Japan’s electricity business now faces some trends and challenges that lead to inevitable and irreversible transformation. These are Deregulation, ecentralization, Decarbonization, Digitalization, and Depopulation. They can be called five Ds. Among these, Japan will be the first nation that faces the challenge of Depopulation, unless it changes its immigrant policy drastically. TEPCO Research Institute calls the future electricity business led through these 5Ds Utility 3.0.
Utility 1.0 is an electricity supply system that has supported high economic growth with traditional rate regulation and supply obligation. After the economy shifted to low growth, the electricity business shifted its focus to efficiency by introducing market principles. That is Utility 2.0. Japan is on its way to Utility 2.0. However, it is not the final form. The transition to the next stage, Utility3.0, is already in the view.
Decentralization and Decarbonization will bring the exponential dissemination of DERs that do not emit CO2 and the energy storage technology. It also means the price of kWh will decline, because of massive amount of zero marginal cost kWh, and requires the “Re-powered” electricity market. That is a shift from kWh-centered market to kW/⊿kW-centered market. ⊿kW can be called flexibility.
The kWh-only retailing business will shrink. While the B2C services are shifting to X as a Service (XaaS) via the Internet, the kWh selling will be positioned as the supply of intermediate goods to the servicers. Existing kWh retailers will be forced to choose whether to enter the servicer business or stay on the kWh-only selling business.
In 2050, the total population of Japan is expected to decrease by 20% compared to 2010. It is estimated that the population will be reduced to less than half in 60% of the area where the person lives now. This indicates that every kind of infrastructure will face challenges of service sustainability.
It is major challenge to increase the productivity of infrastructure services, and Digitalization can be an effective tool. In each city or town, a platform may be formed in which all infrastructure services are integrated and optimized through energy and IT networks. This is one possible future.
Utility is a concept not limited to electricity business but can include all kinds of infrastructure services such as transportation, communication, water supply and sewerage. The integrated infrastructure service is one possible form of Utility 3.0. In order to realize that, it is required that various stakeholders share a vision and cooperate with each other.
By Naoki Toda – Chief Economist at TEPCO
1985 Graduated from the University of Tokyo, Faculty of Engineering, joined Tokyo Electric Power Company
2004 Group Manager, Electricity Research Group, Corporate Planning Department
2009 Senior Researcher, Socio-Economic Research Center, Central Research Institute of Electric Power Industry
2015 General Manager, Strategy Research Office, TEPCO Research Institute
2016 Chief Economist, TEPCO Research Institute