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Japan Power Market Opportunity is Knocking December 8, 2020 www.skippingstone.com www.skippingstone.jp www.skippingstone.com www.skippingstone.jp Boston Boston Atlanta Atlanta Houston Houston Los Angeles Los Angeles Tokyo Tokyo London LondonSingapore Welcome to our webinar! Let’s do a little housekeeping… Getting Started • Make sure your sound is turned on and adjust the volume. How to Ask Questions • Submit your questions via the “Q&A” box (“Chat” is disabled). • Hover over the bottom of your screen and click the Q&A icon. © Skipping Stone, LLC. – All Rights Reserved 2020 2 Speakers 25+ Years in Risk 30+ Years in Global Mgmt. & Trading Power & Gas Markets Industry Experience Industry Experience CEO Commerce Energy Global Commodities COO ACN Europe Futures Markets COO TransEnergy Risk Management Hiroshi Okuyama Peter Weigand Executive Vice President Chairman & CEO • President of a Global Trading Company • PennWell Top 50 Most Influential in Energy Markets • Built & Managed International Growth • Inc. 500 Fastest Growing – 3 Times • Risk Management Expertise • 20+ M&A Transactions • International relationships • 8 Boards of Directors • Years in US Market Leadership Role • Japan Market Expert Tokyo, Japan Los Angeles, USA [email protected] [email protected] © Skipping Stone, LLC. – All Rights Reserved 2020 3 Hiroshi Okuyama Executive Vice President My Topics . Market Structure & Players . Retail Electric Markets . Physical Wholesale Markets o JEPX o OCCTO . Financial Trading Markets o TOCOM & EEX . Price Analytics © Skipping Stone, LLC. – All Rights Reserved 2020 4 Market Structure & Players © Skipping Stone, LLC. – All Rights Reserved 2020 5 Electricity Market Overview Japan is the world’s largest fully liberalized electricity market. TWh Partially Liberalized 50 60 hertz hertz Fully Liberalized Source: IEA Non Regulated Regulated 2019 Japan National Electricity Demand Large High Others (GWh) High Voltage Low Voltage Special Demand Voltage Deemed Retail Electric Supplier (Utilities Subsidiaries) 217,243 232,303 112,014 142,837 2,238 PPS 12,676 69,509 47,218 Specific Supply(Demand) for Inter- Group(i.e. Industrial Complexs) 41,095 Total 229,919 301,812 159,232 142,837 43,334 Source:Anre 2019 Total National Demand 877,133 © Skipping Stone, LLC. – All Rights Reserved 2020 6 Electricity Market Structure Regulator: METI (Ministry of Economy, Trade & Industry) Generation Coal Nuclear LNG/Gas Fired Hydro Biomass Renewable Oil DR/Battery 166 IPP’s T&D Companies (Utilities Subsidiaries) TEPCO Chubu Chugoku Shikoku Hokuriku Kansai Kyushu Tohoku Hokkaido Okinawa Wholesale Markets JEPX OCCTO TOCOM EEX Retail/Trading Entities PPS Balancing 684 27 Trading 76 + - Retailer - Group © Skipping Stone, LLC. – All Rights Reserved 2020 7 Physical Electricity Market Model High Voltage (C&I) Physical Customers Low Voltage (Mass Market) Trading Supply, Billing • T&D Charges (energy + T&D) • T&D Payment • Imbalance Charges PPS T&D Utility Retailer Does not sell Enroll/ Switch energy. Wires only Meter Data company • Scheduling • Customer Switching Balancing • Meter Data Group OCCTO • Supply Services (ISO) • Scheduling • Balancing Key Functions Markets • Credit Sleeve • Switch Mgmt. • Capacity 2020 JEPX • Scheduling • Transmission 2022 • • • Spot (day ahead) Balancing Balancing 2021 • • Intraday (real time) Meter Data - Ancillary Services Generation • • Basis (east/west) - From utilities Negawatt 2018 • • Baseload (I year) Transmission • Non-Fossil Cert. Siting • Green Certs Bilateral TOCOM Auction Model Financial Not Clearing Model EEX Markets OTC © Skipping Stone, LLC. – All Rights Reserved 2020 8 Electricity Retail Market © Skipping Stone, LLC. – All Rights Reserved 2020 9 Retail Electricity Market . 86 Million Customers Eligible to Switch (all of them) . As of June 2020: 21.6 Million Switched since the liberation in 2016. Averaging about 400,000 switches per month Electric Customers Utilities Fast Facts Tokyo 29,031,000 . Whether selling end users or trading physical Kansai 13,607,000 power, each company MUST HAVE Chubu 10,580,000 - METI PPS License Kyushu 8,634,000 - OCCTO Membership Tohoku 7,715,000 - Wheeling Agreement with T&D Utilities Chugoku 5,243,000 . Each utility is a separate market Hokkaido 4,023,000 . Every switched customer gets a smart meter Shikoku 2,849,000 . All power supply is scheduled thru OCCTO Hokuriku 2,106,000 . Retailers bill customers, including T&D charges Okinawa 875,000 © Skipping Stone, LLC. – All Rights Reserved 2020 10 Top 25 Retailers As of July 2020 Rank in July Rank in MWh MWh Company Name RCE 2020 June 2020 in June 2020 in July 2020 1 1 Ennet 966,034 1,068,358 3,988,214 . 684 Licensed PPS 2 2 TEPCO Customer Service 882,022 960,323 3,584,916 3 3 Tokyo Gas 658,430 714,565 2,667,493 - Mass Market (low voltage) 4 4 ENEOS Corporation 485,048 542,237 2,024,188 5 5 Kyuden Mirai Energy 445,707 529,502 1,976,647 - C&I (high voltage) 6 6 F-Power 412,355 462,965 1,728,262 - Municipalities 7 7 Osaka Gas 336,167 414,420 1,547,043 8 8 KDDI 329,829 369,499 1,379,351 - Utility Subs 9 9 SB Power 257,330 300,707 1,122,549 - Physical Trading Companies 10 10 Eneres Power Marketing 250,860 271,241 1,012,551 11 Synergia Power Co.,Ltd. 238,959 11 262,913 981,462 . 12 12 Marubeni Power Retail Corporation 231,036 256,376 957,060 Bundles are Popular 13 13 Idemitsu Kosan 212,810 244,722 913,555 - Electricity & Gas 14 14 Haluene Co., Ltd. 192,643 235,473 879,028 15 35 CD Energy Direct Co.,Ltd. 73,280 196,004 731,689 - Club Points 16 15 Evergreen Marketing (EREX Co., Ltd.) 162,429 180,229 672,800 - Telecom 17 16 Mitsuuroko Green Energy 151,985 171,636 640,723 18 17 Orix 147,954 159,550 595,605 - Home Services 19 19 SymEnergy Inc.(Koyo Electric) 126,277 143,963 537,418 . 20 18 Kanden Energy Solution Co., Inc 130,325 141,262 527,335 Municipalities are a big 21 22 West Electric Power Co.,Inc 123,572 140,473 524,390 untapped market participant 22 20 Summit Energy 125,518 138,516 517,085 23 21 HOPE, INC 124,522 137,867 514,662 24 23 Nihon Techno 109,130 124,696 465,494 25 24 TOHO GAS Co., Ltd. 102,787 123,134 459,663 Source: Skipping Stone Monthly Japan Energy Market Report © Skipping Stone, LLC. – All Rights Reserved 2020 11 Wholesale Market © Skipping Stone, LLC. – All Rights Reserved 2020 12 Wholesale Markets in Growth Mode I. When retail markets fully opened in 2016, wholesale option then was only JEPX . At the time JEPX was only 3% of the physical market, now 42%. II. Today Japan has several wholesale markets . JEPX – Spot (Day Ahead), Intraday, Indirect Transmission, Baseload, Forward, Non-Fossil Certificate . OCCTO – Capacity, Transmission (2021-2022?), Ancillary (opens April 2021) Nagawatt (2022) . Futures markets – TOCOM & EEX . OTC market – growing steadily . Bilateral market – METI mandate forcing utility generators to play . IPP market – METI forcing IPP’s to unwind utility contracts and put generation in the spot or bilateral market III. The number of trading firms has grown since 2016 . In 2016 there were about 20 active trading firms, today over 70 . International trading firms are entering the Japan market . Brokers and market makers have entered the market © Skipping Stone, LLC. – All Rights Reserved 2020 13 JEPX Markets © Skipping Stone, LLC. – All Rights Reserved 2020 14 JEPX Markets (1) Spot (Day ahead) Market ---Flagship of JEPX . Most Actively traded in the exchange . Priced in 30-minute increment auctioned a day before . Each 9 regional utility market priced separately as such Tokyo, Kansai, Hokkaido, Tohoku… Trading volume on JEPX has increased significantly since full deregulation from 3% to 42% of total electricity generation Fiscal 2019 (April-Mar) Daily Average 799 GWh Covid-19 In August, for the first time over 100GWh was executed in one day. 2020 April 1st – November 30 Daily Average 832GWh Source JEPX © Skipping Stone, LLC. – All Rights Reserved 2020 15 JEPX Markets (2) Intraday Market 30-minute increment auctioned by one hour before same day (like real time) Indirect Transmission Market Buy or sell differentials of prices of two regions apart. Baseload Market One-year fixed price fixed volume auction Held three times a year Forward Market Exists, but very little traded (bulletin board model) Non-Fossil Certificates 4 Auctions a year with a floor price © Skipping Stone, LLC. – All Rights Reserved 2020 16 OCCTO (ISO) Markets © Skipping Stone, LLC. – All Rights Reserved 2020 17 OCCTO Wholesale Markets Capacity Market . Launched in Summer 2020 . 3- year bid auction model . Retailers will be required to procure capacity for load served Transmission Market . Rules still under review, plans to launch in 2021 or 2022 . Main hurdle is utilities with preferred rights and ownership Ancillary Market . Called Supply Demand Balancing Market in Japan . Launching in April 2021 . Generation, storage, VPP and demand response can participate . This market will replace current utility back-up supply option for retailers Negawatt Market . This market will be tied to Ancillary Market in 2022 . Market already exists, but low volumes and odd rules . For example, DR aggregator must pay utility for load reduction derived from tariff customers . Anticipate retailers to become buyers to avoid peak spot prices or imbalance penalties © Skipping Stone, LLC. – All Rights Reserved 2020 18 Futures Markets EEX & TOCOM © Skipping Stone, LLC. – All Rights Reserved 2020 19 Financial Markets --- Exchange Listed Futures TOCOM EEX Started in September 2019 Started in May 2020 . East Area Base Load . Tokyo Area Base Load . East Area Peak Load . Tokyo Area Peak Load . West Area Base Load . Kansai Area Base Load . West Area Peak Load . Kansai Area Peak Load . JEPX Spot (Day Ahead) Contract Month . JEPX Spot (Day Ahead) Contract Month Average for each area respectively Average for each area respectively .