Japan experienced a record-breaking heatwave in July 2018, spiking wholesale power prices across the grid. The monthly average temperature and the total solar irradiation were the highest in the region since measurements began in 1946. The JEPX Day-Ahead (DA) spot market daytime maximum prices steadily increased from around 15 yen/kWh from 17 July onwards, spiking to 100 yen/kWh in West Japan (as represented by Kansai prices) and 75 yen/kWh in Kyushu during 24 and 25 July (Figure 1).
We investigated the various potential fundamental contributing factors to these price spikes. The first thing we considered were the soaring temperatures, which were 2.8°C higher than the July average, increasing the usage of cooling equipment including air conditioners. Figure 2 shows the daily average Kansai spot price following the increase in demand levels from the start of the month. However, when the prices spiked on 24 and 25 July, the level of demand remained comparable to the previous week, at a daily total of nearly 540 GW/h. This suggests that demand was not the critical factor in causing the West Japan spot price spikes to 100 yen/kWh.
For insight into the supply stack, we leverage the aggregated views in PowerRT to show Genscape’s monitored generation in West Japan. Figure 3 presents a panel from the PowerRT platform, comparing the total monitored coal-fired generation in West Japan for June and July. We discovered plants substantially increased generation from month to month, stabilizing at a maximum generation level from the second week of July. Given the context of rising demand and prices around this time, it suggests that the monitored coal plants were generating at, or close to, their maximum available capacity. Coal generation is not a likely cause of the price spikes on 24 and 25 July, as they were generating consistently at a high level.
Another important factor to look at for the time period is gas generation. Figure 4 shows a comparison of the total monitored gas-fired generation in West Japan in July with June 2018 through PowerRT. The platform shows that since the second week of July, the peak generation (day-time maximum) of gas plants remained at a constant level, suggesting that the maximum peak generation capacity for the monitored plants has been reached. The off-peak generation during the week (night-time minimum), however, steadily increased since the second week of July, where there was around a 90 percent difference between peak and off-peak generation, to nearly a 20 percent difference by the fourth week. This suggests that gas plants were also providing base-load supply and generating at, or close to, their maximum available capacity. The consistent gas generation shows that like coal, it is not likely a cause of the price increases.
A third area that is important to look at is oil generation. Figure 5 shows a panel from PowerRT, comparing the total monitored oil-fired generation in West Japan in July with June. It shows that in comparison to the second week of July, both peak and off-peak generation rose significantly in the week after. With demand rising sharply during this period, and other monitored thermal plants nearing their maximum available capacity, we expected to see oil plants fill the gap in supply. During the fourth week of July, the off-peak generation actually decreased significantly. We can also see that the peak generation levels of oil plants fell sharply on the 24 and 25 July when the West Japan prices peaked at 100 yen/kWh, suggesting a tight supply situation. This decrease may be due to various factors, including low remaining local fuel storage levels. Given that demand remains at similar high levels for the third and fourth week of July, the decrease in both the peak and off-peak generation of oil plants in the fourth week could have played a large role in the spot price spikes in West Japan.
Finally, our analysts also considered the supply from hydro plants in West Japan when evaluating the situation. Figure 6 is a panel from PowerRT that shows the aggregated generation in July 2018 for the nine large pump hydro power plants monitored by Genscape in West Japan. This clearly shows day-time peak generation (as well as night-time pumping) increased significantly in the third week of July compared to earlier in the month. However, on the 24 and 25 July, the day-time peak generation is substantially lower than 23 July. The decrease in supply obviously also contributed to the tightness of the market and the resulting high price spikes.
The PowerRT platform can be leveraged for a keen understanding into real-time events across the Japan grid. It unmasks new trading opportunities and helps to optimize asset usage. To learn more about our insight into real-time generation and transmission visibility, please click here.