(Bloomberg) – According to people familiar with the matter, Goldman Sachs Group Inc. is in the process of setting up a trading desk to settle Japanese power derivatives.
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The bank is the latest to express an interest in Japan’s energy sector as the country’s energy suppliers increasingly hedge their exposure to volatile energy markets, said the people, who asked not to be identified as the details were confidential.
A spokesman for Goldman Sachs declined to comment.
Japan-based Mizuho Financial Group Inc., one of the country’s largest banks, is also considering starting trading in the market. “Due to the recent surge in energy prices, there is growing awareness of hedging electricity prices,” said a Mizuho spokesman.
Mizuho has not yet started trading, although it is “closely monitoring market trends,” the spokesman said.
The Japanese electricity market, which was liberalized in 2016, saw trade pick up with the addition of more companies. The volume of Japanese power derivatives on the European Energy Exchange AG, the exchange with the most popular offers, rose by almost 400% in April compared to the same month last year.
While the emerging market in countries like Germany is still only a fraction of the size of established markets, Japan’s rising demand for renewable energy and seasonal fluctuations have created volatility and arbitrage opportunities, attracting traders.
The increase in the number of trading participants and the trading volume on EEX arouses “interest in the next customer group”, said Chief Operating Officer Steffen Köhler. There are currently 56 Japanese electricity trading participants on the exchange, including the country’s largest electricity producer, Jera Co., and some regional energy suppliers such as Tohoku Electric Power Co.
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“It always starts with physical players who are active in their respective market,” followed by financial players, Koehler said. “Once you manage to attract the financial players, you can grow and improve liquidity.”
– With support from Takashi Nakamichi and Taiga Uranaka.
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