• Government should provide incentives for companies: RCMA
  • Companies should be educated on tradeable market benefit

Japan must convince utilities and retailers to become regular buyers and sellers of electricity contracts in order to increase liquidity and attract foreign investment in the nation’s budding power market, according to RCMA Group.

“Market making ensures that people will turn up to the night club if they build it,” said Andrew Koscharsky, director of energy at RCMA, which trades electricity contracts in Asia and is interested in entering Japan’s market through its Singapore-based retailer, iSwitch. The government “should encourage generators, retailers or intermediaries to consider being market makers, because then that will attract participants. Participants will know that there are bids and an offer instead of a blank screen.”

The world’s third-biggest economy fully liberalized its electricity market in April, adding importance to the Japan Electric Power Exchange. The nation is aiming in the fiscal year ending in March to list power futures on the Tokyo Commodity Exchange, possibly using JEPX spot prices for settlement. Tocom plans to start testing power futures trading with more than 10 companies as early as May 30, it said earlier this month.

Companies can be incentivized to buy and sell on the exchange through a reduction in fees or other programs, Koscharsky said in an interview.

While Japan’s spot trading volume on JEPX inched up in April following liberalization, new entrants are hesitant to depend on the market because of its high price volatility. New retailers, such as Electronic Power Development Co. and Ennet Corp., view a potential futures market as a way to hedge the spot market, according to a recent government survey. Tokyo Gas -- one of the nation’s biggest new retailers -- holds the view that futures market are still too opaque, it said in the survey.

Customer Education

Japan should educate potential customers and existing power producers about the nation’s evolving electricity market, according to Koscharsky.

“Someone needs to make that happen or else they will not realize the benefits of a tradeable and transparent market,’ he said.

Japan is considering rules requiring utilities to trade on JEPX, Tatsuo Hatta, the head of the country’s Electricity Market Surveillance Commission, said in September.

The government is still deciding what rules to implement in order to increase liquidity, Asako Aoyagi, a deputy director at EMSC, said on Monday. EMSC provides information about Japan’s power market on a company-to-company basis, she said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE