU

4. Introduction of the Bidding System for Wholesale Supply Power Plants Transmission Lines General Power Utilities Before 1995 Department Store, Large Hospital, Large Office Building, etc. Large Factory etc. Household Small to Medium Factory, etc. Office, Bldg, Shopping Arcade, etc. Regulated Rate After 1995 【Introduction of IPP bidding system】 Power Plants General Power Utilities Department Store, Large Hospital, Large Office Building, etc. Large Factory etc. Household Small to Medium Factory, etc. Office, Bldg, Shopping Arcade, etc. Regulated Rate Independent Power Producers (IPP) Bidding Special Electric Company Small to medium buildings, etc Supply by its own transmission Power Plants

5. Partial Liberalization of Retail Supply After Partial liberalization (current system) 【Starting March 21, 2000】　 Before Partial Deregulation General Power Utilities Regulated Rate Power Plants Transmission Lines Department Store, Large Hospital, Large Office Building, etc. Large Factory, etc. Household Small to Medium Factory, etc. Office, Bld., Shopping Arcade, etc. Electric Power Company General Power Utilities Rate Control Power Plants Household Small to Medium Factory, etc. Office Bld., Shopping Arcade, etc. Introduction of Notification System when lowering Rates. Deregulation of Option Menu Electric Power Company’s Transmission Lines New Entrants Power Plants （Companies outside the supply area included) Electric Power Company reports the wheeling rates to METI Department Store, Large Hospital, Large Office Building, etc. Large Factory, etc. Free Rates (competitive) “Guideline for Fair Electricity Trade” compiled jointly by METI and the Fair Trade Commission Large Consumers　　　(about 30% of the total From April, 2005 60%)

6. Recent Regulatory Reforms in Japan GPUs operate both power generators and the network system, offer ancillary service, and are still the last resort suppliers. Securing the fairness and transparency of the network is a key issue for the regulatory reforms in Japan. General Power Utilities Wholesale electric power enterprises I. Maintaining vertical coordination between generation and transmission  In order to secure a stable supply of electric power as well as to promote nuclear power generation, integrated operation and facility planning of electric power generation and transmission is needed. New Entrants (PPS) Wholesale Power Exchange generation transmission and distribution Securing competitive neutrality under an integrated structure Ⅱ. Securing the fairness and transparency of the network function  Implementation of the behavioral regulation  Establishment of neutral organization Retail (liberalized) Retail (regulated)

7. The Principle of the Regulatory Reform (1) Conditions of Japanese Electric Industry Isolated location with no international connection Scarce indigenous resources and heavy dependence on imported energy resources (2) Basic Philosophy of Regulatory Reform Ensuring the stable electric power supply Balance the regulatory reform and the policies such as energy security and environmental protection Harmonizing free business activities with the system securing stability and fairness based on the nature of electricity Expanding retail choice

Ⅱ. Energy Supply Structure and Portfolio of Power Supply Sources Ⅰ. Introduction Ⅱ. Energy Supply Structure and Portfolio of Power Supply Sources 8. Regulations imposed on GPUs 9. Notification of the Plan for Power Supply & Demand 10. Future Prospect of Japanese Electric Industry 11. Directions of Japanese Electric Industry Ⅲ. Transmission and Distribution System and the Governance of the System Ⅳ. The Next Stage for the Establishment of Flexible and Robust Energy Supply System

8. Regulations Imposed on GPUs The regulations imposed on GPUs are as follows; Business license, Construction plan approval, Public service obligation, Approval of terms and conditions for wheeling services, Supplier of last resort, Behavioral regulation on wheeling, Obligation on quality assurance of electricity, Coordination among electric networks, and Notification of the plan for power supply and demand.

9. Notification of the Plan for Power Supply & Demand The Japanese government checks the GPUs’ long term investment plan to ensure adequate investment on electric facilities. Each GPU submits its individual 10-year plan for power supply & demand by the end of every fiscal year. The plans show power construction projects, transmission network investments, etc. The Japanese government (ANRE, METI) checks the plans to ensure they meet requirements.

10. Future Prospect of Japanese Electric Industry According to the plans for electric power supply and demand of GPUs, electric demand and balance in 2014, will still keep over 30% level as reserve margin. Share of Nuclear power plants and LNG fired power plants in 2014 will increase from the current level. Outlook for Electric Demand and Supply Balance Outlook for the Share of Electric Power Sources

11. Directions of Japanese Electric Industry Supply Side; The　appropriate portfolio in terms of power supply sources, including hydro, thermal and nuclear power, should be pursued continuously. Nuclear power will keep its significant role in the future. The effort to conduct conditions for Natural gas utilization should be initiated. Demand Side; The incentive for load-leveling should be enhanced through covenant of electricity rate. Energy conservation will be the ultimate and effective tool for rapid increase of energy demand in Asia and environmental protection.

Ⅰ. Introduction Ⅱ. Energy Supply Structure and Portfolio of Power Supply Sources Ⅲ. Transmission and Distribution System and the Governance of the System 12. The Role of NSO 13. Outline of NSO’s Rule 14. Reliability Issues in NSO’s Rule 15. Monitoring of Inter-connection Lines 16. The Mechanism to Expand Interconnection Lines 17. To Ensure Reliability Ⅳ. The Next Stage for the Establishment of Flexible and Robust Energy Supply System

12. The Role of NSO Japanese regulatory reform has maintain vertical coordination between generation and transmission. Ensuring fairness and transparency in the transmission and distribution sector is one of the essential concept of it. Designation Electric Power System Council of Japan (ESCJ) as Neutral System Organization (NSO), which formulates network rules and monitors their implementation, etc. Implementation of the behavioral regulation. Information firewalls, Prevention of cross-subsidizing and Prohibition of discriminatory treatments are enforced as legal obligations.

13. Outline of NSO’s Rule NSO is not a governmental organization, but a specified organization by the law. It consists of incumbent utilities, new entrants, other network users and academic experts. NSO’s (Neutral System Organization) main functions are; (a) Rulemaking (not regulation, but organization rules) : Construction of network facilities Network access System operation Disclosure of network information (b) Arbitration and dispute settlements between network users and the transmission/distribution segments of GPUs (c) Providing a central dispatching liaison office (d) Operating OASIS

14. Reliability Issues in NSO’s Rule NSO’s rule covers; - thermal limit, - voltage stability, - system stability, - system frequency maintenance, etc. Analysis is made on the condition of assumed severe contingency corresponding to each case.

15. Monitoring of Inter-connection Lines NSO manages the available transmission capability on interconnection lines. NSO manages and posts the available transmission capability on interconnection lines between system operators each other. NSO determines the availability of inter- connection lines for each request of transaction through interconnection lines.

16. The Mechanism to Expand Interconnection Lines The mechanism to plan to expand and/or construct interconnection lines is supposed to be implemented by NSO in case the power flow on interconnection lines increases and the remaining capabilities become insufficient due to construction of new generators, increase of long-distance power trade, etc. However, the interconnection lines will be constructed by GPUs, because they still possess transmission assets, and are responsible for reliability of the network systems.

17. To Ensure Reliability NSO will assess the reliability of power network system in Japan twice a year. NSO prepares the reliability assessment of the network system twice a year. NSO carries out the 1st assessment this spring. The assessment could contribute to maintaining or even improving the current level of reliability.

Ⅰ. Introduction Ⅱ. Energy Supply Structure and Portfolio of Power Supply Sources Ⅲ. Transmission and Distribution System and the Governance of the System Ⅳ. The Next Stage for the Establishment of Flexible and Robust Energy Supply System 18. Conditions of Japanese Energy Sector 19. Outlook for the Future 20. The Next Stage 21. Future Energy Strategies Based on the Energy Outlook

18. Conditions of Japanese Energy Sector Most fuels for generators are imported in Japan, because Japan does not have significant gas or coal reserves. Limited gas pipeline network Limitation of thermal power generators Location (Only along coast line) Construction of new transmission lines is difficult. NIMBY, Small & mountainous country

19. Outlook for the Future On the other hand, electric power demand in Japan is expected to increase moderately over the next 20-30 years.

20. The Next Stage The study on full liberalization will start in 2007. Our goal is the harmonization of ensuring energy security, environment protection and economic efficiency. The role of nuclear powers will remain significant. Investment of transmission/distribution lines and other necessary investment should be sustained. Effective use of distributed generations is also a key issue.

21. Future Energy Strategies Based on the Energy Outlook Development of international strategy focused on the increase of energy demand in Asia Realization of the virtuous circle of energy conservation and environmental protection among the civil society and industrial circles Strengthen the ability to adapt to any change by dispersion and diversification of energy supply Establishment of the flexible and robust energy supply system

Thank you. Hiroshi Iwano Director, Office of Electric Transmission and Distribution, Electricity and Gas Industry Department, Agency for Natural Resources and Energy (ANRE), Ministry of Economy, Trade and Industry (METI), JAPAN iwano-hiroshi@meti.go.jp