Soros family fund among investors in Japan electricity exchange startup

Enechain aims to stabilize wholesale prices to spur new entrants into retail market

JERA, Japan's largest power producer, is among the companies investing in energy exchange operator Enechain. (JERA)

TOKYO -- A group of 17 trading, power and gas companies, as well as Soros Capital Management, will invest 5 billion yen ($32 million) in a Japanese startup operating an online electricity exchange, Nikkei has learned, in an effort to smooth out wholesale prices and help small power retailers compete.

The startup, Enechain, runs a platform connecting power producers that are selling electricity with power retailers looking to buy. More than 250 companies use the exchange.

The consortium of investors -- which includes Japanese energy company JERA, Tokyo Gas, the Kansai Electric Power and Chubu Electric Power groups, Osaka Gas and Mitsubishi Corp. -- are taking a roughly 14% stake through a private share placement.

The companies will also do more trading on the exchange themselves, providing more activity to improve liquidity and transparency and give it more prominence as a pricing benchmark. Some plan to have their affiliated power retailers buy electricity from the platform as well. The investors also include Soros Capital Management, which was founded by billionaire investor George Soros.

Japan fully opened up its electricity retail market in 2016, making it easier for new players to enter. But while big established utilities run their own power plants, these upstarts must buy from the wholesale market. Much of their supply comes from the Japan Electric Power Exchange (JEPX), where prices are volatile, leaving them at a disadvantage.

Enechain's exchange lets users track what prices companies are paying for electricity in real time. (Photo obtained by Nikkei)

Power retailers typically set prices under medium- to long-term contracts with customers, leaving them at risk of losing money if they pay too much for the power they supply. When prices spiked in 2022 after Russia's invasion of Ukraine, several retailers went bankrupt or pulled out of the business, causing serious problems for customers.

JEPX transactions are usually on the spot market, where prices can fluctuate sharply depending on factors such as fuel prices. The exchange also suffers from a dearth of supply.

One advantage of Enechain's exchange is that it employs mainly forward contracts, which are not used much on JEPX. These are traded one month to a year before delivery, letting buyers lock in future costs in advance for greater stability. Companies can also track what prices others are paying for power on the exchange in real time, providing a clearer picture of market trends.

Enechain aims to increase the amount of electricity traded on its platform tenfold over the next three years to 500 billion kilowatt-hours a year, equivalent to about 60% of Japan's overall power demand.

In Europe, which is further along on liberalizing its power market, electricity futures are widely traded, amounting to an estimated seven times the size of the spot market.

Meanwhile, though the Japan Exchange Group and the European Energy Exchange both handle Japanese electricity futures, trading volumes last year were less than 10% that of the spot market. Japan's liberalization efforts lag more than a decade behind Europe's, and practices for stabilizing prices to avoid risk have yet to take root.