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October 30th, 2006 Japan Electric Power Exchange Keiichi Hohki

October 30th, 2006 Japan Electric Power Exchange Keiichi Hohki. Outline of Japan Electric Power Exchange. Contents. Japan's electric power systems Japan's electricity industry Outline of liberalization and roles of power exchange Japan Electric Power Exchange JEPX Markets

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October 30th, 2006 Japan Electric Power Exchange Keiichi Hohki

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  1. October 30th, 2006 Japan Electric Power Exchange Keiichi Hohki Outline of Japan Electric Power Exchange

  2. Contents • Japan's electric power systems • Japan's electricity industry • Outline of liberalization and roles of power exchange • Japan Electric Power Exchange • JEPX Markets • JEPX's track record to date

  3. 100 80 60 (%) 40 20 0 Direct current Mixture of alternating and direct current A B Single-phase alternating current C Multiphase alternating current D • Changes in transmission systems used in Germany between 1880 and 1935 A B C D 1880 1890 1900 1910 1920 1930 1935 （source） T.P.Hughes：”Networks of Power”

  4. B Company A Company G G G G G Introduction to electric power industry • Direct current tree-type transmission on an area basis

  5. C Company（=A company + B company) G G G G G Introduction to electric power industry • Realization of long-distance alternating current transmission and formation of networks

  6. C Company G G Introduction to electric power industry • Realization of economics of scale in electric power generation

  7. Japan's electric power systems

  8. Japan's electric power systems • Country of Japan Population （FY2004） ： 128 million Total land： 377,899.2 km2 Total electric energy sales (FY2003): 834 TWh Total system peak load (FY2003): 167 GW Yearly average temperature * (Tokyo)：15.9℃ Average summer temperature *（Tokyo, August)： 27.1℃ Average winter temperature *（Tokyo, January) ： 5.8℃ * between FY1972 to FY2000

  9. Japan's Tie Line between Regions AC (500kV) AC (154kV～275kV) DC Conversion station(FC, BTB, DC c/s) Japan's electric power systems Hokkaido Tohoku 60Hz50Hｚ Hokuriku Tokyo Kansai Chugoku Chubu Kyushu Shikoku

  10. Japan's electric power systems • Demand • Japan is hot in summer and cold in winter. Because of such meteorological conditions, the seasonal variations in electric demand are large, and the load curves are very steep. For this reason, load factors are low. • The load curves of Japan's electric power companies basically look alike except for those load curves of Hokkaido Electric Power Co., but they slightly differ, depending on the difference in demand industry structures. • Power source portfolio • There are almost no energy resources other than water power in Japan, and Japan's electric power companies have constructed power source portfolios that allow for both energy security and cost efficiency. For this reason, the contents of the power source portfolio are similar but slightly different from company to company. • Structures of transmission networks • Japan is a vertically long and narrow country composed of four major islands, and the interconnection systems between electric power companies are skewer-shaped (they are DC connected not to make loop systems). • The frequency of electricity is different between the eastern part and western part of Japan (50 Hz in the eastern part and 60 Hz in the western part).

  11. Hydroelectric power Thermal power Hydroelectric power Nuclear power Thermal power Nuclear power Renewable energy Japan's electric power systems • Power source portfolio Hokkaido Tohoku Tokyo Chubu Hokuriku Kansai Chugoku Shikoku Kyushu 0% 20% 40% 60% 80% 100% (the result of 2004)

  12. Japan's electric power systems • Example of difference in daily demand curve • （ Tokyo Electric Power Company vs France） • Demand curve on the day of yearly maximum demand Normalized demand Tokyo(2001/7/24) France(2001/12/17) 1 3 5 7 9 11 13 15 17 19 21 23

  13. Tokyo Electric Power Company Chubu Electric Power Company Kansai Electric Power Company peak demand P 77.2% Germany Total demand （Total area）S 66.4% France 67.0% England Time T(= one year) S Load factor ＝ P×T Japan's electric power systems • Comparison of yearly load factor • Yearly load factor 59.8% 58.8% 57.0% The result of 2003, except Germany

  14. Japan's electricity industry

  15. Power generation Transmission networks Retail business Consumer Japan's electricity industry • Pre-liberalization structure of electric power industry

  16. Japan's electricity industry • Technological background of liberalization • Due to advances in power-generation technology, such as gas turbines, gas turbine combined-cycle systems, economy of scale does not necessarily work in power generation. • Liberalization of the Japanese power market • Regulations on new entries into power generation and retail business is eliminated and the principle of competition is introduced. • The monopoly in transmission, in which economy of scale is retained, remains, but transmission networks are made accessible to users. • From global perspective, form of the post-liberalization power market is divided into Pool system and Third party access (TPA) market. Japan adopted TPA market. • The liberalization of the power market

  17. Power Producer X electric utilities W company Z company X electric utilities (network sector) Retailer Consumer X electric utilities Z company Y company • Japan's electricity industry Liberalized power market • Third party-access (TPA) market • A system in which third parties other than electric utilities transmit power using electric utilities ' networks. • Retailers ensure supply capacity, consistent with their demand curves, with their own power sources or through wholesale power transactions with other power suppliers. • Example • Germany，France, Japan, etc.

  18. Japan's electricity industry Transactions in the TPA market • In most cases, a power exchange exists, and there are both transactions through the exchange and bilateral transactions between counterparties. • Industry firms including power producers and retailers participate in the exchange voluntarily, and conduct transactions to sell or buy electricity. • The exchange publishes agreed prices as market prices. Electric utility Power Producer Power Producer Power Producer Power Producer Power Producer Internal procurement Power Exchange Retailer Retailer Retailer Retailer Retailer

  19. Japan's electricity industry April 2005 ～ March 2000～March 2005 Electric Power Exchange （Power generation） Power producer Power producer PPS （ Power generation） PPS Other electric utilities Power producer Electric utilities （ network sector） Electric utilities （ network sector） PPS (Retail) Other electric utilities PPS (Retail) Consumer Consumer regulated liberalized regulated liberalized（the expansion of liberalization）

  20. Outline of liberalization and roles of power exchange

  21. Outline of liberalization and roles of power exchange • Discussions on the liberalization of the electric power started in the early 1990. • Underlying the discussions are an increasing demand for eliminating Japan's high cost structure and differences between domestic and overseas prices of electricity and a trend for the deregulation of the telecommunications and financial sectors. • 1995 • Regulations on new entries into wholesale electric business were liberalized and competition was introduced. • 2000 • Competition was introduced into retail business targeting 2000 kW or larger customers (about 30% of all customers in terms of kWh energy). • New entrants (newly established electricity supply firms (PPS)) use networks through transmission services provided by electric utilities .

  22. Outline of liberalization and roles of power exchange • Expansion of liberalization of the retail power market: The liberalization is expanded to 50 kW or larger customers (about 60% of all customers in terms of kWh energy) → Discussion whether the liberalization should be expanded to all customers is scheduled in 2007. • With the TPA-type market maintained, fairness and transparency is ensured when third parties (new entrants) use networks owned by electric utilities . • Establishment of the Electric Power System Council of Japan (ESCJ) • Conduct regulations imposed on electric utilities • A system to facilitate new entrants to procure power sources is introduced • Development of a wholesale electric power exchange • JEPX • Liberalization after April 2005

  23. Japan Electric Power Exchange

  24. Japan Electric Power Exchange • JEPX Profile (1/2) • Japan Electric Power Exchange (JEPX) was founded as a limited liability intermediate corporation * on November 28, 2003, based on the purports of the report “Framework of the Desirable Future Electricity Industry System" presented by the Electricity Industry Committee of the Ministry of Economy, Trade and Industry. • This corporation is aimed at fostering the interests common to the partners thereof by opening and operating the wholesale electric power exchange that mediates spot transactions and forward transactions of electricity. * Intermediate corporation: a group that is not aimed at making profits but is aimed at increasing the interests common to its members (partners).

  25. Japan Electric Power Exchange • JEPX Profile (2/2) [Partners] (those who operate the corporation and are contributors of the fund) [Trading members] (participant in transaction) 31 companies (September 2006) 21 companies (August 2005) [Information members] (those members who only peruse the information on transactions) 29 (including corporations and individuals)

  26. Operational committee (21) Market monitoring committee (5) Liquidity assurance committee (5) • Japan Electric Power Exchange • Structure of JEPX General meeting of partners Auditors (2) Board of directors (10) To discuss the operation of the exchange such as the establishment, revision and abolition of the articles of incorporation, and the line of products. To supervise the actions taken by traders in the market to ensure fair transactions. To verify the amount of input into this exchange by electric utilities for a certain period (two years) after the opening of the exchange to ensure the liquidity of market. Administration office Dispute settlement committee (5) To arbitrate and settle disputes between members.

  27. Japan Electric Power Exchange • Purposes of JEPX • JEPX is aimed at realizing the following purposes by operating a wholesale electric power exchange. To create price indicators that can be helpful in judging a risk of investment in power sources. To form market prices of electric power, which reflect demand-and-supply positions that fluctuate with seasons and time periods. To provide an arena where excess and deficiency of power sources can be adjusted through transactions between electric power companies. Individual firms have their respective load curves of different shapes. Therefore, it will be possible to use power sources more efficiently overall, if they make up for excess or deficiency of supply capacity with each other through the exchange.

  28. Spot Market The place to trade the electricity that will be delivered on the following day. • Forward Fixed-Form Market The place to trade the electricity that will be delivered after a certain period of time. • Forward Bulletin Board Market The place to make transactions by freely posting messages on the bulletin board. • Japan Electric Power Exchange • Policy of transactions • Japan Electric Power Exchange is a place to match the demand for and supply of electricity as physical goods. It does not assume such transactions and settlements by means of financial instruments. Place to Trade Electricity as Physical goods • Markets JEPX provides the following three nationwide markets.

  29. Japan Electric Power Exchange • Principles of Transactions 1. Prevention of market manipulation Unfair transactions such as price manipulation, interference in transactions, occupation of interconnection lines, etc. are prevented. 2. Ensuring of liquidity (vitalization of transactions) The ensuring of liquidity is aimed at improving the usability for traders. It is also effective to ensure operating revenues of the exchange and to prevent market manipulation. 3. Ensuring of stable electricity supply To ensure the stable supply of electricity, places of power generation and delivery are specified for every transaction. [Supervision of Transactions and Penalty] Transactions are supervised based on the rules of the exchange to avoid any unfair transaction. Penalties are imposed on any violation of the rules.

  30. Member JEPX API connection JEPX's computer system System on the member side Web connection Use of the screen provided by JEPX • Japan Electric Power Exchange • Way of Transaction • Each member is required to make all transactions respective markets through JEPX's computer system. The notices of acceptance of solicitations for bids and that of contracts concluded are provided by the computer system. For participation, each member is required to create an environment to access the Internet. JEPX's computer system and access image

  31. JEPX Markets

  32. JEPX Markets • Spot Market Products ・ In proportion to 30 minutes as the minimum unit of balancing and measuring, 48 products are traded every 30 minutes in 24 hours a day. ・ The minimum volume of bid is set at 1MW in increments of 30 minutes (= 500 kWh). Way of Matching ・ Matching is conducted by a single price auction. ・ When tie line are congested, the market is split, and matching is conducted in each split market. Compensation due to Generator Malfunction ・ JEPX mediates a buyer's claim to be paid by a seller for damages in case the seller's generator causes a malfunction. For this purpose, a "seller (power generator)" and a "buyer (power supplier)" are matched with each other on the system.

  33. MW \/MWh MW • JEPX Markets • Single Price Auction（1/2） Seller's respective curves that represent selling bids Buyer's respective curves that represent buying bids \/MWh \/MWh Composite buying curve Composite selling curve MW \/MWh MW

  34. JEPX Markets • Single Price Auction（2/2） Price When tie line are congested, the market is divided, and matching is conducted in each split market. "Selling" bid data Aggregate Bids from participants Agreed price The volume to be "sold" and that to be "bought" are matched at a certain price. "Buying" bid data Volume

  35. \/MWh \/MWh 3 MW bought P P MW MW 3 3 \/MWh P MW 3 • JEPX Markets • Market Splitting (1/2) Region 2 Region 1 Composite selling System price P Composite buying 0 MW bought \/MWh 3 MW flows from Region 1 to Region 2, which exceed the interconnection line's 1 MW capacity. 3 MW sold P 0 MW sold MW 3

  36. JEPX Markets • Market Splitting (2/2) Region 1 Region 2 The price is adjusted to reduce the amount of electricity that flows to its interconnection line capacity of 1 MW by decreasing the price in Region 1 and increasing the price in Region 2. \/MWh \/MWh 2 MW bought 1 MW bought P2 P1 MW MW 1 2 As a result, the price in Region 1 becomes P1 (<P). The price in Region 2 becomes P2 (>P). \/MWh \/MWh 1 MW sold 2 MW sold P2 P1 MW MW 2 1

  37. JEPX Markets • The forward fixed-form market deals with electricity transactions to be delivered in one month or one week period starting in two weeks later to one year ahead. • The forward fixed-form market has four products depending on the period and pattern of electricity delivery: “Monthly 24-hour type product,” “Weekly 24-hour type product,” “Monthly daytime type product,” and “Weekly daytime type product.” • Forward Fixed-Form Market • Monthly 24-hour type product Delivers certain amount of electricity constantly for one month. • Monthly daytime type product 8 a.m. 22 p.m. 8 a.m. 22 p.m. 8 a.m. 22 p.m. Delivers electricity between 8 a.m. and 10 p.m. on all delivery days except Saturday, Sunday, national holiday and holidays designated by PX. No delivery on Saturday & Sunday ･･･ Weekly products which deals with one week electricity delivery starting two weeks later to nine weeks later are also available. ・ Matching is done by continuous sessions. ・ Participants are allowed to set terms and conditions of authorizing credits for other participants.

  38. JEPX Markets • Matching in Continuous Session at JEPX In the case of an ordinary continuous session, the bidding data displayed in boldface type are immediately contracted and excluded from the session. In the case of JEPX, such data might remain in the session because of restrictions on interconnection lines, etc. Selling Buying 45ＭＷ 8.01 yen 35ＭＷ 7.78 yen 500ＭＷ 7.77 yen 7.03 yen 20ＭＷ 20ＭＷ 6.89 yen 6.66 yen 200ＭＷ 6.50 yen 300ＭＷ New bid Selling: 6.50 yen, 30 MW New bids are matched with higher priority given to prices, after the conditions of credit authorization and the possibility of interconnection transmission are checked.

  39. Image of bulletin board (in case of sale of power) Selling Some room is left for the parties to negotiate with each other. Nippon Electric Power Co. Phone No. 03-XXXX-XXXX (contact Sato) July 1, 2006 – August 31, 2006 "Fixed-price + as-used price" type Up to 17 MW, 1,700 MWh Area: Tokyo kW price: 1,000 yen per kW kWh price: 10.00 yen per kWh Special remarks • JEPX Markets • Bulletin Board

  40. JEPX's track record to date

  41. JEPX's track record to date • Outline of Transactions Made to Date (1/4) Total contract volume FY2005

  42. JEPX's track record to date • Outline of Transactions Made to Date (2/4) Total contract volume FY2006

  43. JEPX's track record to date • Outline of Transactions Made to Date (3/4) Average volume of spot transactions contracted per day and average system price FY2005

  44. JEPX's track record to date • Outline of Transactions Made to Date (4/4) Average volume of spot transactions contracted per day and average system price FY2006

  45. JEPX's track record to date • Changes in Weekly Average of Contract Volume of Spot Transactions and System Prices

  46. JEPX's track record to date • Changes in Contract Volume of Spot Transactions and Prices (Daily Basis)

  47. JEPX's track record to date • Outline of Results of Forward Fixed-Form Transactions (by Product, FY) Monthly FY2005 Total volume of contracts concluded The number of contracts concluded: 28 Total volume of contracts:150,426,000 kWh Price(Ave.)： 13.40 yen/kWh

  48. JEPX's track record to date • Outline of Results of Forward Fixed-Form Transactions (by Product, FY2006) Monthly FY2006 Total volume of contracts concluded The number of contracts concluded: 2 Total volume of contracts:2,268,000 kWh Price(Ave.)： 12.23 yen/kWh As of 30-Sep

  49. JEPX's track record to date • Outline of Results of Forward Fixed-Form Transactions (by Product, FY) Weekly FY2006 Total volume of contracts concluded The number of contracts concluded: 15 Total volume of contracts:101,430,000 kWh Price(Ave.)： 12.69 yen/kWh As of 30-Sep

  50. Comparative table of Electric Power Exchange

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