Japan Heats Up and Power Prices Soar, Again

Power plant
Blog August 09, 2019

In 2018, we analysed the surge in Japanese power prices from the summer heat wave, and now a year later, we see a similar spike in power prices as we enter August, despite them being relatively low in early July.

In Figure 1, we see the national average power price in Japan for 2018 and 2019 from the Japan Electric Power Exchange (JEPX). The difference is dramatic, with prices in July 2019 below the lowest in 2018. However, as temperatures rose in late July, we see price spikes reminiscent of the summer 2018 increases.

Figure 1:  National average hourly power prices (JPY/kWh) in Japan for July and August 2018 and 2019 (Source: Japan Electric Power Exchange (JEPX)) and available via Genscape’s EPSI platform
Figure 1:  National average hourly power prices (JPY/kWh) in Japan for July and August 2018 and 2019, available via Genscape’s EPSI platform. Source: Japan Electric Power Exchange (JEPX)

In Figure 2, we see a comparison of Japanese oil, coal, and gas generation monitored by Genscape PowerRT technology between July-August 2018 and 2019. We clearly see that demand this year is far less compared to last year, but rose to the same levels as 2018 by the end of July,

Figure 2:  Total coal, LNG, and oil-based power generation in Japan comparing July 2018 and 2019. Source: PowerRT platform
Figure 2: Total coal, LNG, and oil-based power generation in Japan comparing July 2018 and 2019. Source: Genscape PowerRT platform

The primary reason for lower demand is the extended rainy season this year, with reports that it was the cloudiest July in 129 years. Average temperatures were down 20 percent throughout most of the month. For the first time in 33 years, central Tokyo did not see temperatures exceeding 30 C in the first half of July. Now, temperatures are heating up and the first half of August is forecast to see temperatures higher than normal, particularly in eastern Japan.

Although the heatwave, which started on July 30, caused similar temperatures in eastern and western Japan, prices are not similar. When looking at Figure 3, which shows prices from 25 July – 8 August 2019, we see a dramatic difference in prices between the two regions. While western Japan prices reached a maximum of JPY 25/kWh, eastern Japan prices soared to JPY 60/kWh. For reference, in 2018 power prices in western Japan also exceeded JPY 100/kWh, so this is a dramatic shift for western Japan.

Figure 3: Hourly power prices in Kansai (West) and Tokyo (East) Japan between 25 July and 6 August 2019
Figure 3: Hourly power prices in Kansai (West) and Tokyo (East) Japan between 25 July and 6 August 2019.

What could be the reason for these dramatic price differences? Figure 4 shows the outage capacity between the Tokyo (east) and Kansai (west) service areas.

Figure 4: Outage Capacity in kW for Kansai and Tokyo service areas by fuel type. Source
Figure 4: Outage Capacity in kW for Kansai and Tokyo service areas by fuel type. Source: HJKS

We see that both regions gradually reduced planned outages to meet expected demand in late July, and the Kansai region reduced outages even further. Outages particularly reduced for gas capacity, which is key in meeting changing demand.

When looking at plants in the Tokyo service area this year, we see many of the gas plants not responding to increased demand again. In Figure 5, the real-time monitoring data from the Genscape PowerRT platform of the Sodegaura gas plant in the Tokyo service area shows the plant is operating at less than 25 percent capacity even while power prices surge. For this specific plant, it is possible that it is designated as a marginal reserve plant. In Japan plants can bid to be a marginal reserve plant, but the decision is not publicly announced making it difficult to determine whether a plant is a marginal reserve plant or not. Considering the capacity, the Sodeguara plant is operating at, it seems possible this plant could be a marginal reserve plant.

Figure 5:  Real-time generation data of the Sodegaura Gas Power Plant during the last week of July 2019. Source: Genscape PowerRT platform
Figure 5: Real-time generation data of the Sodegaura Gas Power Plant during the last week of July 2019. Source: Genscape PowerRT platform

Other plants in the Tokyo area are also not operating at full capacity due to planned outages. The Anegasaki plant, for example, is running at only 50 percent capacity. This capacity would be profitable if operating at higher capacity during such high demand periods and could reduce the power prices in the Tokyo service area.

Figure 6 shows the merit order stack for the Tokyo service area, generated with Genscape’s EPSI modelling platform. The overlay box indicates where the Anegasaki plant is in the merit order. The grey line on the right side of the chart indicates which plants are ‘in the money’ or are profitable to operate at that power price. We can see that almost all plants running at this time could easily operate profitably, including the Anegasaki plant.

Figure 6: Merit order stack of Tokyo service area. Source: Genscape EPSI Platform
Figure 6: Merit order stack of Tokyo service area. Source: Genscape EPSI Platform

The relatively high capacity of planned outages in the Tokyo service area is a strong contributing factor to high power prices there. Figure 7 shows the specific units reported by the HJKS outage database for plants with long-term outages. Outages affect 8 percent of Tokyo area gas capacity while they only impact 4 percent in Kansai.

Figure 7: Source: HJKS
Figure 7: Units reported by the HJKS outage database for plants with long-term outages. Source: HJKS

Even after the large power price spikes from last summer, the Tokyo area is unable to make greater capacity available to prevent the price spikes we see this year. New entrants who must buy power at market prices are the most impacted by these high prices. Such players complain about these outages and their subsequent impact on power prices, but so far these concerns have not been incorporated into discussions on the design of this new liberalized power market.

Genscape’s PowerRT and EPSI platform gives you the ability to model and understand circumstances like these, with a real-time view the platform allows you to act on changes. To learn more or to request a demo, please click here.