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Japan's first electricity futures may spark market shake-up – Reuters Africa

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* Trade to start in long delayed futures

* Spot price volatility driving demand for futures -CEO

By Yuka Obayashi and Aaron Sheldrick

TOKYO, Sept 13 (Reuters) – The Tokyo Commodities Exchange will start trading Japan’s first electricity futures on Sept. 17 after delays, a move that may boost competition in Japan’s roughly $130 billion power sector after liberalisation.

The futures are due to start trading on Tuesday, three and a half years after the government pushed through the biggest shakeup in the country’s electricity sector following the 2011 Fukushima disaster.

Since those 2016 changes, around 600 companies have registered to join a market still dominated by Tokyo Electric Power and nine other regional utilities.

But most of the new entrants need to source power for their customers from the Japan Electric Power Exchange, where volumes more than quadrupled while prices fluctuated sharply, especially in summer and winter.

Liberalisation of the electricity market comes more than 10 years after similar moves in Europe and U.S. markets, Takamichi Hamada, chief executive of the Tokyo Commodities Exchange (TOCOM), said in an interview.

“But without electricity futures, Japanese power companies could not hedge the risk of fluctuating spot prices,” he said. “Now we can offer them a hedging tool to the new companies, which are considered as a driving force for liberalisation.”

Sweltering summer temperatures last year drove prices on the Japan Electric Power Exchange to just above 100 yen ($0.93) per kilowatt hour in July, the highest on record, as new entrants scrambled to meet the demand for air conditioning.

The swings in prices have kept many new entrants out of the market.

“Only about 100 out of around 600 newly registered power companies are operating,” Hamada said.

The exchange has also struggled to attract market participants to the new futures.

None of the regional utilities or major wholesale power providers are among the roughly 30 companies that have signed up, Hamada said.

Those that have are mostly power companies, he said, without being more specific on numbers or the identify of those. Eight brokers will handle transactions, he said.

Foreign companies and banks have expressed interest but are waiting to see how trading goes, he said.

The futures were schedule to start trading last July, then in January, but were delayed as it took time for the exchange to negotiate with participants and authorities, he said.

TOCOM reported a fourth straight year of losses for the 2018/19 financial year. Hamada has said he was hopeful that the new products will help make it profitable this year.

TOCOM’s trading volume stood at 23.6 million contracts in 2018, or just over a quarter of the record 87 million contracts traded in 2003.

($1 = 107.9500 yen)

Reporting by Yuka Obayashi and Aaron Sheldrick; editing by Jason Neely