[Ferro-Alloys.com] Japanese wholesale electricity market began 2021 with strong momentum on tight power supplies, with day-ahead contract prices refreshing record highs over 2-7 January. This prompted power firms to hedge their price risks in futures markets, with deals for January cleared below the prompt physical prices.
System-wide prices for day-ahead contracts on the Japan electric power exchange (Jepx) reached a record high of ¥99.9/kWh ($961.97/MWh) on 7 January, before retreating to ¥91.69/kWh today. The market started this year at ¥32.83/kWh on 1 January.
Extremely low temperatures throughout Japan have boosted electricity demand for heating, drawing down thermal generation fuels, especially LNG, at a faster-than-expected pace. Several utilities have cut power production at their gas-fired power units to prevent depleting inventories and causing any unplanned outage, which lowered supplies to the Jepx.
The power shortage has been especially noticeable in the Tokyo and Kansai regions. Power agency the organisation for cross-regional co-ordination of transmission operators (Occto) on 6 January ordered electricity producers in both areas to operate at maximum capacity and increase supplies to the Jepx. The agency also requested power firms in other areas that also faced tight supplies to sell any surplus on the exchange.
Supplies for day-ahead contracts on Jepx increased by 4.1pc from the previous week to 6,040GWh during the week to 7 January. But this was still insufficient to meet demand, with bidding volumes rising by 12pc to 8,555GWh. Transacted volumes totalled 6,026GWh, up by 4.9pc during the week.
Electricity consumption in Japan's 10 service areas averaged 108GW over 1-7 January, up by 6.5pc from a week earlier and 13.3pc compared with the same period of 2020, according to the Occto.
Temperatures in the country's 10 major cities — Sapporo, Sendai, Tokyo, Nagoya, Kanazawa, Osaka, Takamatsu, Hiroshima, Fukuoka and Naha — averaged 4.19°C across 1-7 January, down by 2.2°C from a week earlier.
Prices for power futures contracts rose further this week, reflecting stronger physical power prices and rising thermal fuel prices such as LNG and fuel oil, reflecting Japan's fuel shortage.
The Tokyo commodity exchange (Tocom) concluded January contracts for east Japan base-load at ¥21.41/kWh and for west Japan base-load at ¥20.54/kWh on 6 January, up from ¥18.39/kWh and ¥15.03/kWh respectively traded on 5 January. The German-based European Energy Exchange (EEX) cleared ¥58.5-59/kWh for January Tokyo base-load on 6-7 January.
The forward prices at Tocom and EEX were below an average of ¥69.39/kWh for Tokyo base-load and ¥63.68/kWh for Kansai base-load on the Jepx over 1-8 January. This suggests participants in the futures market expect Jepx prices will soften after this week's highs. There is also a cautious view in the power industry that a Covid-19 second state of emergency in Tokyo and its surrounding regions starting today could help offset some demand.
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