* Big utilities free up power from bilateral contracts for JEPX
* JEPX trading to account for 15 pct of power demand by 2018
* Japan power trading likely to grow several times in 2 years
By Osamu Tsukimori and Aaron Sheldrick
TOKYO, Feb 9 (Reuters) - Trading on Japan's power exchange is set to triple in the financial year starting on April 1 as the nation's giant utilities aim to put around 10 percent of their sales up for competitive bidding, the next big step in reform of the sector.
Already 10 months into a shake-up of the country's power industry that opened it to independent electricity producers and suppliers, trading on the Japan Electric Power Exchange (JEPX) has surged around 50 percent and nine former regional power monopolies have lost nearly 2.6 million customers.
Hundreds of new entrants - gas utilities, manufacturers, trading companies, oil refiners and others - have piled in, buying electricity on the exchange to sell to the residential and commercial end-users that make up Japan's $71 billion retail market for power.
Electricity traded on JEPX still represents less than 3 percent of Japan's power demand, although Tokyo's efforts to increase price competition and efficiency will likely result in volumes rising further over the next two years.
"As trading volumes rise, the retail businesses of former monopolies and new power retailers would be placed roughly on an equal footing," JEPX general manager Ryoichi Kunimatsu said in an interview, fostering the smooth trading and liquidity needed for price discovery.
As the utilities start selling on the exchange power now locked up in bilateral agreements, JEPX trading as a proportion of total power will grow threefold by March 31, 2018, he said.
Japan's former power monopolies - in response to a request from the Ministry of Economy, Trade and Industry (METI) - have said they will put at least 10 percent of their power sales on the exchange next fiscal year, with some of them raising their supply to JEPX to 20 to 30 percent of their total output in the year after that.
"Trading volumes at JEPX are likely to rise to above 15 percent of total domestic power demand in the year starting [on April 1, 2018]," Kunimatsu said.
As with other exchanges, JEPX needs liquidity for smooth trading and price discovery.
"If they reach a liquidity level of 15-25 percent (of the market) that would be the tipping point for developing JEPX as the central platform for a competitive electricity market in Japan," said Per Christer Lund, science and technology counsellor at Innovation Norway.