-Power market in 2024; supply/demand stable but fuel and nuclear uncertain-

In 2024, supply/demand fundamentals are expected to remain stable in the power market and wholesale power prices would unlikely change that much. The Agency for Natural Resources and Energy of Japan announced forecasts of power supply and demand for FY 2024 on Dec 7. In summer and winter of FY 2024, the reserve power supply capacity ratio of 3% could be secured even in case of high demand in the extreme heat and cold that could hit once in a decade. This is the minimum ratio for stable power supply. However, aging thermal power stations that have been operating over 40 years are providing about 10% of power of total power supply. This could be a risk. Further, movements of the fuel markets and operation status of nuclear power stations might also make situations more uncertain and are drawing attention.

In Japan, LNG thermal power stations account for around 30% of total power generators and the power market largely depends on supply/demand of LNG. Under such circumstances, the Japanese government announced in November 2022 that it would strategically secure surplus LNG. Players are greatly concerned about unexpected facility troubles in gas producing countries and would be required cautions in 2024 as well. Crude oil prices are forecast to be capped, reflecting an expected economic slowdown in the US, Europe and China in 2024. But cautions about high prices would remain depending on Middle East situation. Regarding coal for power generation, worldwide shift to decarbonization is a bearish factor but supply volumes are decreasing as more coal mines are closed. Therefore, coal prices are hovering high and would unlikely decline sharply in 2024.

In 2024, the following three nuclear power stations are scheduled to restart operations. The 1,180 megawatt (MW) No.3 PWR plant of the Genkai power plant of Kyushu Electric Power in Saga prefecture would restart in late February 2024. The reactor has been suspended for a regular inspection. The 820 MW No.2 BWR plant of the Shimane power plant of Chugoku Electric Power in Shimane prefecture would restart its reactor in August 2024 and commercial operation in September. The reactor would resume operations for the first time since a regular inspection started on Jan 27, 2012. For the 825 MW BWR No.2 plant of the Onagawa power station of Tohoku Electric Power in Miyagi prefecture, completion of safety measures works is postponed from initially scheduled November 2023 to February 2024. The reactor is also expected to be delayed from February to May 2024.

Moreover, Tokyo Electric Power (TEPCO) finished additional inspections to deal with inadequate measures for terrorism on Dec 4, 2023 for its Kashiwazaki Kariwa nuclear power plant. The Nuclear Regulation Authority of Japan virtually ordered TEPCO to stop operations in April 2021.

Power futures would likely be traded actively in 2024 as well. Whie concerns over tight supply/demand fundamentals retreated this winter, movements on risk hedges of power prices are predicted to be active on the back of uncertainty of future prices for major fuels including LNG and crude oil. The European Energy Exchange (EEX) launched new contracts of daily and weekend futures from June 2023 onwards in addition to existing monthly and quarterly futures. A broad range of needs for hedges could be satisfied. The Tokyo Commodity Exchange (TOCOM) also plans to launch weekly futures this year. If more new players start trading, liquidity would be enhanced.