TOKYO, Nov 27 (Reuters) - Trading of a Japanese power market
derivative offered by the European Energy Exchange (EEX) has
surged in the six months since its launch as overseas traders
and investors pile into the world's fourth-biggest electricity
EEX Japan power swaps amounting to 111.5 million kilowatt
hours (kWh) were traded in October, 10 times the volume in the
first month of trading in May, Bob Takai, the head of the
European exchange's Japan office, told Reuters in an interview.
The surge in trading highlights growing overseas interest in
the once-closed electricity sector in Japan after a series of
reforms, prompted by the 2011 Fukushima nuclear disaster, led to
the gradual opening up of the market.
Once a backwater in the energy sector, the Japan Electric
Power Exchange (JEPX) has become the locus of action in a
deregulated market, with volumes of the bourse's spot power
contract accounting for more than 40% of sales in June in the
roughly $140 billion electricity market.
Before the market was almost fully liberalized in 2016, when
the government allowed any supplier to sell electricity to
households, trading on JEPX accounted for less than 2% of the
"JEPX has become a very liquid spot market," Takai said.
Liquid enough for EEX to launch power swaps based on the spot
price on JEPX and cleared through the European bourse, which
reduces counterparty risk, he added.
To attract more participants EEX is waiving its fee of 3 yen
per megawatt hour for another six months from November, he said.
Foreigners account for about 70% of the traders in the EEX
product and come from nine countries outside Japan.
These include trading arms of European energy companies
ENGIE and Electricite de France, along with
trading house Trafigura and brokerage Simpson Spence Young
(SSY), while local participants include Mitsui and
Tohoku Electric Power.
"It's really the missing piece of the puzzle in terms of
bringing the global power markets into Japan and providing
liquidity," said James Whistler, global head of energy
derivatives at SSY, which accounted for nearly 50% of volumes in
the EEX contract in October.
Overseas companies are also looking to invest in power
generation such as offshore wind farms as well as the solar
industry, which has seen massive growth in recent years after
mandatory preferential tariffs were introduced.
Denmark's Orsted, the world's largest offshore
wind farm developer, has teamed up with Tokyo Electric Power to
bid for an offshore wind farm near Tokyo.
Germany's biggest electricity producer, RWE, also
recently set up a Japanese subsidiary to trade power and offer
risk management products to local companies.
"The market's set-up has now started to get more refined,
more attractive and more interesting for foreign market
players," Peter Krembel, chief commercial officer trading at the
energy trading unit RWE, told Reuters in a recent interview.
(Reporting by Aaron Sheldrick
Additional reporting by Yuka Obayashi; Editing by Kim Coghill)