JAPAN Law and Practice Contributed by: Yutaro Fujimoto, Yurika Masakane, Hirokazu Tanaka and Yutaro Kato, Nagashima Ohno & Tsunematsu
Consequently, from the beginning of the liberalisation of the retail sector, the question of how to secure an environment where new-entrant electricity retailers will be on an equal footing with major utility retailers has been an important issue. Among the unique aspects of the power industry in Japan is that while the govern- ment continues to establish regulations to address that issue, it is also strongly encouraging the major utilities to voluntarily develop solutions to support new-entrant retailers. For example, the government has requested that the major utilities voluntarily commit themselves to supplying their surplus electricity to the JEPX at marginal cost and to performing wholesale transac- tions without discriminating between their group com- panies and others. In particular, in order to evaluate whether and to what extent major utilities comply with their commitment to such non-discrimination in whole- sale transactions, EGC established detailed criteria in 2023. While these criteria are not a requirement under the statutes, EGC publicly announced the evaluation regime so that it can urge the major utilities to comply with their commitment. At the time of writing, many major utilities had been evaluated as being fully compli- ant with the non-discrimination criteria. Other unique characteristics of Japan’s power indus- try include the following: • there is no interconnection with other countries, which means that the electricity demand must be satisfied by electricity generated by power genera- tion facilities in Japan; and • there are two types of electrical frequency in Japan (50 Hz in eastern Japan and 60 Hz in western Japan) and thus a frequency conversion facility is necessary to transmit electricity between eastern and western Japan.
market in Japan. Trades available on the JEPX as wholesale electricity are: • spot market trading; • forward market trading; • intraday market trading; and • OTC trading. In general, there are no price regulations on wholesale electricity prices. However, METI has placed a ceil- ing on the imbalance fee, which in effect functions as a price cap on the JEPX market price. Moreover, in order to keep competition on an equal footing between the major utility retailers and other retailers, wholesale trading of electricity by the major utilities is monitored so that the price cannot be manipulated or unduly inflated. Market Trading on the JEPX Spot market trading This is trading of electricity supplied on the next day after the trade date, where the minimum trading unit is 30 minutes and 50 kWh and the trading price is determined through a “blind and single price auction”. Under this auction, wholesale market participants submit a bid for purchasing or selling electricity and the trading price is fixed at the crossing point of all purchasing bids and selling bids. Forward market trading This is the trading of electricity supplied for a certain period, starting on a day that is three or more days from the trade date, where traded time periods are one week, one month and one year, and orders are continuously executed in strict price and time prior- ity. An order entered into the system at an earlier time must be executed in full before an order at the same price entered at a later time is executed. Intraday market trading This is trading of electricity supplied on a day when spot trading is closed, where the minimum trading unit is 30 minutes and 50 kWh, and orders are continu- ously executed in strict price and time priority.
2. Market Structure, Supply and Pricing 2.1 The Wholesale Electricity Market
In Japan, an electricity retailer procures electricity by entering into a power purchase agreement with an electricity generator or through the electricity whole- sale markets. The JEPX is the electricity wholesale
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