* Big utilities free up power from bilateral contracts for
* JEPX trading to account for 15 pct of power demand by 2018
* Japan power trading likely to grow several times in 2
By Osamu Tsukimori and Aaron Sheldrick
TOKYO, Feb 9 Trading on Japan's power exchange
is set to triple in the financial year starting on April 1 as
the nation's giant utilities aim to put around 10 percent of
their sales up for competitive bidding, the next big step in
reform of the sector.
Already 10 months into a shake-up of the country's power
industry that opened it to independent electricity producers and
suppliers, trading on the Japan Electric Power Exchange (JEPX)
has surged around 50 percent and nine former regional power
monopolies have lost nearly 2.6 million customers.
Hundreds of new entrants - gas utilities, manufacturers,
trading companies, oil refiners and others - have piled in,
buying electricity on the exchange to sell to the residential
and commercial end-users that make up Japan's $71 billion retail
market for power.
Electricity traded on JEPX still represents less than 3
percent of Japan's power demand, although Tokyo's efforts to
increase price competition and efficiency will likely result in
volumes rising further over the next two years.
"As trading volumes rise, the retail businesses of former
monopolies and new power retailers would be placed roughly on an
equal footing," JEPX general manager Ryoichi Kunimatsu said in
an interview, fostering the smooth trading and liquidity needed
for price discovery.
As the utilities start selling on the exchange power now
locked up in bilateral agreements, JEPX trading as a proportion
of total power will grow threefold by March 31, 2018, he said.
Japan's former power monopolies - in response to a request
from the Ministry of Economy, Trade and Industry (METI) - have
said they will put at least 10 percent of their power sales on
the exchange next fiscal year, with some of them raising their
supply to JEPX to 20 to 30 percent of their total output in the
year after that.
"Trading volumes at JEPX are likely to rise to above 15
percent of total domestic power demand in the year starting [on
April 1, 2018]," Kunimatsu said.
As with other exchanges, JEPX needs liquidity for smooth
trading and price discovery.
"If they reach a liquidity level of 15-25 percent (of the
market) that would be the tipping point for developing JEPX as
the central platform for a competitive electricity market in
Japan," said Per Christer Lund, science and technology
counsellor at Innovation Norway.
Lund advised JEPX on its reforms, and also worked at Nord
Pool, a European power exchange operator closely studied by
Japan ahead of its power reforms.
END-USERS SLOW TO TAKE 'DRASTIC' STEP
While plenty of suppliers have jumped into the retail
market, end-users have been slow to accept the new entrants.
Since Japan's retail sector was opened in April 2016 to
independent producers and suppliers, just 2.57 million end-users
- roughly 4 percent of them - have switched from nine of Japan's
major utilities to new suppliers, according to national grid
monitor OCCTO. In October last year, power used by those that
switched represented 3.3 percent of the retail market.
Tokyo Electric Power Co - owner of the
Fukushima-Daiichi reactors shattered by the 2011 earthquake -
has been the biggest loser, with more than 1.4 million of its
customers switching to other suppliers.
The biggest winners have been Japan's two largest gas
utilities, Tokyo Gas and Osaka Gas, with JX
Holdings and KDDI the third and fourth-biggest
beneficiaries of the switch away from Tepco and others.
"(JEPX) is a place for various adjustments (in power supply)
and very useful, but the volumes are small and they need to be
larger to make good use of it," Takashi Higo, a Tokyo Gas
general manager for finance told Reuters.
Others see the shift away from the monopolies as more
"Given the conservatism of consumers in Japan ... to take
this rather drastic step of moving away from the old traditional
utilities is interesting," said Lund.
(Reporting by Osamu Tsukimori and Aaron Sheldrick; Editing by