Publication date: March 4, 2025 February 2025 Monthly Newsletter: The Latest News In The Japanese Power Market
February 2025 Monthly Newsletter
Friends and Colleagues,
Cold weather affected Japan in February, leading to increased electricity demand. The lower temperatures pushed up heating requirements, increasing spot market prices and gas consumption – although rising solar output is a reassuring sign that spring is just around the corner. On February 18, the government approved the 7th Strategic Energy Plan which aims to expand renewable energy to 40-50% of the total by FY2040, making it the largest power source.
In this month’s newsletter, we begin exploring METI’s new price adjustment scheme for offshore wind power projects that should help hedge against investment risks. We also highlight a sharp rise in trading volume of Japanese electricity futures on the European Energy Exchange (EEX), as well as its introduction of Japanese options. Finally, the newsletter concludes with three energy and climate policy documents recently approved by the government, which illustrate the direction of Japan’s energy future.
February 2025 Monthly Newsletter: The Latest News In The Japanese Power Market
New Price Adjustment Mechanism for Offshore Wind Projects
The Ministry of Economy, Trade and Industry (METI) will introduce a new system for allocating offshore wind power promotion zones and selecting power producers through public competition. It plans to introduce a price adjustment mechanism to deal with the risks of supply chain inflation and exchange rate fluctuations in future public tenders, while also increasing the deposit amount to deter project withdrawal or delay.
Under certain conditions, the price adjustment scheme could be applied to projects that have already been publicly tendered, such as Mitsubishi’s project in 2021, in which it won three bids in three promotion zones. Mitsubishi recorded a JPY 52.2 billion loss in its offshore wind power division due to unforeseen cost increases, and is currently reassessing the projects by exploring various measures to improve their viability. METI intends to use the price adjustment mechanism to save Mitsubishi’s projects, but whether the company proceeds or not depends on the results of its reassessment process.
According to METI, comparing FY2018 with FY2023, after the outbreak of the Ukrainian crisis, rising costs would have resulted in a price adjustment of plus 40%. The adjustment mechanism links the base price of the feed-in premium (FIP) to the rate of price fluctuation, and the maximum fluctuation rate is set at 40%.
February 2025 Monthly Newsletter: The Latest News In The Japanese Power Market
EEX Japanese Electricity Futures Trade Hits New Record; Exchange Introduces Options
On February 10, trading in Japanese electricity futures contracts on the European Energy Exchange (EEX) surged, reaching a daily volume of about 2 terawatt hours, more than double the previous daily high of about 0.9 terawatt hours registered in September 2024. According to an expert, the increase was triggered by high gas prices in Europe, which led traders to adjust their holdings in anticipation of a spillover effect on Japanese electricity prices – indicating how interlinked the two markets have become as Europe increases its reliance on LNG.
A week earlier on February 3, the EEX began trading options on Japanese electricity futures. Users can limit their losses from futures price fluctuations by paying an option fee, and if the use of options becomes more widespread, Japanese electricity retailers may be able to offer more options in the electricity pricing menus they offer to their customers. EEX has launched options trading on the monthly average price of Tokyo and Kansai electricity futures contracts, covering the contract months up to nine months ahead, including the current month.
February 2025 Monthly Newsletter: The Latest News In The Japanese Power Market
Government Approves Three Key Energy and Climate Policy Documents
The Japanese government has approved three key energy and climate policy documents: ‘the GX 2040 Vision’, ‘the 7th Strategic Energy Plan’, and ‘the Global Warming Countermeasure Plan’. These policies aim to transition to a decarbonized economy while maintaining economic growth, targeting a 73% reduction in greenhouse gas emissions by 2040 compared to 2013 levels and achieving carbon neutrality by 2050.
Although the GX 2040 Vision and the 7th Strategic Energy Plan have not changed significantly from the latest draft versions presented last year, some additions have been introduced. The recently approved GX 2040 Vision emphasises the promotion of a market environment for GX products and services, as well as prioritising government support for certain companies that take early action. Regarding the 7th Strategic Energy Plan, ‘biodiversity consideration’ has been included as a point to be evaluated to ensure greater harmony between renewable energy projects and host communities. It also encourages renewable energy projects independent of FIT/FIP schemes.
February 2025 Monthly Newsletter: The Latest News In The Japanese Power Market