The Yomiuri Shimbun reported that the Economy, Trade and Industry Ministry plans to oblige electric power companies to hold open bidding and compete with independent power producers when they plan to build new thermal power plants or add generators to existing plants.
According to government sources, the ministry aims to stave off or at least minimize electricity rate hikes by introducing an element of competition to thermal power generation, which is the nation's main source of electricity.
It is hoped the measure will encourage more IPPs to enter the power generation business and lead to the collapse of electric power companies' regional monopolies.
The ministry aims to submit the new regulatory plan on Tuesday to an expert panel set up to review electricity rate systems and management.
IPPs in such sectors as the petroleum, chemical and steel industries already produce electric power for their own use, and many of them have honed their business efficiency through harsh competition.
Such companies have power generation know how and could build power plants on their idle plots of land. It is said that such companies will be able to produce electric power at a cost 10% to 30% below that of electric power companies. The obligatory bidding process may shake up electric power companies' integrated management of power generation and supply. That could result in the power generation and power distribution businesses becoming separate.
Under the ministry's plan, electric power companies would be obliged to hold competitive bidding with IPPs when they plan to build new thermal power plants or add to or replace generators in their existing plants. The bidding would be based on the electricity supply the electric power companies are expected to need in the future.
The company to make the lowest bid, measured by power generation cost, would win the contract. Under the contract, the winning company would be required to supply a certain level of electric power for an extended period.
Because the operation of many nuclear power reactors has been suspended, the electric power companies have had to rely on thermal power generation, which costs more than nuclear power generation. Thus it is seen as unavoidable that many of the companies will apply for permission to raise electricity rates.
In the past, the electric power companies were allowed to pass along to consumers the costs of increasing power output capacity by raising their rates. The ministry aims to prevent the companies from raising their rates too easily by introducing competition through the bidding system.
Tokyo Electric Power Co has already announced a plan to purchase electric power generated by IPPs instead of building new thermal power plants of its own as a step toward rationalizing its management. Other regional electric power companies will likely take similar action.
When the Electricity Business Law was revised in 1995 as part of liberalization of the power generation industry, companies in other business sectors were allowed to sell electricity to the electric power companies.
However, electric power companies' output still accounted for more than 70% of domestic power generation in fiscal 2010. Only 19% was generated in house by companies in other industries, and the output of IPPs accounted for just 7%.
According to industry sources, if IPPs' plans to build new power generation facilities were all realized, their total output capacity would be nearly 20 million kilowatts.
Currently, thermal power plants of the electric power companies have a total output capacity as high as about 124.4 million kilowatts. It is likely that the figure will fall, with IPPs assuming a larger role.
(Sourced from www.yomiuri.co.jp)
