More than half of new electricity companies and suppliers said they will be forced to raise rates on customers because of the government’s “unfair” system to prevent power shortages, a survey showed.

Fiscal 2024, which started in April, is the first electricity supply year under the government’s “capacity market” system, and payments are expected to total 1.6 trillion yen ($10.4 billion) for about 170 million kilowatts.

Retail power companies will provide most of the funds, which will be used to cover costs for building and maintaining electricity-generating plants.

Although major electricity companies that already operate power plants can expect increased income through the mechanism, new companies with few power generation facilities say they are at a huge disadvantage.

From January to March this year, The Asahi Shimbun and the “Power shift campaign,” led by environmental NGOs, asked 116 new regional electric power companies in Japan about their thoughts on the system.

More than half of the 75 respondents, or 65 percent of the total, said the system is unfair and will force them to raise electricity rates.

On the other hand, no major electric power company said the system would lead to higher bills for their customers.

The electricity retail market was liberalized in 2016, allowing companies from other industries to enter and compete against the 10 major electric power utilities.

But if price competition increases, there is a risk that new power plants will not be built.

To counter this possibility, the government set up the capacity market. Since 2020, it has conducted annual auctions among power generation companies for the supply of electricity four years before the electricity is actually used.

Retail companies provide the funds in the year the electricity is used.

When asked how much the new burden for fiscal 2024 would be, 60 percent of respondents in the survey answered between 2 and 3 yen per kilowatt-hour, while 30 percent said between 3 and 4 yen per kilowatt-hour.

More than half of these companies plan to pass on the burden to their customers.

For the average household, this would mean a price increase of about 700 yen to 1,400 yen per month.

“If we don’t reflect the price increase in our rates, our business will not be viable,” one respondent said.

On the other hand, no major electric power company said they would add the cost to electricity rates.

“The capacity market is necessary to maintain facilities,” a representative of a major utility said.

Many large electricity companies have both power generation and retail divisions, and in many cases, most of their electricity is supplied to retail companies within their group.

For them, the additional revenues will likely commensurate the burdens from the system.

When asked if the cost sharing is fair, 77 percent of the new regional power companies answered “not fair” or “not very fair.”

If only new power companies raise their rates, the price gap with major companies will widen, undermining legitimate competition and running counter to electricity deregulation, critics say.

The percentage of power plants that won the initial bid and received maintenance and construction costs for fiscal 2024 was: 72 percent for fossil fuel thermal power plants; 4 percent for nuclear power plants; and 0.2 percent for renewable energy plants, excluding hydro power plants.

More than 40 percent of these plants have been in operation for more than 30 years.

As a result, the system so far mainly supports older thermal power plants.

A representative of the government’s Agency for Natural Resources and Energy defended the system in the face of growing dissatisfaction among newcomers in the market.

“We do not distinguish retailers by power source or size, and we believe that the system is equal for both major and new power companies,” the representative said.

Hiroshi Takahashi, a professor at Hosei University who specializes in energy policy, said: “The reality is that the capacity market is a subsidy for thermal power generation owned by major electric power companies while placing a heavy burden on new regional electric power companies. There is concern that this will further distort market competition.”

(This article was written by Tomooki Yasuda and senior staff writer Toru Ishii.)