J-Power Plans to Start Japan Coal-Price Index to Cut Fuel Cost

Electric Power Development Co. (9513), Japan’s largest thermal coal buyer, wants to start a local coal-price index that includes freight and insurance as it seeks to reduce fuel costs.

The power wholesaler, known as J-Power, and at least one counterparty started a system that matches bids and offers to set a monthly price for Australian coal delivered to Japan, Atsushi Yoshida, the director of the company’s energy business department, said in an interview today in Tokyo.

Japan’s power companies are seeking ways to reduce fuel costs after the Fukushima disaster in March 2011 forced them to shut reactors for safety checks and rely more heavily on thermal power generation. The country’s nine regional utilities will have to pay 3.8 trillion yen ($38.4 billion) more in combined fuel costs this fiscal year than they did in fiscal 2010 because of nuclear shutdowns, the government said in April.

“We are asking other Japanese utilities, suppliers and traders to join the scheme,” Yoshida said. “When we get more participants, we want to list the index to an exchange or disclose the price” that can also be used for pricing other coal contracts, he said.

The index would help participants maintain stable supply in the event of disruptions and sell excess coal more flexibly, Yoshida said. Companies would have a greater choice of suppliers and could buy cheaper coal, Yoshida said.

J-Power imports more than 20 million metric tons a year of thermal coal, Yoshida said in a presentation at a conference in Tokyo today. It has coal-fired generation capacity of 8.4 gigawatts, or one-fifth of the country’s total, according to the presentation.

To contact the reporters on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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