We talk to Loftur Thorarinsson, Volue’s general manager in Japan, about why Japan is one of the most exciting energy markets and why power market players in Japan need better data.
Mar 30, 2022
“If you look at power markets around the world, you won’t have to look hard to realise that at the moment Japan is where it’s all happening,” says Loftur Thorarinsson who joined Volue as General Manager for Japan in February.
“Japan is the largest energy market that has been liberalised in recent years. The market is changing quickly and with this comes volatility,” he adds.
Approximately 20 years ago, Japan started looking into what it should do to deregulate its power market. Japanese experts studied the liberalised markets in Europe and the US and performed case study analysis.
“The actual process of Japanese power market deregulation started some years ago and is still ongoing. What is exciting for us is that Japan is following the Nordic model and it is starting on a journey that is similar to ours. Japan has created a power market that looks a lot like what we had in the Nordics when deregulation started almost 30 years ago.”
Just like the Nordics in the past, Japan used to have state-owned electricity companies that were responsible for both generation and distribution. As a result of the unbundling, the Japanese electric power companies (EPCOs) are now split into generation, transmission and trading organisations.
“A key milestone for Japan was the liberalisation of retail consumer power markets in 2016. This is when the regulations on the wholesale of electricity were fully abolished. As a result, the number of power market players went from a handful of companies to approximately 600. The numbers may be different from the Nordics but the trajectory is the same.”
The liberalisation of the Japanese market has also led to the entry into the market of several European power players, many of whom are Volue’s long-term customers.
In Japan, the number of power market players went from a handful of companies to approximately 600.
Loftur Thorarinsson General Manager for Volue in Japan
In Japan, electricity is traded on the country’s power exchange JPEX and futures on JPX (Tocom) and EEX. Some of the traders are EPCO traders and at the other end of the spectrum, there are the traders who have no assets.
“The key challenge for all of them is to forecast the volatile market and to have a better understanding of the demand-supply balance. We know from experience how challenging this can be. But we also know that this is an opportunity.”
Over the past 10 years, Japan has steadily increased the share of renewables in its energy mix.
“Japan has now committed to decarbonisation and we will see even more renewables being added to its energy mix. This adds volatility to the power system as demonstrated in recent years.”
The intermittency of renewable power and increased price volatility in the short-term markets make access to real-time, reliable and accurate supply and demand forecasts crucial.
Volue analysts see a staggering 1 800 000 000 daily calls to the Volue API. Weather-driven fundamentals and market forecasts are in equally high demand.
“What we see is that in the first instance power market players in Japan need data. This is the reason we are going to market with our Insight platform.”
Insight by Volue is a leading data, forecasting and market analysis provider to the European energy market. The team forecasts fundamentals and energy prices for the short, medium and long-term horizons. Volue will enter Japan with fundamentals and real-time forecasts offering.
“Short-term, we will tell power producers in Japan what price they are likely to receive for their production as well as what the aggregate production is likely to be. Long-term, market players will get a good indication of what will happen all the way up to 2050. We have the full picture – from 15 minutes intraday forecasts to 30 years of investment analysis.”
Originally from Iceland, Loftur Thorarinsson has lived in Japan for more than 10 years. He has a background in renewable energy and is a fluent Japanese speaker.
“With ongoing deregulation, this is the right time for Volue to enter Japan,” says Loftur Thorarinsson.