Japan urged to review power market framework

Japan is under pressure to review functions of the country's deregulated retail power market, to avoid a repeat of the recent electricity shortage that bolstered wholesale power prices.

The trade and industry ministry today started discussion on issues that affect electricity supply. It plans to verify the market framework, focusing on securing generation fuels and power capacity, roles of authorities, an interconnection of generators, retailers and transmitters in a free market, adequate disclosure of relevant information and risk management.

The power shortage occurred from a combination of series of factors, including extended icy weather, higher-than-expected electricity demand, lower nuclear and solar output and shortage of thermal generation fuels, especially LNG. This became apparent in late December, when power prices on the Japan electric power exchange (Jepx) began to increase.

A buying spree by small power retailers may have contributed to higher-than-expected demand, said market participants close to generation and fuel procurement. Smaller retailers, especially those without power units, secure electricity on Jepx while major utilities are required to fill any imbalances to ensure stable supplies to consumers, even when the utilities face tight supply.

The higher-than-expected demand surprised power generators, as they realised their LNG inventories were insufficient to meet rising electricity demand. This prompted generators to reduce gas-fired operations since late December, while stepping up efforts to seek additional LNG cargoes.

Japan deregulated the retail power market in April 2016 and spun off the transmission sector in April 2020. This has made it difficult for a power company to manage a consistent flow from fuel procurement to power consumption.

The country's power agency, the organisation for cross-regional co-ordination of transmission operators, last week began a survey to understand the availability of thermal power generation fuels such as LNG and oil to ride out the current shortage of electricity across Japan. Survey results have not been disclosed to the public so far.

The disclosure of fuel availability might be necessary to push forward with further expansion of the deregulated market, some industry participants pointed out. But others said this may go against market mechanism.

By Motoko Hasegawa