|Bid||30.85 x 3200|
|Ask||30.83 x 900|
|Day's Range||30.46 - 30.86|
|52 Week Range||21.26 - 61.17|
|Beta (5Y Monthly)||0.82|
|PE Ratio (TTM)||N/A|
|Forward Dividend & Yield||1.28 (4.06%)|
|Ex-Dividend Date||Aug 13, 2020|
|1y Target Est||40.59|
(Bloomberg) -- Some of the world’s biggest energy traders are looking to get ahead in Japan’s nascent power market.From Royal Dutch Shell Plc to German utility RWE AG, companies are hiring, reassigning staff and building relationships with Japanese firms to profit in the $136 billion market. After building mature markets in Europe and the U.S., they have their sights on the third-biggest economy, which is taking shape the way European trading did 20 years ago.While western markets are increasingly dominated by renewable energy and shrinking profit margins, the potential for price volatility and arbitrage in Japan are a trader’s dream: It has four distinct seasons, a growing supply of intermittent renewables, an uncertain future for its massive nuclear fleet and two separate grids, not to mention a heavy reliance on imports of natural gas, which many of the new entrants already trade.“I’m confident Japan will be the next big market,” said Steffen Riediger, a director at European Energy Exchange AG, which launched a service to clear futures trades in May. “We’re looking at a market that is developing fast.”European companies are adopting various strategies. Swedish utility Vattenfall AB plans to hire a futures trader for its German trading office, while RWE has established a subsidiary in Tokyo. From there, the German company plans to be active in the physical and financial trading.RWE has been talking to regulators and exchanges since the market fully liberalized in 2016, said Peter Krembel, chief commercial officer at RWE’s trading unit.“We are already involved in trading fuels into Japan, so we are familiar with the fuel component for the power generation, and it would be very complimentary to trade electricity,” he said. “This is what makes it attractive.”Shell was an early mover into the country, setting up a desk in 2018 in a bid to trade the physical power market. That requires a local presence, supply contracts and a deep understanding of the market and its customers.Buying and selling derivatives, on the other hand, can be done from anywhere, making the barrier to entry far lower. The company declined to comment on how its operations have developed.Of 13 foreign firms seeking to trade Japanese power products, four have opened or are planning to open an office in Tokyo, according to traders and company spokespeople surveyed by Bloomberg.ExpansionWhile many companies had their eye on the market since the liberalization four years ago, it wasn’t until Tokyo Commodity Exchange started a futures trading in September and EEX’s launch of clearing services that expansion began in earnest.Still, it’s seen by many companies as essential to speak Japanese to be a credible presence. Additionally, transparency of supply and demand is nothing like in Europe, where millions of data points are available for everything from Spanish solar power to Norwegian hydro production.“Japan is comparable to the European power market in 2000 - there is a functioning day-ahead market and the prospects are interesting,” said Frank van Doorn, head of trading at Vattenfall.Other liberalized Asian markets, such as Australia or Singapore, can’t compete with Japan in terms of size. Traded volume on Japan’s day-ahead physical power contract has ballooned since 2016 and passed one terawatt-hour for the first time earlier this month, nearly double the amount traded on a given day in Germany, Europe’s biggest physical market.“With volumes hitting 1 terawatt-hour, or 40% of the total demand, it’s crucial that domestic participants have the ability to effectively hedge these risks in the futures market,” James Whistler, the global head of energy derivatives at Simpson Spence Young, said by email.SSY began providing brokering services for Japan power this year.Renewable energy, excluding hydro, accounts for 7% of Japan’s power mix now, with solar the biggest contributor. The government’s goal is to reach between 22% and 24% by 2030.Although not an ambitious target, growth in intermittent renewables will make prices more volatile and EEX is betting that’ll boost the need for more companies to become active in the futures market, EEX’s Riediger said.But progress of the derivatives market, which foreign firms are most interested in tapping, has so far been slow.The hesitance comes from the lack of local interest in derivatives. Utilities have largely dragged their feet in joining the futures market, leaving liquidity wallowing near zero, as they pass most costs off to the consumer. Meanwhile, the nation’s 600 registered electricity retailers have shown limited interest in hedging or paper trading.In July, 35.7 gigawatt-hours, or 0.0357 terawatt-hours, of Japanese power derivatives were cleared on TOCOM and EEX, a tiny fraction of the 213 terawatt-hours in Germany.Futures trading is unlikely to grow without more regulatory reforms, according to BloombergNEF. Removing regulated retail power rates and mandating disclosure of bilateral power contracts would help put futures on equal footing with opaque company-to-company contracts, which remain the most popular form of hedging, BNEF analysts said in a June report.“The market in Japan is still in its infancy,” said RWE’s Krembel. “However, the Japanese government together with the exchanges and market participants have created a promising market environment.”Tradable liquidity should appear within the next 12-24 months, according to Tobias Davis at Tullett Prebon, which has employed a dedicated power broker in Tokyo.“Derivatives are still quite a new concept to power-market participants within Japan,” Davis said by email. “We are confident over time a healthy marketplace will emerge.”The below companies are currently trading, registered to trade or are exploring setting up a desk to cover Japan power, according to press releases, spokespeople and Tocom’s website.ShellRWEVattenfallEngie SATrafigura GroupElectroRoute Energy Trading LtdMacquarie Group LtdUniper SEMunich Re Trading LLCEpoch Capital Pty LtdTotal SE(Updates with BNEF comment in fifth paragraph from the end.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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