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The Council on Electricity Futures Market Compiled a Report

As one of the initiatives for designing electricity system reform, the Ministry of Economy, Trade and Industry (METI) established the Council on Electricity Futures Market, aiming to study and discuss an ideal framework under which an electricity futures market will be operated in Japan. The council has held five meetings in total since March 2015.
METI hereby announces that the council has compiled the results of the study into a report.

1. Background

The second step of the electricity system reform is scheduled to be implemented in 2016. As one of the initiatives for designing the reform, METI established the Council on Electricity Futures Market consisting of working-level representatives from electricity utilities, electricity consumers, financial institutions, and commodity exchanges, etc., aiming to study and discuss an ideal framework under which such a market will be operated in Japan, while referring to precedent examples in other countries. The council has held five meetings in total since March 2015.

Based on the results of the study, and included in this report, the Council has compiled a guide for measures to be taken to create an electricity futures market in the future.

2. Contents of the report

*Note: See Appendix “Main points in the report of the Council on Electricity Futures Market” (to be posted soon).

1) Ideal framework for the electricity futures market

  • Listing base load and daytime load (8:00-18:00 on weekdays) electricity futures contracts.
  • System price, which is to be based on the supply and demand for electricity throughout Japan, should be listed on the futures market, for the purpose of increasing transaction volume by concentrating trading on standard contracts.
  • Electricity futures contracts are financially settled, given the transmission constraints. The settlement price should be the “monthly average price” from the cash market at the Japan Electric Power Exchange.

2) Measures for preventing speculative money games

  • METI will appropriately determine whether to authorize the listing of electricity futures contracts (the Japanese government will decide whether to authorize it, taking into account the volume of the cash market) based on the Commodity Derivatives Act to prevent adverse effects on the stable supply of electric power and the establishment of a proper price for electricity.
  • It is important to introduce mechanisms such as position limits (limits for buying and selling) and circuit breakers, which temporarily interrupt transactions when the market is overheated, and to take measures coupled with supervision of trading activities at the commodity exchange even after the listing of electricity futures contracts.

3) Proposal for the next steps

  • In accordance with the study by the Council, a commodity exchange and each business operator should pursue preparations, and after full liberalization of the retail electricity market in 2016, electricity futures contracts should be listed as soon as possible.

Reference

Release date

July 6, 2015

Division in Charge

Commerce and Consumer Affairs Policy Division, Distribution and Industrial Safety Policy Group

Related Information

Electricity System Reform

Ministry of Economy, Trade and Industry
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