EEX Half-year Review of Japanese Power Futures Market

The European Energy Exchange (EEX) launched its Japanese Power Futures market in May 2020. EEX recently published a 2021 half-year review of the power market. The below is a summary of their analysis.

With regards to trading volume, a total of 2,250 lots (MW)/3,526GWh of power futures were traded in the 6 months from January to June on EEX. This amounts to about 2.3% of the physical volume traded on the JEPX spot market in the same period, which was 152,555GWh. Although the volume is still small compared to the physical market, the futures market is growing at a faster pace. EEX has about 80% market share in the cleared power futures contracts in Japan as of June.

With regards to market conditions, the broad trend is that short-term (weekly/monthly) futures contracts reached their highs in January, which is generally a peak period and was particularly exacerbated by the supply shortages this year, and their lows were in early spring, which is an off-peak period. Prices of quarterly products have generally been on the rise, while those in the peak period (Q3/Q1) had steeper price increases compared to those in the off-peak period (Q2/Q4). From the perspective of correlation with power generation fuels, it is conceivable that prices of power futures in Q3 moved in linkage with spot LNG prices with delivery dates in the summer, since prices of Asian spot LNG had risen by 60~70% between January and June.

Analyzing the characteristics of the price formation for power futures from various angles should be a worthwhile exercise when developing hedging strategies.

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