Electricity Futures Market: Aiming at Launch in 2016Electricity Futures Market: Aiming at Launch in 2016

METI Starts Deliberation Process – To be Summarized in June

The Ministry of Economy, Trade and Industry (METI) has started actual deliberations towards the launch of an electricity futures market. Aiming at an overhaul reform of the electricity industry, METI formed a council on electricity futures market composed of 16 organizations, including electric power companies, wholesale dealers and exchanges, whose first meeting was held on March 6. The council will study market structure and actual trading conditions based on previous similar launches overseas, looking at a possible listing on TOCOM. The deliberation results should be summarized in June, in order to move forward with the realization of a comprehensive energy futures market.

There already are successful electricity futures contracts overseas, such as in Northern Europe, where liquidity is high with trading volumes reaching over twice the actual physical electricity consumption. Other contracts are traded in the US, Germany, France and the UK. In all of these countries, the electricity futures markets were launched in parallel with the overall deregulation of the retail markets, Japan plans to completely deregulate the electricity retail market in April 2016, and therefore it is expected that TOCOM will launch an electricity futures market that same year.

However, concerns have been raised by several parties involved in the process. There are many areas to be further considered, such as how to avoid price distortion and how to secure sufficient liquidity. On the other hand, both METI and TOCOM wish to push forward with the creation of a comprehensive energy market that would include LNG and the current oil products in addition to electricity, and plan to accelerate such preparations to help revive the Japanese commodity markets.