In 2004, Japan had 243.5 gigawatts (GW) of installed electricity generating capacity, the second largest in the world behind the United States. During 2004, Japan generated 974 billion kilowatthours (Bkwh) and consumed 906 Bkwh of electric power. Of the country’s generation, about 61 percent came from conventional thermal sources, 28 percent came from nuclear electric sources, 10 percent from hydroelectric sources, and less than 2 percent from other renewables.

Japan’s electricity industry is dominated by 10 privately-owned, integrated power companies that act as regional monopolies, the largest of which is the Tokyo Electric Power Company (TEPCO). These companies account for more than three-quarters of Japan’s electricity capacity and also control the country’s regional transmission and distribution infrastructure, leaving limited room for independent power producers (IPPs). The 10 companies cooperate with one another to ensure the stability of electricity supply and work together to exchange or provide electricity during emergency situations or power shortages. Other players in the electricity market are the Japan Atomic Power Company (JAPC), which operates three nuclear power plants, and the Electric Power Development Company (known as J-Power), which operates 16 GW of hydroelectric and thermal power plants. J-Power, formerly a state-owned enterprise, was privatized in September 2004.

While Japan’s 10 regional power companies are privately owned and subject to some competition, historical regulation of the power sector has guaranteed effective monopolies for the companies. Japan has set out to liberalize and deregulate the electric power sector on a step-by-step basis. The Japanese Diet passed a bill in May 1999 that amended the Electric Utilities Industry Law to allow a partial opening to competition. Beginning in March 2000, large industrial power purchasers, representing about one-third of the Japanese electricity market, have been able to choose their power suppliers. In April 2005, the scope of liberalization was increased to include medium-scale electricity purchasers. The Japanese government intends to consider full liberalization beginning in April 2007. In February 2004, the Electric Power System Council of Japan (ESCJ) was established to oversee the liberalization and deregulation program.

The Ministry of Economy, Trade and Industry (METI) has primary regulatory authority for the energy industry. Within METI, the Agency of Natural Resources and Energy (ANRE) and its various electric power subdivisions oversee the electricity sector. Japan’s Nuclear Safety Commission regulates operations at the country’s nuclear power plants.

In 2004, Japan had about 175 GW of conventional thermal electric generating capacity, an 8 percent increase from 2000. The country has a large number of oil-fired power plants, although much of this capacity is primarily reserved as slack capacity to meet peak demand. Natural gas-fired power stations are increasing in Japan. Coal remains an important fuel source for many generating facilities, although the Japanese government has encouraged the use of less polluting technologies. Still, as a means of decreasing the country’s reliance on hydrocarbon imports from the Middle East for power generation, emerging coal technologies are being promoted. J-Power and the regional power companies have formed Clean Coal Power R&D, a joint-venture that aims to build an experimental 250-megawatt (MW) coal gasification power plant that will have the highest thermal efficiency rate in the world.

Japan currently has 55 operating nuclear reactors with a total installed generating capacity of around 50 GW, the third-largest in the world behind the United States and France. While Japan has promoted nuclear electricity over the years as a means of diversifying its energy sources and reducing carbon emissions, safety and reliability at many of the country’s reactors has become a concern. In August 2002, it emerged that maintenance inspection findings at some nuclear reactors owned by TEPCO had not been properly reported to government regulators. This led to the shutdown of all 17 of TEPCO's nuclear reactors over the following several months. Several new reactor projects, including some proposed by other utilities, were put on hold while the issue was resolved. In the short term, this led to increases in Japan's fuel oil and LNG consumption, as generating capacity using fossil fuels was brought online to make up for the shortage of nuclear generating capacity. TEPCO gradually brought all 17 of its nuclear generating units back online, completing the process in August 2004.

This incident has empowered a growing anti-nuclear lobby in Japan. In March 2006, a district court ordered Hokuriko Electric Power Company to cease the development of its new 1,350-MW nuclear reactor at Shika based on an initiative introduced to the courts by public advocacy groups. However, despite some opposition, industry reports predict that new reactors and expansions at existing facilities will increase Japan’s installed nuclear capacity by up to 20 GW in the next decade. Media reports also suggest that without new nuclear electric power, Japan is unlikely to meet its Kyoto Protocol emissions reduction targets.

Japan had installed hydroelectric generating capacity of 22 GW in 2004, or about 9 percent of total capacity. While Japan would like to see additional development of hydropower to increase the country’s energy self-sufficiency, government reports suggest that the country has nearly exhausted its sites for additional large-scale hydroelectric projects. J-Power has cancelled plans for two new hydropower projects in Fukui and Niigata prefectures.