Japan to launch futures market in June

17 May 2016, Week 19, Issue 357

Japan is to launch an electricity futures market in June as the country pushes forward with reform after the recent full liberalisation of the retail sector on April 1.

The demonstration test will be carried out by the Tokyo Commodity Exchange (TOCOM) and up to 16 firms, which include major electric power companies and new power market entrants. The test will involve simulated trade and continue for about one month.

Electricity futures are expected to be listed on the TOCOM during fiscal 2016, which ends in March 2017, or later.

The Ministry of Economy, Trade and Industry’s (METI) Council on Electricity Futures Market released a report in July 2015 on the creation of such a market in Japan.

The report said: “A commodity exchange and each business operator should pursue preparations, and after the full liberalisation of the retail electricity market in 2016, electricity futures contracts should be listed as soon as possible.”

Demand for electricity futures is anticipated to grow to hedge against price fluctuations in the wholesale electricity market, as a result of the full liberalisation of the retail electricity market.

Electricity can be bought and sold on the Japan Electric Power Exchange (JEPX). If an electricity futures market is created, companies expecting prices on the JEPX to rise eventually will be able to buy futures on the TOCOM to avoid losses.

Japan’s retail electricity market was fully liberalised on April 1, allowing households and small-lot business users to freely choose their suppliers and opening the remaining 8 trillion yen (US$74 billion) part of the 20 trillion yen (US$183 billion) market to new entrants.

The METI has so far given a total of 295 companies the green light to start selling electricity to such small-lot users. Many of the new market entrants are from outside the power industry, including gas suppliers, oil refiners and telecommunication companies.

Fierce competition is anticipated in the Japanese power industry, especially in the most lucrative Tokyo metropolitan area. Until April 1, the 10 major regional electric utilities had been the sole power providers to households and small business users in their service areas.

Edited by

Richard Lockhart


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