Power supply system

The physical system of electrical power supply will in general remain unchanged following full liberalization of the electricity market.

As shown in the figure below, electrical power is supplied to individual homes by the following route: Power plant → Transmission lines → Transformer substation → Distribution lines. The power supply system is broadly divided into 3 sectors: (1) the power generation sector, (2) the power transmission and distribution sector, and (3) the retail sector.

(1) Power generation sector

This sector operates hydroelectric, thermal, nuclear, solar, wind, geothermal, and other power plants and produces electricity.

(2) Transmission and distribution sector

This sector manages the power transmission network which includes the transmission lines and distribution lines that connect the power plants to the consumers (including individual households). This sector is responsible for physically delivering electricity to homes. It also is responsible for coordinating the power balance (frequency, etc.) of the entire network in order to prevent blackouts and ensure a stable supply of electricity.

(3) Retail sector

This sector interacts directly with the consumers (including individual households), and performs a variety of services including the conclusion of power supply contracts. It also purchases the amount of power required by the consumers from the power generation sector.
→ Full liberalization of the electricity market will allow new companies to freely enter the retail sector (3).

In principle, new companies are already permitted to freely enter the power generation sector (1). However because the transmission sector (2) is responsible for ensuring stable supply, this sector will continue to be operated by companies that are licensed by the government (regional power companies such as Tokyo Electric Power Company and Kansai Electric Power Company) after full liberalization of the electricity market. Therefore because power will be delivered using the same network of distribution lines as before, the quality and reliability (including the possibility of blackouts) will remain unchanged when a consumer concludes a contract with a new retail electricity provider, regardless of which company the consumer buys the electricity from.
Due to the nature of electrical power, if demand (consumption) and supply (generation) are not balanced over the transmission/distribution network as a whole, the power supply across the network will become unstable. Therefore in the event that a new company in the retail sector is unable to purchase the amount of power that is required by the consumers it is contracted with, the transmission sector operator will make up the difference and ensure that power is properly delivered to the consumers.