Power liberalization and the separation of generation and transmission do not guarantee diversity among transmission operators.
Because transmission is capital-intensive and yields low profits, new entrants remain limited.
Germany’s experience shows that liberalization can reinforce monopoly power rather than competition, a risk Japan now faces as well.

2016-03-24
The following is a continuation of the previous section.
It is often misunderstood, but the liberalization of electricity and the separation of power generation and transmission do not necessarily guarantee the emergence of a diverse range of transmission operators.
Transmission is a modest sector with thin profit margins, burdened by massive capital investment, depreciation pressure, and high routine maintenance costs.
At present, Japan’s nine electric power companies are all barely surviving under the weight of maintenance costs for idle nuclear power plants and high crude oil prices.
If the electricity market is carelessly opened under such financial conditions, large power companies with strong financial resources will seize the opportunity to pursue economies of scale and move to take generation share from smaller, weaker power producers.
This is exactly what happened in the electricity liberalization of Germany.
Meanwhile, new entry into the transmission sector will also be limited.
Outside major metropolitan areas such as Tokyo and Osaka, the terrain is harsh and the number of substations is small, leaving little economic incentive.
As a result, areas around large cities will become fiercely competitive zones for transmission and retail, while rural regions will be left without buyers.
To correct such asymmetry, I believe that purchasing electricity on a prefectural basis may be the only solution, though it is uncertain whether this will be adopted.
Most likely, existing power companies will simply acquire the transmission networks of other corporate groups.
This is not a field that complete amateurs can enter, either technically or in terms of human resources.
As a result, Germany saw its monopolies strengthened.
I believe that Japan, through electricity liberalization, also faces a high likelihood that power generation will be consolidated from a nine-company structure into four or five dominant firms, with similar monopoly strengthening occurring in the transmission sector as well.