Five megatrends called the 5Ds - deregulation, decentralization, decarbonization, digitalization, and depopulation - will drive changes to Japan's electricity business, transitioning it from Utility 2.0 to Utility 3.0. Utility 3.0 will see increased decentralization through technologies like distributed energy resources (DERs) like solar PV and energy storage. It will also require more decarbonization to meet Japan's goal of an 80% reduction in emissions by 2050. Digitalization and the integration of technologies will be key to improving productivity and creating new value. Depopulation poses challenges for maintaining infrastructure like power grids, particularly in rural areas. The transition to Utility 3.0 will involve elect

1. ©2020 - CIGRE ELECTRA N°311 August 2020 1
Utility 3.0: Japan’s Utility of the Future
Five megatrends (5Ds) will bring about changes to the Japanese
power/energy business. These changes are inevitable and
irreversible. We call them the 5Ds and they are: Deregulation,
Decentralization, Decarbonization, Digitalization and Depopulation.
Depopulation is the trend that Japan will likely face earlier than the
rest of the world, while the other 4Ds are global megatrends.
by Dr. Hiroshi Okamoto, EVP, TEPCO Power Grid Inc.
The electricity business has existed for over a century. During that time, it
transitioned from Utility 1.0 to Utility 2.0.
Utility 1.0 was the mainstream business model until about 20 years ago. It pursues
the economies of scale via a legal monopoly and has supported vigorous economic
growth – as in many countries - due to aggressive investment.
When the economy shifted to low growth, Utility 1.0 shifted to Utility 2.0. The
facilities tend to be surplus under the legal monopoly, so have been switched to an
ef ciency model based on market principles.
During Utility 1.0, the entire electric power system was thought to be a singular
monopoly. To allow for fair competition in the wholesale and retail businesses during
Utility 2.0, we unbundled the transmission and distribution businesses to ensure
competitive neutrality. Japan is now at this stage.
Utility 2.0 is not the nal stage. Electricity businesses will shift to Utility 3.0 driven
by the 5Ds. During that process we will experience (1) technology shifts from
centralized to decentralized systems accelerating electri cation of
transportation/heat and (2) new integration to improve productivity and create new
value.
Decentralization
GLOBAL CONNECTIONS
Transition of the electricity business (utility
X.0)
What are 5DS?

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Exponential price declines are taking place in distributed energy resources
(DERs ). DERs are 1) CO2 free, 2) zero marginal cost, and 3) not dispatchable. PV and
EV combined with energy storage are shown as the next technologies that will enter
the market. The ‘tipping point’ will occur at some time before 2050.
Decarbonization
Based on the Paris Agreement, many countries have set targets to signi cantly
reduce greenhouse gas emissions by 2050 (e.g. net-zero emission or 80% reduction).
The Japanese government has stated that, ‘as a long-term goal, we aim to reduce
greenhouse gas (GHG) emissions by 80% by 2050’, in the Global Warming
Countermeasure Plan (May 2016 Cabinet decision).
Deregulation
Deregulation has brought a shift from Utility 1.0 to Utility 2.0. Now, decentralization
is calling for changes in deregulation.
Conventional power plants were able to provide energy (kWh), capacity (kW), and
exibility (DkW – lling the gaps between supply and demand) simultaneously
through the wholesale market. Renewable resources such as PV and windfarms have
zero marginal costs and but not dispatchable. DERs can supply energy cheaply, but
their ability to provide capacity and exibility are limited unless a massive number
of diversi ed energy devices are used in a coordinated manner.
We need re-powering of the power market so that every customer and every energy
device can participate in the energy marketplace. This means democratization of the
energy marketplace beyond deregulation.
Digitalization
Digitalization is a trend seen in the entire economy, including the energy eld. Many
‘things’ loaded with sensors are connected to the Internet, and business is rede ned
through the interaction and convergence between the digital and physical world.
A business that provides ‘things’ will transform into a business that provides a value-
added user experiences (UX) by utilizing ‘connected things’ as interfaces. Prices for
various technologies declined rapidly. This leads to enhanced connectivity and
digitalization which accelerates the move of enterprises to the ‘X-as-a-Service’
business model utilizing data obtained from sensors.
Depopulation
The total population of Japan is predicted to decrease 20% by 2050. In addition, the
non-urban population is expected to be reduced to less than half in 60% of the
country, primarily in the countryside.
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All infrastructure services will face sustainability challenges in Japan’s countryside,
including power, gas, telecommunications, logistics, public transportation, water
supply, road/bridges, and medical services.
Electri cation is the key
Exponential DER penetration due to price limitations means that electricity will have
a competitive advantage against other energy sources. Decentralization will
inevitably promote electri cation. Since DER is CO2 free, the high carbon prices that
decarbonization brings will also promote electri cation.
TEPCO Holdings conducted a preliminary simulation-based study of the long-term
energy portfolio in Japan through optimization of the suppy and the demand sides
considering the DER price drop and GHG emission restrictions.
As seen in Fig.1, the sector-coupling by expansion of renewable energy integration
and electri cation on the demand side (heat / transportation) will have progressed
and CO2 reduction of 80% will be achieved in 2050.
As fossil energy consumption will decrease sharply, the overall cost to the consumer
will decrease due to the combined effect of cost reduction and renewable energy
expansion. This has the potential to be 40 trillion yen per year in 2050, which is
more than 10 trillion yen below 53 trillion yen in 2030.
This simulation does not consider capital investment related to grid enhancement
and initial cost for electri cation. However, it shows that the bene ts may be able to
recover the investment in grid and electri cation. In addition, an electri ed heating
process will improve the manufacturing productivity, product quality control, and
the working environment.
What do the 5DS bring?

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From this preliminary study, we obtained the following observations on the future
utility’s role:
1. Renewable energy alone cannot keep up with Japan's increasing electricity
demand due to electri cation, and it is necessary to build a portfolio of carbon-
neutral power sources including next-generation nuclear power, CCS, and on-
demand gas to power.
2. As shown in Fig. 2, we need to invest in a balance between the inter-regional
transmission grids of the regions which have a huge surplus of renewable energy
and who might share with those which have a shortage of renewable energy.
3. Fig. 3 shows that pumped storage and EV batteries will be key players for
providing exibility required for the huge amount of intermittent DER integration.
It will be important to create a mechanism that can utilise a massive number of EV
storage batteries to respond to a demand-supply gap during power system grid
congestions.
4. As shown in Fig. 3, even in the peak season, we will see over-generation during the
daytime and control of DER is indispensable. On the other hand, conventional
power generation is required for backup when renewable energy generation is
insuf cient.

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Focusing on the creation of value in the community where depopulation is
progressing, network infrastructure operators will cooperate to form a consortium
and become a new public service provider, namely Utility 3.0.
Since a large amount of EVs and drones will become mobile storage batteries, the
interdependence between the transportation network and the power grid will be
strengthened. In addition, in order to develop a massive number of base stations for
next-generation wireless communications, it will be necessary to share
infrastructure such as transmission towers and poles.
Towards integrated infrastructures

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Therefore, it is important to share these network infrastructures with each other and
to consider the optimization of their layout so that we will be able to minimize the
total amount of infrastructure in the community.
In order to respond to the future decrease in the number of maintenance personnel,
it is effective to share digital solutions such as automated drones and EVs for smart
maintenance, and maintenance personnel. Furthermore, by sharing various data
including energy usage, it will be possible to provide new value and services to local
customers.
As mentioned in this article, the utility’s future role is expected to increase. In order
to solve social issues facing communities, such as improving energy resilience and
decarbonization, it is necessary to collaborate with many other infrastructure owners
and service providers. Utility 3.0 will continue to contribute to the sustainable
development of society as an integrated infrastructure service provider.
S. Takeuchi, T. Ito, H. Okamoto, and N. Toda, (2017): Energy industry in 2050 -
Game change to Utility3.0, written in Japanese.
IEA (2017): Digitalization & Energy.
WEF (World Economic Forum) (2017): The Future of Electricity: New Technologies
Transforming the Grid Edge.
In this article, DER means renewable resources such as PV and wind power.
Conclusions
References
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