Japan's Power Market News 2023/W4

More trouble ahead for power retailers in Japan.

Earlier this month, Nikkei Asia reported OCCTO forecasts that the power supply would remain tight in the Tokyo and Chugoku areas for FY2023. TEPCO’s supply capacity surplus is predicted to stay below 3.3% in July. Consumers are asked to reduce their consumption if the supply capacity surplus falls below 5%, and the imbalance penalties calculation is modified.

With tight margins expected for this winter too, both areas restarted old fossil plants to lift their supply. Before this measure, Tokyo’s area surplus had been expected to dip below 0% at times. But many of these old plants are not in good condition. METI says fossil fuel plants over 40 years old had unplanned shutdowns 2.5 times more frequently than recently built plants.

Meanwhile, The Nikkei reported that 30% of Japan’s fossil fuel plants are over 40 years old and that unplanned shutdowns reached an all-time high between January and October 2022.

OCCTO predicts an average capacity surplus below 5% for both areas in July, August, and September 2023 in case of severe temperatures and a 4.9% reserve in January 2024.

This shows that on top of high fuel prices and a weak yen, structural problems in the power market will continue to push prices and volatility up in the coming year.

TEPCO’s retail branch has been reacting to these issues and announced in mid-January that it would stop accepting new customers for its “Aqua-energy 100” plan that supplies customers with hydropower. The deal’s tariff has fallen well below market rates making it unprofitable to run. TEPCO has also petitioned METI to increase its regulated low-voltage contract price by 30% starting in June. This follows a recent request from Tohoku Electric Power Co., Hokuriku Electric Power Co., Chugoku Electric Power Co., Shikoku Electric Power Co., and Okinawa Electric Power Co to increase their tariffs by between 28% and 45% starting in April.

Structural factors are in play, with the liberalization of the Japanese power market driving the phasing out of older plants and the indexing of power prices to LNG prices, while the increase in renewable asset penetration puts further pressure on the profitability of fossil fuel plants by cutting their running time.

The restart of nuclear plants could ease the pressure on the supply side, but it would not be a surprise if we see further calls from METI and the former utilities to reduce consumption, as happened last summer in the Tokyo area.

Sources: Tokyo faces tight power supply through 2023, Nikkei Asia January 10th, Tokyo faces tight power supply through 2023 - Nikkei Asia, Tokyo Energy Partners stop accepting new customers for its “Aqua Energy 100” plan, Denki Shimbun, January 11th, TEPCO applies to raise electricity rates by 30% starting in June, Asahi Shimbun, January 24th

---

Did you find this newsletter insightful? Please?subscribe?to stay up to date on the latest Japanese power market news or get in touch for more information.

Let me know your thoughts below, and thank you for reading.

READ MORE from our newsletter:?Shulman Advisory shares the latest news on the role of hydrogen in Japan's long term decarbonization strategy.