IEEJ：May 2017○ｃIEEJ 2017
Special Bulletin
A Japanese Perspective on the International Energy Landscape (325)

May 29, 2017

Interests Growing in Power Market Reform in Malaysia
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
From May 24 to 28, I visited Malaysia for talks with local energy policy planners, energy
industry people and energy experts/researchers. On May 26, I had an opportunity to make twopresentations on power market problems in the world and answer questions from a large number ofindustrial, academic and government stakeholders at the Energy Commission that regulates powerand gas markets in Malaysia.
Since December 2015, I have served as international adviser to the Malaysian Energy
Commission at the University of Tenaga Nasional. In that capacity, I made the two presentations at
the request of the Malaysian side including the Energy Commission. One of the presentations
covered Japanese power market reform realities and challenges and the other dealt with market
conditions and industry responses after power market reforms in Western and other countries.
In the first presentation titled “Lessons Learned from Power Market Liberalization inJapan,” I explained (1) Japanese energy policy challenges and the power market reform’s positioning,(2) the objectives and history of the power market reform, (3) the roadmap and present situation of
the three-phase power system reform, (4) the present power market situation under the reform(wholesale power market conditions, new business entries and competition, smart meter introduction,etc.) and (5) future challenges and initiatives for attaining the best energy mix and securinginvestment.
In the presentation, I made the following points:(1) Japan is forging ahead with new market reform initiatives while facing various energy
challenges due to the Great East Japan Earthquake and the Fukushima nuclear power plant accident.
(2) Since the retail power market was fully deregulated in April 2016, new participants inthe market have increased to vitalize competition.
(3) New market entries and the competition environment have differed widely from region
to region, with new entries concentrating in metropolitan regions including Kanto around Tokyo andKansai around Osaka.
(4) While trading in the wholesale market has been vitalized, initiatives to further vitalize
trading are being implemented.
(5) A key challenge is whether Japan can make further progress in the market reform
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through the legal separation between power generators and transmitters in 2020, secure investment
required for stable power supply and realize the best energy mix by 2030 in a consistent manner.
(6) Japan is planning a power generation capacity market, non-fossil value certificates andother measures in response to the challenge and designing gross bidding, a baseload power source
market and other systems to vitalize the power market.
(7) Generally, how to secure policy consistency has become important.
The second presentation titled “Industry and Market Responses to Electricity MarketReforms” explained theory, concept and framework problems regarding electricity market reforms in
its first half and the reaction of industries, enterprises and markets to earlier reforms in Western andother countries. The first half covered (1) reasons and backgrounds for electricity market regulation,(2) reasons and backgrounds for deregulating the market, (3) the emergence of volatility in aderegulated market and its effects, (4) the importance of regulatory bodies to monitor and supervise
the market reform and competition, and (5) impacts of and problems for massive renewable energy
expansion as a current challenge. The second half dealt with (6) electricity market and industrial
structure/arrangementchangesafterderegulation,(7)

businessinternationalization

anddiversification responding to deregulation, (8) electricity price changes and their effects on fossil
fuel power generation efficiency and electricity utility business operations, (9) country-by-country
initiatives to secure necessary investment and (10) challenges toward realizing the best energy mix
and responses to these challenges.
A key point I made in this presentation was that the electricity market reform has been
implemented as a social experiment and could be successful or unsuccessful. Another key point wasthat the reform represents a process in which devices and initiatives are continuously made to
overcome any failure. I also pointed out that while the reform brings competition into the market to
trigger pursuit of efficiency, price volatility and general profit margin drops are generated to affectbusiness operators’ investment decisions and business strategies. I then noted that as optimizationand survival strategies, which affected enterprises are forced to implement from the micro viewpoint,
may not necessarily bring about desirable results from the macro policy viewpoint involving energy
security and environmental measures but trade off with each other, these strategies may have to becoordinated continuously.
In a question-and-answer session following the presentations, Malaysian participants in thepresentation meeting made numerous questions about Japan’s power market reform, asking (1) if
Japan will be able to attain the energy mix as a policy target under the power market reform, (2)what additional policies or initiatives have been taken to attain the target energy mix and (3) how
nuclear power generation will be positioned in a competitive power market. Given that theobjectives of the power market reform are restrictions on power price hikes and the attainment ofstable power supply, one participant asked if Malaysia and other countries with sufficiently low
electricity prices and stable power supply would have to implement any market reform. These2IEEJ：May 2017○ｃIEEJ 2017questions indicated Malaysian people’s high interests in the power market reform issue.
As mentioned above, themes of the presentations were based on the Malaysian request,indicating that the market reform issue is significant for Malaysia’s energy policy. A backgroundfactor is that domestic discussions on the market reform have been promoted mainly at thegovernment, the regulatory body and the power and gas industry. Not only Malaysia but also other
Asian countries are moving to reform their respective energy markets. However, how such reform
would be implemented in these countries is still uncertain. It is important for these countries as wellas Japan to learn lessons from earlier market reform cases and consider and implement reforms
suitable for their respective economic and market conditions. In this sense, we must not forget thatJapan’s market reform, or whether the reform is successful or not, has become a benchmark for
Malaysia and other Asian countries.

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