The Ministry of Economy, Trade and Industry is developing various markets to revitalize the wholesale power market. The reason for this is that after the liberalization of electric power market, the new powers that do not have power sources of their own are gradually being eliminated, and the survival competition is starting to intensify. Especially since the wholesale price has soared due to severe winter this year, withdrawal and sale of new powers continue one after another. The electric power industry is entering a reorganization process accompanied by survival competition.
The authorities intend to revitalize procurement of power through the wholesale power market and continue the current competitive situation so that new power will last for a long time and realize inexpensive power procurement of a certain scale. However, it will be difficult to realize power procurement by the futures market. The reason is due to bad compatibility of electricity with futures trading.
The merit of doing long-term (ex 1 year) trading is for buyers to pre-determine future procurement prices in advance and to avoid price fluctuation risk. For the seller to fix the selling price of their inventory and avoid excessive inventory risk. Indeed, it is possible to understand that commodity futures trading in the world began spontaneously as the interests of buyers and sellers agreed.
However, in the case of electricity, unlike general goods, it can not be stored, so the concept of inventory does not exist. Therefore, the act of establishing future wholesale price for the generator is effectively gambling. If there is a certain amount of inventory, the procurement cost of that product has already been fixed, so there is economic rationality to determine the selling price. However, if you determine in advance the selling price of a future product whose production cost or supply-demand environment fluctuates, you will be subject to a large risk.
This is easy to understand given the fact that for fresh foods, such as vegetable and fruit, futures markets do not actually exist. Fresh foods can not be stored for a long time, so there is no economic merit especially for sellers to do futures trading(on the contrary, wheat, corn, and other inventoryable crops have futures markets). Because electricity also has similar properties, it is lacking suitability as a commodity for futures trading over a certain period of time.
Discussions over current wholesale electricity transactions do not reflect the characteristics of such. METI seems to be caught up in making the market a favorable figure for new power, a buyer, by emphasis on maintaining and developing a competitive environment. From such a point of view, if you think that the base power supply should be opened to new electric powers, for example, instead of taking the appearance of ”market”, we should create a system that supplies a fixed amount at a reasonable price based on the cost of power supply (This is considered to be a throwback to ”cost principle”, so it will not be selected).
We should not place great expectations on wholesale trading markets institutionalized under such circumstances. Even if the base load power market is realized, dissatisfaction over price and quantity is thought to erupt from both buyer and seller. Also, it will take even longer for the discussion to be settled. New powers without a power source should not bet their own future on these wholesale transactions and discussions over that system.