Shell quietly enters Japanese market

Singapore

ONE of the largest energy companies is quietly testing the waters of what is perhaps the world's richest electricity market yet to be tapped by foreign investors.

Royal Dutch Shell Plc has set up a small desk to trade electricity in Japan, where it is in an "experimental" phase of learning to buy and sell power and identify industrial customers. The second largest energy firm by market capitalisation sees opportunities to balance the grid when there are supply-demand mismatches driven by intermittent wind and solar power.

"We think there will be more volatility in the power system going forward," Mark Gainsborough, the company's executive vice-president of new energies, told reporters at the company's Singapore office on Wednesday. "There will be more optimisation potential sitting in the middle of the value chain."

Opportunities for traders to help balance the grid will expand as more industrial and commercial users begin generating power on their own premises, according to Mr Gainsborough.

Japan, which derived roughly 15 per cent of its electricity from renewable sources including hydroelectric dams in the year ended March, is already facing situations where clean power generators must curtail output because supply exceeds demand.

Japan fully deregulated its electricity market in 2016 after being dominated for more than 50 years by 10 regional monopolies.

Spot trading on the Japan Electric Power Exchange has surged as reforms required the utilities to sell power. Nearly 30 per cent of the country's electricity was purchased through the exchange in November, up from just 1.5 per cent before the reforms.

Total power sales in Japan topped 14 trillion yen (S$171 billion) in 2017, according to the Ministry of Economy, Trade and Industry. BLOOMBERG