<article><p class="lead">Japan's recent electricity shortage highlights an increasing need to use power trading systems such as electric futures trading to hedge against price upside and volatility, market participants said. </p><p>A sharp rise in the country's wholesale electricity prices since late last month, caused by a lack of power output rather than a loss of capacity, has burdened small-scale power retailers, especially those that do not have their own power generation plants. Rising imbalance charges in the event of a failure to secure power supplies have also hit such retailers. </p><p>System-wide day-ahead contract prices on the Japan electric power exchange (Jepx) rose above ¥200/kWh ($1.93/kWh) for four consecutive days from 12-15 January, hitting the highest-ever level of ¥251/kWh from 4.30-5pm local time (7.30-8am GMT) on 14 January. This compared with the daily average of day-ahead prices of ¥32.38/kWh settled on 1 January. </p><p>Lessons from the recent price volatility will prompt small power retailers to take precautions such as increasing power futures trading to mitigate the impact of a surge in prices, industry participants said. Japan's trade and industry ministry (Meti) also plans to verify and discuss the effective use of a power futures market to boost retailers' risk management. </p><p>The Tokyo commodity exchange launched Japan's first electricity futures contracts in September 2019. This provides a tool to hedge the risk of wholesale electricity trading on Jepx, where liquidity has been rising after the country's retail power market was deregulated in April 2016. </p><p>The German-based European Energy Exchange also started clearing services for Japanese electricity futures last May. The CME is planning to launch a platform for Japanese electricity futures contracts next month.</p><p class="bylines">By Motoko Hasegawa</p></article>
