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EEX aims to double Japanese power derivative participants in 2021 – S&P Global


January ‘a tipping point’ for market

Many retailers ‘need hedging strategy’

New settlement window due soon

London — The European Energy Exchange aims to double participation in its Japan Power Futures market this year, the exchange told S&P Global Platts May 18.

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The German company in the first quarter cornered 96% of exchange-traded volumes in the market and is now looking to capitalize on the growing interest.

EEX saw 2.32 TWh traded on its Japan Power Futures platform in the first three months of the year, with January volumes exceeding 1 TWh in a single, highly volatile month.

“January was a tipping point. It showed Japanese players how important it is to have a hedging strategy in place, and it showed international players why the market is so interesting,” said EEX’s chief operating officer Steffen Koehler.

EEX was tweaking its offering to improve transparency, with plans to introduce a one-hour settlement window on its Japanese derivatives platform, with the window closing in the late afternoon local time.

“We hope to introduce a settlement window toward the end of May or early June, along with the standards we use in 20 markets in Europe,” Koehler said.

The market had sufficient liquidity to justify this, with 20 participants trading every day, according to the head of European Power Derivatives Steffen Riediger.

“We expect the number of players to at least double by the end of the year, and with that volumes will certainly increase,” he said.

More than 3 TWh EEX Japan Power Futures contracts have been traded or cleared by EEX to date in 2021. This is a fraction of the volume EEX trades in its core German power derivatives market, where the platform has just passed the 1,000 TWh mark for 2021 alone, Riediger said.

“The Japanese power market is twice as large as the German market [1,000 TWh compared with 500 TWh annual consumption], so the potential for derivatives is huge,” he said.

A rapidly growing spot market, with 40% of physically-consumed power in Japan traded through the JEPX spot exchange, had exposed domestic utility generators and retail suppliers to price volatility this winter as much colder conditions and a tight LNG market drove power prices up.

This led to defaults among Japan’s 600-odd retail suppliers, Riediger said. “We’ve seen in Europe and the US that these events can trigger greater price and counterparty risk management — it’s well understood by the international trading community, now domestic Japanese companies are lining up to participate.”