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New electric power companies that entered the retail electricity market following its liberalization are struggling due to soaring trading prices, forcing them to exit the market one after another. The government must strengthen guidance and monitoring to prevent confusion.
According to a report by a private credit research firm, 31 out of about 700 new power retailers withdrew from electricity retailing, suspended new applications for services or went bankrupt in fiscal 2021.
Lpio Co., which is based in Chiba Prefecture and operates nationwide, will stop supplying power at the end of April. Hope, Inc., a company in Fukuoka that provides services to local governments, has also decided to shut down its electricity retail business.
Bankruptcies among newcomers are reportedly increasing across the country. There are concerns that anxiety could spread among end users.
The termination of these businesses will not immediately cause the supply of electricity to stop. In such a situation, major power companies are legally required to supply electricity in their place for a while.
However, end users need to change their contract to another company within a certain period of time. It is essential that new power retailers planning to withdraw from the market provide their customers with prompt and thorough explanations.
The number of those companies climbed after electricity retailing for households was liberalized in 2016. Liberalization was aimed at lowering utility rates and improving service by promoting competition with major power companies.
Many newcomers have a weak financial base, without their own power generation facilities. They have no choice but to rely on electricity from major power companies and other entities that supply electricity to the wholesale market.
Resource prices have been soaring around the world since last year, and Russia’s invasion of Ukraine has sparked a surge in the cost of crude oil and liquefied natural gas. As a result, wholesale prices have risen sharply, reaching six times the five-year average at one point in late March.
Most of the new power retailers that have decided to exit the electricity business are said to have seen negative margins as their procurement prices have exceeded retail prices. They are thought to have taken insufficient measures against risk, for example by not seeking to form long-term contracts with power producers.
More new electric power retailers could become mired in financial difficulties. The government should closely check the financial health of the firms. It is also crucial for these newcomers to disclose information, such as their prospects for procuring power, in an easy-to-understand manner.
As a price war intensified after liberalization, major power companies have suspended or abolished unprofitable thermal power plants. Their investments in thermal power generation have also stalled amid the trend toward decarbonization, causing a shortage of power supply, including wholesale electricity.
It is urgent to rebuild a stable power supply system. It is hoped that the government will consider creating a mechanism to encourage investment in thermal power generation and to support the restart of nuclear power plants.
