By Peter Weigand, CEO of SkippingStone
Peter Wiegand
Since the full opening of retail competition to Japan’s 84 million customers, 15% have already switched from utility supply to a retailer. For the past 10 months the number of customers switching has remained steady at about 300,000 per month.
Now Japan is readying its futures market and ISO style wholesale markets. The wholesale market for energy supply is continuing to grow, with JEPX spot market (same/next day) volumes increasing from about 2% of the supply market to now over 13%. The expectation is that JEPX volumes will continue to grow at a similar pace as retail switching, helped along by regulators pushing utility supply into the spot market.
One of the challenges for retailers has been the lack of a forward market or ability to hedge and enable longer term fixed price products similar to US offerings. METI, the regulator, has been busy this past year addressing a more robust wholesale market, recently publishing guidelines for the wholesale market, which includes a capacity market, transmission trading market, and ancillary market. They also launched a negawatt (demand response) market in 2017.
The new wholesale rules will be implemented by April 2020, which coincides with the elimination of utility tariffs (price to beat goes away). Japan’s wholesale market structure is sort of a combination of EU and PJM with a bit of ERCOT thrown in. It will start with each of the 10 utilities in Japan operating a separate capacity market, and OCCTO, the future PJM of Japan, operating the transmission market. The energy-only market will continue to be run by JEPX. Over time, once 2020 is implemented, these disparate markets will be merged into one cohesive market more like PJM.
To address forward markets, TOCOM, Tokyo Commodity Exchange, is launching an electric futures market this coming September. In addition, the over-the-counter trading of forward physical deals is just beginning to get traction with deals now available for one-year fixed pricing and other basic transactions.
— Article originally published by Skipping Stone. Reprinted by permission.