BY TETSUJI TOMITA
Japan’s electricity market has seen this movie before. In 2021, scarce LNG helped send wholesale prices to emergency levels and forced regulators to impose a ¥200/ kWh cap. In 2022, Russia’s invasion of Ukraine triggered another energy shock, exposing how little hedging capacity many retailers had and how thin Japan’s forward market still was.
The situation around the U.S.-Iran war is different. Oil and LNG prices have again put upward pressure on thermal generation costs, lifting JEPX spot prices in the morning and evening hours when fossil-fuel plants still set the marginal price. But this time the shock passes through a market that is more liquid, more hedged and more financially aware than it was three years ago.
That has changed the shape of the stress. Spot prices have become steeper and more volatile, but the balancing market response is even more extreme. Fast-response products with greater battery and hydro participation have shown how they are less directly exposed to fuel costs, while longer-duration and energy-heavy reserve products remain tied to thermal economics.
The result is a more nuanced test of the electricity market reforms since 2016. The question is no longer whether fuel shocks raise power prices. They clearly do. It’s more about whether Japan’s maturing power market can absorb that shock – and where imported fuel still sets the price of flexibility.