Lowering costs of green transformation with best practices: focusing on the naturally monopolized segment of the power industry value chain

Abstract Japan is facing relatively high costs in its transformation from an energy structure dominated by fossil energy to one dominated by renewable energy, which is necessary to achieve Sustainable Development Goal 7.2, due to its inferior natural circumstances. The present study attempts to approach this issue by shifting focus from the generation segment to the naturally monopolized segment of the power industry value chain, since the latter usually accounts for 30–40% of the whole bills paid by the end-user. Simulation results show that the cost-reduction ratios vary from 9.871 to −0.992% according to how the regulatory regime is designed. This study aims to add policy tools used to accelerate renewables development, and also to bridge academic research with regulatory practice by providing insights into the design and implementation of effective incentive regulation.