Date
18 December 2017
Japan started liberalizing its power sector in 1998 but waited 18 years to introduce full retail competition. Photo: Bloomberg
Japan started liberalizing its power sector in 1998 but waited 18 years to introduce full retail competition. Photo: Bloomberg

Headwinds for liberalized power markets in Asia

The full opening up of the Japanese electricity market to retail competition on April 1 is a key stepping stone toward competitive power markets.

Japan is not alone — at least five other markets in the Asia-Pacific region are either introducing or accelerating a policy of market-driven prices.

The good news for governments is that power could become even cheaper, and not just because of competition, compounded with slower consumption growth and low inflation, interest rates and costs of raw material such as liquefied natural gas and thermal coal.

Competition should also force the market and its participants to become more efficient and use resources more effectively — at least in theory.

Unfortunately, at this stage, these markets face many challenges to their development.

The six Asia-Pacific countries with power-trading markets face differing headwinds as they try to increase liquidity.

Utilities in Australia, for example, face unrelenting competition.

The Philippines has struggled to establish an independent operator to boost its power markets.

China waited 14 years to create electricity exchanges.

Japan started liberalizing its power sector in 1998 but waited 18 years to introduce full retail competition.

A side-effect of competition is that in markets with plenty of supply, such as China or Singapore, the earnings and cash flows of the incumbent utilities are at risk, forcing them to adjust their business models and brace for less predictable outlooks.

Volatility is a key factor, as experienced by Energy Australia, which is wholly owned by Hong Kong’s CLP Holdings Ltd. (00002.HK).

The views expressed in this article are those of Joseph Jacobelli, an analyst at Bloomberg Intelligence.

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