Price outlook for Base Load Market

Base load market is due to open.

The opening of the baseload market is finally approaching. From July 2019, the former General Electricity Utilities will sell nuclear power, general water power and coal-fired power to new powers through this market. Baseload market is established to promote competition.

The purpose is to supply inexpensive and stable power to new powers that struggle to procure power. In particular, new powers, which relie on the wholesale power exchange (JEPX) for lot of their power supplies and struggle with price volatility during intense heat and severe winter, have high expectations.

What will the price be?

Well, the problem is the price. Power utilities have carefully considered, but generally, they have already made decisions about price levels. It seems that they could consider relatively smoothly because they have good experience of backing up as wholesale charges from the beginning of the liberalization of the electricity market.

For example, fixed costs arising from nuclear facilities that are down are also expected to be included in the price. As a result, it is better to think that the level does not reach the level expected by new powers and METI. It is likely to be a tough outcome for new powers that have a business plan in the baseload market.

JERA becomes a wildcard

The exception is JERA. Human resources dispatched from Tokyo Chubu Electric Power do not know charge practices, they have little experience in considering power supply costs, and they have not been able to discuss each other sufficiently because of their vigilance compared with those of other companies. The reality is that JERA’s Corporate Planning Department has been driving in with the help of the Central Research Institute and other think tanks.

As well known, METI aiming to reorganize power, Chubu Electric Power aiming to acquire a market in the metropolitan area, JERA, the huge thermal power company created by part of TEPCO in accordance with these plans for individual survival. The power stations in the Tokyo metropolitan area that can be used as a baseload power source are 3.2 million kW in total: Hitachi Naka 1 and 2 (2 million kW) and Hirono 5 and 6 (1.2 million kW).

The limits of the baseload market are clear

It can be considered that there is a possibility that pressure will be applied (already applied) to keep the delivery price of these base load power supplies below a certain level. In addition to the process of establishment, an administrative lawsuit calling for the termination of the construction of Yokosuka Thermal Power (coal) has also been filed, and JERA is in a way that is hard to stand against the will of the country.

However, the scale of JERA’s coal-fired power generation is small and the impact on the price level of the baseload market is limited. The effect of opening a base load market to compensate for the competitiveness of new power will never be such a level that new powers are satisfactory.

As a result, the dissatisfaction of new electric powers over wholesale electric power procurement has not been resolved, and it is better to think that the conflict between the new powers and power utilities will continue.

Dissatisfaction with price levels in the baseload market could lead to the next step, accounting separation of the power generation and retail businesses and thus legal separation.