JRI & SMBC jointly developed a long-term electricity market price prediction simulation service

The Japan Research Institute (JRI) and Sumitomo Mitsui Banking Corporation (SMBC) have jointly developed a simulation service for predicting long-term electricity market prices, which will begin operation from November 2024.

The Service combines JRI’s accumulated knowledge of the electricity market with SMBC’s data analysis skills, enabling a more detailed representation of the future electricity market, taking into account changes in the future energy mix and interconnection line constraints.

Development Background

Recently, the electricity market has been exposed to many uncertain factors, including Russia’s invasion of Ukraine, record-breaking yen depreciation, and rapid advancement of renewable energy, leading to significant price fluctuations.

Going forward, factors such as increased power demand due to DX (Digital Transformation), the restart of nuclear power plants, and enhancement of inter-regional interconnection lines are expected to have significant impact on electricity market prices. While renewable energy developers have been protected from such market risks by the FIT (Feed-in Tariff) system, their transition to the FIP (Feed-in Premium) system, which requires them to secure their own buyers, will expose them to future price fluctuation risks.

For companies that use electricity, when concluding long-term power purchase agreements (PPAs) for renewable energy — currently a trend — it is necessary to determine purchase prices based on future electricity market price trends. Therefore, it has become increasingly important for both power generators and electricity-consuming companies to understand long-term electricity market prices 20–30 years into the future, and accurately simulating how various factors affect prices has become a critical challenge.

Service Overview

This service creates supply and demand scenarios based on medium to long-term forecasts for power supply capacity and electricity demand, while collecting individual information such as policies and on-site progress. It also calculates electricity market prices for each area considering the status of interconnection lines.

1. Creation of Power Supply and Demand Scenarios

For example, regarding renewable energy, which is expected to increase its power ratio in the future, the service determines future installation volumes based on recent installation trends, offshore wind power bidding plans, and various government plans. For nuclear power plants, where restart prospects are difficult to assess, the service estimates the possibility and timing of restarts for each power plant while monitoring progress in regulatory standard compliance reviews, construction work, and coordination with local residents. Regarding inter-regional interconnection lines, the service predicts changes in power interchange capabilities between regions by incorporating government-wide system development plans, such as the construction of the Hokkaido-Honshu Interconnector (Japan Sea Route) and enhancement of the Chugoku-Kyushu Interconnector.

On the demand side, the service improves medium to long-term forecasting accuracy by collecting information on plans for new data centers and semiconductor factories.

In this way, the service can construct probable scenarios by collecting, integrating, and centrally managing and analyzing various information related to power supply and demand, in addition to medium to long-term forecasts. Furthermore, the analysis considers uncertainties by developing not only current policy scenarios where power supply and demand trends follow current trends but also published policy scenarios where various government energy plans are realized.

2. Area-specific Electricity Market Prices Reflecting Market

When inter-regional interconnection lines are weak, electricity markets become segmented by area, resulting in price differences in each electricity market. Using simulation tools that utilize machine learning and other technologies, the service calculates electricity market prices for each area while precisely reflecting the impact of this market segmentation.

By combining points 1 and 2, the service enables more accurate prediction of electricity market prices by area, capturing medium to long-term power supply and demand transitions more precisely than before.

Future Prospects

JRI plans to utilize the simulation tools developed this time, which can more accurately represent differences between regional electricity markets, in other electricity market analysis services such as output control services.

SMBC will leverage the data analysis skills cultivated through this simulation model to further promote data utilization across the entire SMBC Group.

JRI and SMBC will continue to strive to provide increasingly useful information to power generators and electricity-consuming companies.

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