Japan Power Retailers Exiting Business as Energy Crunch Worsens
Japan Power Retailers Exiting Business as Energy Crunch Worsens
(Bloomberg) -- The war in Ukraine is making a bad situation worse for Japanese power providers struggling with the energy crisis, forcing more companies to quit the business.
In the last month, at least four companies halted power retail operations, as a surge in wholesale electricity prices makes it challenging to procure stable supply and turn a profit. At least seven temporarily halted taking on new customers for some plans.
For the fiscal year ending Thursday, 14 Japanese power companies have filed for bankruptcy, according to Teikoku Databank. That’s the most since data going back to 2014.
“No one in the power industry is making money right now,” said Yohei Kiguchi, president of Enechange Ltd., a provider of energy information services in Tokyo.
While the companies exiting Japan’s power market are relatively small in size and represent a fraction of the more than 700 retailers, it indicates the start of a trend that could accelerate on sky-high wholesale power prices. Most power retailers are forced to procure expensive power from the wholesale market, while selling that supply to customers at a much lower set rate, resulting in a loss.
Power retailers have been anxious over high liquefied natural gas prices since last September, when they began to creep upward. Regional utilities have already downgraded their forecasts for the fiscal year. Now, Russia’s invasion of Ukraine is exacerbating the situation.
Some of the notable retreats from the market in the past month include:
- Renewable energy company West Holdings Corp. said it will halt its power retail operations, as conditions made it increasingly difficult to procure a stable power supply
- Hope Energy Inc. filed for bankruptcy on the back of “abnormally high power prices”
- Rakuten Energy Inc., a unit of e-commerce giant Rakuten Group Inc., said it will temporarily halt taking on new customers for some of its plans
Japan’s power market fully liberalized in 2016, breaking the monopoly held by regional utilities, like Tokyo Electric Power Co. Since then, hundreds of small power retailers have crowded the market, vying for customers.
The situation has become particularly difficult for retailers that don’t own their own power-generating capacities and have to procure energy through the market.
Many retailers form bilateral contracts with larger power producers around February and March for prices beyond April. That’s made the timing of the war particularly bad, as tighter supplies drive up oil and gas prices to record highs, Kiguchi said.
Japan’s spot power prices are roughly triple the five-year average, with futures on the European Energy Exchange pointing at higher prices remaining at current elevated levels through at least the summer.
Power retailers in Japan faced eye-watering prices last winter, when frigid temperatures caught utilities unprepared. The country’s trade ministry, which oversees Japan’s energy policies, enacted some measures to support retailers, such as allowing them to make installment payments for the imbalance fees.
Enechange has been petitioning the trade ministry to take more steps to alleviate the current situation, Kiguchi said. The company has set up a free hotline for roughly 140,000 users expected to be affected by a company that has recently pulled out of retail operations.
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