Japan's energy landscape

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Japan's electricity companies earn about US$ 200 billion annually in revenues, and until the Fukushima nuclear accident about 30% of energy was generated by nuclear power plants, which are currently almost all switched off. Japan's energy sector undergoes rapid change and presents large opportunities - subscribe to this report series, and you will periodically receive updates.

The report is a companion to our interview series on CNBC, NHK, BBC

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Japan's energy landscape

  1. 1. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 Primary energy, gas and electricity markets June 30, 2014 (21st Edition) by Gerhard Fasol, PhD, Eurotechnology Japan KK http://www.eurotechnology.com/ fasol@eurotechnology.com Preview version, download full version here: http://www.eurotechnology.com/store/j_energy/ 1 JAPAN ENERGY MARKET
  2. 2. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN ENERGY MARKET 2 Subscribe to this report, and we will regularly send you the latest versions. subscription, monthly payment, you can end the subscription any time (no refunds): http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU50334810626 subscription, annual payment, you can end the subscription any time (no refunds): http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU20789254886 Version Date Content added, updates 1 September 7, 2012 2 September 18, 2012 3 September 26, 2012 4 September 28, 2012 5 October 1, 2012 6 October 9, 2012 7 November 20, 2012 8 November 22, 2012 9 December 19, 2012 Gas companies section added 10 December 23, 2012 revisions and additions 11 January 2, 2013 electricity coverage expanded 12 February 3, 2013 power industry liberalization
  3. 3. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN ENERGY MARKET 3 Subscribe to this report, and we will regularly send you the latest versions. subscription, monthly payment, you can end the subscription any time (no refunds): http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU50334810626 subscription, annual payment, you can end the subscription any time (no refunds): http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU20789254886 Version Date Content added, updates 13 February 10, 2013 Ocean power added + updates 14 March 15, 2013 primary energy imports updated 15 March 18, 2013 energy generation data updated 16 March 24, 2013 METI electr. monthly data added 17 March 26, 2013 updates and corrections 18 May 2, 2013 FY2012 financial data included 19 July 23, 2013 LNG data updated, prices added 20 June 2, 2014 reformat, update 21 June 30, 2014 electricity company financials
  4. 4. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 REPORTS ON JAPAN’S ENERGY SECTOR 4 •Japan’s energy landscape •approx. 277 pages, 94 Figures, 55 tables, frequent updates •information: •http://www.eurotechnology.com/store/j_energy/ •purchase current edition: •http://store.esellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU44952975839 •subscription, monthly payment, you can end the subscription any time (no refunds): •http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU50334810626 •subscription, annual payment, you can end the subscription any time (no refunds): •http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU20789254886 •Renewable energy in Japan •approx. 188 pages, 94 Figures, 32 tables, frequent updates •information: •http://www.eurotechnology.com/store/j_renewable/ •purchase current edition: •http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU72243111298 •subscription, monthly payment, you can end the subscription any time (no refunds): •http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU24934888016 •subscription, annual payment, you can end the subscription any time (no refunds): •http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU30316666940 •Solid state lighting, GaN LEDs and lasers •approx. 122 pages, 25 Figures, 21 photographs, 9 tables, frequent updates •information: http://www.eurotechnology.com/store/solidstatelighting/ •purchase current edition (single copy license): http://store.esellerate.net/s.asp?s=STR651896906&Cmd=BUY&SKURefnum=SKU6322569155 •purchase current edition (corporate license): http://store.esellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU05361071140
  5. 5. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 LICENSE 5 Thank you for purchasing licenses to our reports, and for your cooperation with our licensing conditions. Only through your purchases can we continue to produce high-quality market reports from Japan INTHE CASE OF SINGLE LICENSE: If you have purchased a single copy license of this report, you are not permitted to copy this report except for a single back- up copy INTHE CASE OF CORPORATE LICENSE: in the case that your company has purchased a corporate license, you may distribute this report inside your company including protected corporate information servers locked to the outside, but you cannot distribute this report outside your company ANNUAL SUBSCRIPTION: we offer annual subscriptions for a particular report, and also for all our reports in one single transaction at a great discount - please contact us for details. Corporations subscribing will receive all updates at the time of publication, so that you can be sure to have the latest up-to-date information This research report comes without any warranty of any kind.The authors and Eurotechnology Japan K. K. do not warrant that the information in this report is without error, nor that the information serves any particular purpose. For legal advice please consult properly licensed legal professionals, for investment advice please consult properly licensed financial advisors.Trademarks mentioned are the property of their owners.
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  6. 6. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 EXECUTIVE SUMMARY: JAPAN ENERGY MARKET 6 Japan’s primary energy supply is about 25 x 1018 Joule/year, and Japan produces about 3.5 x 1018 Joule of electricity per year, about 14% of the primary energy input. Before the Fukushima nuclear disaster in 2011, about 30% of electricity was produced by nuclear power stations, and national policy was to increase nuclear energy to 50% of electricity generation. Currently all but two nuclear power stations are switched off. Despite mild liberalization over the last few years, Japan’s electricity landscape is dominated by ten regional electricity operating companies, which have exclusive regional monopolies each over most of the three components of the electricity industry: generation, grid and distribution. New renewable energy sources (solar, wind, geo-thermal etc) were kept below 1% of the electricity mix as a matter of principle. New entrants are entering Japan’s electricity generation, among them the “big-four” city gas companies which are described and analyzed in this report. The Fukushima nuclear disaster led to a shut-down of almost all nuclear power stations (except two), and nuclear power has for the time being been replaced by much more expensive fossil sources (mainly natural gas), and by restarting retired aged conventional caloric power stations. Legislation came in force on July 1, 2012 to promote renewable energy sources via feed-in-tariffs, and Japan’s energy strategy plan is currently in intense political discussions. For the future, strong increases in renewable energy can be expected.The long-term fate of nuclear power has not yet been decided.
  7. 7. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 AGENDA - LIST OF CONTENTS 7 •Executive summary: Japan’s electrical energy landscape •The “innovative energy and environmental strategy” of Sept 14, 2012 •implementing a nuclear free society “one day earlier than possible” •implementing the green energy revolution •guaranteeing a stable energy supply •carrying out the electrical power system reform •realization of global warming counter measures •Cabinet decision of Sept 19, 2012 •Japan’s primary energy supply and self-sufficiency, •Primary energy statistics •Japan’s oil, coal gas imports •Electricity generation: generation capacity, electricity generated, and effect of the Fukushima disaster •Japan’s present electrical architecture •The legal framework for Japan’s energy architecture •The reasons for the Fukushima nuclear disaster and the independent Parliamentary commission •new nuclear safety framework •The 10 regional electrical operators and J-Power •Generation capacity by type (water, fossil, nuclear etc) •combined industry financials •description and financials for each of the 10 regional electric operators •J-Power •The grid •The 50Hz/60Hz issue •JEPX - Japan Electrical Power ExchangeTokyo •Impact of the Fukushima disaster •Prospects for electrical industry reform •Asian grid proposals •Japan’s gas companies •Renewable energy •see separate report: http://www.eurotechnology.com/store/j_renewable/ •Glossary •Summary
  8. 8. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 PRIME MINISTER ABE’S NEW ENERGY STRATEGY PLAN 8 In April 11, 2014 Prime Minister Abe and his Cabinet published their new energy strategy plan for Japan. The energy strategy plan is required by law, and in this case is an 80 page document (of course in Japanese language). The energy strategy plan essentially is a detailed exposition of the different possible sources of energy, and the situation facing Japan, however the strategy plan lacks KPIs or specific targets, unlike the energy strategy document of the previous Government of Prime Minister Noda. Please view a short interview on the strategy plan forThe Economist by the lead-author of the present report here: http://www.eurotechnology.com/2014/05/12/japan-energy-policy-economist/
  9. 9. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S NATIONAL ENERGY STRATEGY PLAN: “INNOVATIVE ENERGY AND ENVIRONMENTAL STRATEGY” OF SEPTEMBER 14, 2012 (CABINET OFFICE) (THIS STRATEGY PLAN HAS BEEN SUPERSEDED BY PRIME MINSTER ABE’S CABINET’S ENERGY STRATEGY PLAN PRONOUNCED ON APRIL 11, 2014.WE INCLUDETHE PREVIOUS PLAN, BECAUSE IT CONTAINS MUCHVERY USEFUL QUANTITIVE ESTIMATES OF JAPAN’S ENERGY OPTIONS,AND IN CASE OF A GOVERNMENT CHANGE INTHE FUTURE,THIS PLAN MIGHT BECOME IMPORTANT AGAIN.) 9
  10. 10. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S NATIONAL ENERGY STRATEGY PLAN 10 1.Realizing a nuclear free society “one day earlier than possible 1.1.three principles 1.2.five policies 2.Implementing the green energy revolution 2.1.Reduce electricity and energy consumption 2.2.Large scale introduction of renewable energy 3.Guaranteeing a stable energy supply 4.Electrical power system reform 5.Realization of global warming counter measures 6.Adjusted by Cabinet Decision (“Kakugikettei of Sept 19, 2012)
  11. 11. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 1.1. REALIZING A NUCLEAR FREE SOCIETY “ONE DAY EARLIERTHAN POSSIBLE” -THREE PRINCIPLES 11 This section describes the nuclear energy part of a roadmap which over the next 30-40 years might realize a nuclear free society - unless modifications occur during this time. 1.1 The roadmap aims to follow three principles: 1.strictly limit the operation of nuclear power plants to 40 years age. 2.restart those nuclear power plants, where the safety has been assured by the (newly formed) Nuclear Safety Commission 3.no new construction or expansion of nuclear power stations
  12. 12. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 1.2 REALIZING A NUCLEAR FREE SOCIETY “ONE DAY EARLIER THAN POSSIBLE” - FIVE POLICIES 12 1.2.Five policies will be followed: 1.nuclear fuel cycle 2.maintenance and strengthening of human resources and technology 3.cooperation with the international community 4.strengthen location, regional measures 5.nuclear industry system and system for compensation of damages
  13. 13. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 1.2. REALIZING A NUCLEAR FREE SOCIETY “ONE DAY EARLIERTHAN POSSIBLE” - FIVE POLICIES (1) 13 1.nuclear fuel cycle: the three processes (uranium enrichment, nuclear fuel reprocessing and intermediate storage of low radioactivity waste) will be continued at Rokkasho (Aomori-ken) for the mid-long term, conform with international agreements and promises to Aomori-ken.The following steps will be taken: •research on direct disposal of nuclear waste will be continued •regarding the fast breeder research reactor “Monju”, following international cooperation, the results of fast-breeder experiments will be evaluated, results will be collected and analyzed, and the research will be terminated. •research and development in the reduction of harmful waste, and nuclear waste treatment will continue. •the backend will not be left to private industry, but the country Japan will take responsibility •Japan as a country - in consultation with regional self-governing bodies (ie Prefectures and towns), and regional electrical companies - will immediately start the work to arrange systems for intermediate storage of spent nuclear fuel, and prepare locations for final storage.
  14. 14. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 1.2 REALIZING A NUCLEAR FREE SOCIETY “ONE DAY EARLIERTHAN POSSIBLE” - FIVE POLICIES (2) 14 2.maintenance and strengthening of human resources and technology: Improved technologies and human resources are necessary to improve nuclear safety, to decommission nuclear power plants, to process and dispose safely of spent fuel to realize a nuclear power free society. In addition, in order to enable evacuees in Fukushima-Prefecture, it is necessary to develop decontamination technologies and resources including human resources. In addition, Japan needs human resources to ensure the nuclear non-proliferation obligations, and also to assist developing countries in decommissioning nuclear plants. •The country Japan will take responsibility to strengthen technology development and development of human resources, and decide until year-end on a policy. •Specialists in the Japan Nuclear Fuel Limited, Japan Atomic Energy Agency (JAEA), and other nuclear industry organizations will not be dispersed, but will work with companies and Universities to support technology development, fundamental research, and training for new specialists in the nuclear energy field.
  15. 15. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 1.2 REALIZING A NUCLEAR FREE SOCIETY “ONE DAY EARLIERTHAN POSSIBLE” - FIVE POLICIES (3) 15 3.cooperation with the international community: Japan’s peaceful nuclear development proceeded in agreement with the international nuclear non-proliferation treaty and its strict safeguard system. Japan’s nuclear power policy including the nuclear fuel cycle proceeded in intimate cooperation with foreign countries, starting with the USA. •building a non-nuclear society will proceed in intimate international cooperation •experience and information gained from the 2011 nuclear accident will be shared with other countries to increase safety of nuclear operations, and depending on conditions, technology for operating nuclear power under the highest possible safety standards will be shared with other countries.
  16. 16. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 1.2. REALIZING A NUCLEAR FREE SOCIETY “ONE DAY EARLIERTHAN POSSIBLE” - FIVE POLICIES (4, 5) 16 4.strengthen local, regional measures: Local and regional policies under the new situation will be strengthened. •In particular, introduction of green energy will be locally supported. •Japan as a country will take responsibility of decommissioning the Fukushima No. 1 nuclear plant, decontamination, and waste disposal. 5.nuclear industry system and system for compensation of damages: Under the current system of operating the nuclear industry under private management and following national policy, the responsibility of Government and private industry will continue to be investigated.The necessary investigations into compensation for damage from nuclear power, and from the Fukushima Nuclear accident will be continued.
  17. 17. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 1.3. REALIZING A NUCLEAR FREE SOCIETY “ONE DAY EARLIERTHAN POSSIBLE” - PATHVERIFICATION 17 The path to nuclear free society is a long and winded one, and will require consultation and cooperation with local self-governing authorities and international bodies and foreign countries.The path will be constantly verified, and if necessary, policy changes will be made.
  18. 18. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 2. IMPLEMENTINGTHE GREEN ENERGY REVOLUTION 18 Because of cost and instability, and lack of necessary infrastructure, renewable energy has not been introduced on a large scale yet in Japan. Depending on each citizens situation, every citizen will need to move from a passive consumer of electricity to a distributed producer of energy, and to a smart saver of power. As solar plants, storage batteries and fuel cells spread as a matter of course, homes and regions will move from regular payments for electricity bills to receiving money for electricity sold. In a similar way as the IT revolution in the second half of the 1990s, the green energy revolution will be driven by the whole population two components: 1.reduce electricity/energy consumption 2.renewable energy
  19. 19. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 2.1. REDUCE ELECTRICITY/ENERGY CONSUMPTION 19 •reduce annual electricity consumption from 1100TeraWatt h in 2010, by 110TeraWatt h or more in 2030. •in addition, with smart-meters, home energy management systems (HEMS), business energy management systems (BEMS), demand/response and via other methods strongly reduce peak electricity (kWatt) demand •reduce energy consumption from 390 kiloLiter Oil in 2010 by 72 million kiloLiter Oil in 2030. these cases assume 1.1% economic growth during 2010-2020, and 0.8% growth in 2020-2030. in the case of stronger growth (1.8% during 2010-2020, and 1.2% growth during 2020-2030, the reduction of electricity consumption will be smaller (10TeraWatt h), and the energy consumption reduction will be 46 million kiloLiter Oil in 2030.
  20. 20. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 CABINET DECISION (“KAKUGIKETTEI”) OF SEPT. 19, 2012 29
  21. 21. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 CABINET DECISION (“KAKUGIKETTEI”) OF SEPT. 19, 2012 30 Sept. 19, the Cabinet released a "Kakugikettei" (Cabinet Decision) which is 4 and 1/2 lines long, which says:   We will carry out our energy and environmental policy based on the "Innovative Energy and Environmental Strategy" as decided by the Energy and Environment Council on Sept 14, however we will hold responsible discussions with concerned self-governing regional bodies of Japan and with concerned international organizations, and we will continuously and flexibly verify and adjust our policy. (Kakugikettei, Cabinet decision of Sept 19, 2012, our unofficial translation from bureaucratic official complex Japanese into simplified English, attempting to keep the same meaning).   Note, that this "step back" is not uniquely Japanese.... Sweden decided in the 1980s to go zero-nuclear with a Parliament approved schedule, and Sweden's parliament reversed the earlier zero-nuclear decision, and went back to continue nuclear power in 2010 and renewing or building new nuclear power stations.
  22. 22. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 PRIMARY ENERGY SUPPLY AND SELF-SUFFICIENCY 31
  23. 23. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 PRIMARY ENERGY SELF-SUFFICIENCY RATIOS TRADITIONALVIEW,TYPICALLY DOES NOT INCLUDE FULL POTENTIAL FOR RENEWABLES AND NEW FORMS OF GAS 32 Note that this figure shows the traditional view of energy self-sufficiency, and typically does not include the full renewable energy potential, nor new types of recently found gas sources. Viewed in this traditional way, Japan has one of the lowest primary energy self-sufficiency ratios globally: •Japan has to import about 82% of primary energy, if nuclear energy is included. •however, at present with two exceptions, all nuclear power stations out of service, so that 96% of Japan’s primary energy needs to be imported. •however, with full development of renewable energy sources, especially off-shore wind energy, Japan could be self-sufficient in energy. Countries with self-sufficiency ratios larger than 100% export primary energy including electricity, while countries with self-sufficiency ratios lower than 100% need to import primary energy and electricity Italy Japan S Korea Germany France US India UK China Canada Russia 0 20 40 60 80 100 120 140 160 180 200 Energyselfsufficiencyratio Energy self sufficiency ratio IEA, OECD, 2006 2007 15 15 18 4 19 2 41 30 51 8 71 62 76 75 83 76 92 91 153 144 183 incl. nuclear 177 excl. nuclear c2012EurotechnologyJapanKK www.eurotechnology.com
  24. 24. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 PRIMARY ENERGY SUPPLY 33 Japan’s primary energy supply is approximately 25 x 1018 Joule/year. Japan’s electricity production corresponds to about 14% of primary energy supply. Some of the primary energy is used for other purposes, e.g. raw materials for the chemical industry, fuel for heating or transportation, but an appreciable amount is lost during the electricity generation process.The nuclear energy supply (in red above) has been eliminated by the shut-down of all 50 nuclear power stations (except for the Oi plant which has been restarted again), and needs to be replaced by savings, natural gas, oil or renewable energies. 1970 1980 1990 2000 2010 0 5 10 15 20 25 30 energy1018 Jouleyear Japan's domestic primary energy supply 1018 Joule year Oil Coal Natural Gas Nuclear Water Renewable c2013EurotechnologyJapanKK www.eurotechnology.com
  25. 25. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S PRIMARY ENERGY IMPORTS 34
  26. 26. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S LNG PRICES 41 Natural gas prices vary widely between the point of purchase/sale, the timing, and the type of delivery (pipeline, liquid natural gas via tanker by sea etc). The figure above shows that Japan is currently paying quite elevated prices for LNG (liquified and delivered by tanker). Consequently the Japanese Government (Ministry ofTrade Economy and Industry) is undertaking various actions to attempt to achieve lower LNG import prices.These actions include: international conferences, and attempts to achieve higher price competition between LNG sellers via establishment of new market mechanisms, and also exploration. LNG import prices which Japan pays increased substantially after March 11, 2011. On the right hand side, the LNG prices in US$/Million BTU are converted to UScent/kWh. These are the LNG component of electricity produced from LNG in case it was possible to convert LNG to electricity with 100% efficiency. 2008 2010 2012 2014 0 5 10 15 20 25 NaturalGaspricesUS$MillionBTU 3.4 cent kWh 6.8 cent kWh March 11, 2011 Japan LNG USA LNG Export USA pipeline Import EU Natural Gas prices US$ Million BTU c2012EurotechnologyJapanKK www.eurotechnology.com
  27. 27. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S LNG PRICES 42 Most Japanese LNG prices are traditionally fixed to the price of crude oil.Thus the price for 1 Million BTU of LNG gas for Japan is currently on the order of US$ 17, while for certain types of LNG the US internal price is on the order of US$ 2, ie Japanese power companies pay up to 8 times more for LNG than US power companies. There is much effort on the Japanese side to reduce the costs of procuring LNG. Recently Osaka Gas and Chubu Electric Power have entered into longterm procurement contracts where the LNG price is determined according to the “Henry hub” price for LNG. (The “Henry hub” http://en.wikipedia.org/wiki/Henry_hub is a distribution hub on the US natural gas pipeline system, and is used for the pricing of natural gas futures on the NewYork Mercantile Exchange and on the IntercontinentalExchange ICE).
  28. 28. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 FUTURE LNG IMPORTS FROM USATO JAPAN 43 Currently preparations are under way to export US LNG from USA to Japan. One issue is that USA in principle does not permit LNG exports to countries that do not have a free trade agreement (FTA) with the USA, and Japan does not an FTA with the USA at this time. Estimated costs/prices for FTA exports from USA to Japan would be: Price/costs per million BTU natural gas price $4 liquefaction $3 shipping $2 Total cost from USA $9 current costs $16.7
  29. 29. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 ELECTRICITY GENERATION 44
  30. 30. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 PHASING OUT NUCLEAR POWER AFTERTHE FUKUSHIMA DISASTER 49 Japan’s nuclear power stations are switched off routinely every 13 months for maintenance.After the Fukushima nuclear disaster it became politically very difficult, if not impossible to return reactors into service after completion of the routine maintenance.As a consequence, 13 months after March 11, 2011, all Japanese nuclear reactors were out of service. Only two reactors have been switched on again.This figure only shows nuclear power generated by reactors owned by the 10 regional electricity operators. Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 0 10 20 30 powerpermonthTeraWatthmonth Japan's nuclear power generation per month TeraWatt h March 11, 2011 disaster c2013EurotechnologyJapanKK www.eurotechnology.com
  31. 31. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 RESTARTING JAPAN’S NUCLEAR POWER STATIONS 50 According to the Chairman of Japan’s new Nuclear Regulation Authority (Chairman ShunichiTanaka in an interview withYomiuri Shinbun on September 24, 2012), the preparation of new nuclear safety guidelines required by the new nuclear safety law, will take until summer 2013, so that it is extremely unlikely that nuclear power stations will be restarted in addition than the 2 reactors at Oi which have been restarted a few weeks ago.
  32. 32. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 CALORIC POWER REPLACES NUCLEAR POWER 51 This figures shows how caloric power (mainly natural gas fired power stations), and the restart of already abandoned very old coal fired power plants replaces the discontinued nuclear power production. Caloric power production is increased by approx. 60% from approx. 35TWh/month to 55TWh/month at great cost, both financially and in terms of CO2 generation. Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 0 10 20 30 40 50 60 70 80 powerpermonthTeraWatthmonth Japan's electricity production from caloric sources TeraWatt h source: METI March 11 disaster c2013EurotechnologyJapanKK www.eurotechnology.com
  33. 33. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S PRESENT ELECTRICAL ARCHITECTURE 53
  34. 34. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 STRUCTURE OF JAPAN’S ELECTRICITY LANDSCAPE 54 The Figure on the following page shows the structure of Japan’s electricity markets, which has been liberalized to a very small degree, compared to the far more advanced liberalization in the US and most European countries. Japan’s electricity markets are dominated by 10 regional electricity operating monopoly companies, which operate: •generation, •transmission/grid and •distribution/retail. There is no unbundling. In addition there are different types of independent electricity producers, which are practically of two types: •internal electricity production, e.g. in large office buildings, or in factories, for immediate local use.As an example the famous Mori-Roppongi-HillsTower has its own electricity plant in the basement of the building. •independent commercial production of electricity. Such independent electricity producers have essentially no other choice than to sell to the single local and extremely powerful monopoly operator. Electricity sales can be direct under contract to the local monopoly operator, or via the JEPX exchange. However, the JEPX exchange only handles about 0.5% of all electrical power.
  35. 35. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 STRUCTURE OF JAPAN’S ELECTRICITY LANDSCAPE 55 Structure of Japan’s electricity landscape. 10 regional monopoly operators, each combine generation, transmission and grid, and distribution in their local monopoly region and dominate Japan’s electricity industry. Currently only about 0.5% of Japan’s electricity is traded via the JEPX electricity exchange. 10 regional monopoly electricity operators generation distribution/retail transmission/grid households SMEs regional monopoly large size customers factories JEPX (0.5% of electricity volume) specified power producers (1.7%) PPS (1.8%) in-house generation (10.6%) renewable energy producers FITFIT
  36. 36. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 THE LEGAL FRAMEWORK OF JAPAN’S ENERGY ARCHITECTURE 56
  37. 37. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 ELECTRICITY BUSINESS ORDINANCES AND REGULATIONS 60 Under the Electricity Business Law, the Industry Ministry METI issues Ministry Ordinances, including the “Ministry ordinance setting technical standards concerning electrical facilities” (METI Regulation No. 52 of March 27, 1997), which must be complied with.
  38. 38. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 NEW FRAMEWORK FOR NUCLEAR SAFETY AFTERTHE FUKUSHIMA DISASTER 61
  39. 39. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 NUCLEAR DISASTER INVESTIGATION INDEPENDENT PARLIAMENTARY COMMISSION: THE FUKUSHIMA NUCLEAR DISASTER WAS CAUSED BY REGULATORY CAPTURE 62 The Fukushima nuclear disaster has been investigated by several commissions, including: •an internal commission withinTokyo Electric Power Corporation (TEPCO), the owner and operator of the Fukushima nuclear power station. •This commission was not independent ofTEPCO, but it can be assumed that this commission needed to followTEPCO’s interests. •an independent commission incorporated by the Japanese Parliament. •The Chairman of this commission was Professor Kiyoshi Kurokawa, a highly respected medical doctor, formerly Professor ofTokyo University, then Chairman of the Faculty of Medicine ofTokai, and then President of the Science Council of Japan. •Commissioners: •KoichiTanaka, Nobel Prize Winner, Chemist at Shimadzu Corporation •Katsuhiko Ishibashi, Seismologist •Kenzo Oshima, Former Ambassador of Japan to the United Nations •Hisako Sakiyama, Medical Doctor, Former Chief of the National Institute of Radiological Sciences •Masafumi Sakurai, Lawyer, former Chief Prosecutor of the Nagoya High Public Prosecutors Office, and former Inspector General for Legal Compliance, Inspector General’s Office, Defense Ministry •MitsuhikoTanaka, Science Journalist •Shuya Nomura, Lawyer, Professor, Chuo Law School, Chuo University •Reiko Hachisuka, Chair, Society of Commerce and Industry, OkumaTown, Fukushima Prefecture •YoshinoriYokoyama, Social System Designer, Director, University ofTokyo, Executive Management Program •The primary results of this independent commission was that the Fukushima nuclear accident was caused by Regulatory Capture.A well known phenomenon, which occurs when the industry regulated by this industry’s regulator, gains control (“captures”) of the regulator. •The theory of regulatory capture is due to George Stigler, Nobel Prize winner in Economics. For more on Regulatory Capture see: http://en.wikipedia.org/wiki/Regulatory_capture
  40. 40. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 CAUSE OF FUKUSHIMA NUCLEAR ACCIDENT 63 •Parliamentary Commission chaired by Kiyoshi Kurokawa: •Regulatory capture •Kurokawa: “Group think can kill” •not a Japanese phenomenon •theory of regulatory capture: •George Stigler (Nobel Prize 1982) “Economic Theory of Regulation”
  41. 41. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 NEW NUCLEAR SAFETY AUTHORITY 64 The independent Parliamentary Commission determined that the Fukushima nuclear accident was caused by Regulatory Capture, ie by the capture of the previous Nuclear and Industrial Safety Agency by the Japanese nuclear industry.The Nuclear and Industrial Safety Agency was part of the Ministry of Economy,Trade and Industry (METI), which was promoting the development of Japan’s nuclear industry. Therefore it was necessary to establish an independent new regulator for Japan’s nuclear industry. The new independent nuclear safety regulator is the “Nuclear Regulation Authority” (NRA) and was incorporated on September 19, 2012. The Nuclear Regulation Authority (NRA) is part of the Environment Ministry, and its independence is guaranteed under Article 3 of the National Government Organization Law. Chairman is ShunichiTanaka, formerVice-Chairman of the Cabinet Office’s Atomic Energy Commission. According to the Chairman of Japan’s new Nuclear Regulation Authority (Chairman ShunichiTanaka in an interview withYomiuri Shinbun on September 24, 2012), the preparation of new nuclear safety guidelines required by the new nuclear safety law, will take until summer 2013, so that it is extremely unlikely that nuclear power stations will be restarted in addition than the 2 reactors at Oi which have been restarted a few weeks ago. According to NRA Chairman ShunichiTanaka, the role of NRA is exclusively the creation and execution of new nuclear safety standards, and response guidelines in the event of another disaster. Chairman ShunichiTanaka, in an interview on September 24, 2012 withYomiuri Shinbun stated that NRA will exclusively focus on objective safety screening and: •will NOT consider issues such as future electricity supply and demand •will NOT consider financial difficulties of electricity operators from switching of nuclear reactors •will NOT take account of the “stress tests” imposed by the Government on electricity operators after the Fukushima nuclear disaster, but will assess safety independently •will NOT make efforts to obtain public’s acceptance of restarting nuclear power
  42. 42. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 HISTORY 65
  43. 43. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 HISTORY 66 Japan’s first electricity company,Tokyo Dentou KK, received the Government license on February 15, 1883, and started business on July 5, 1886. Initially,Tokyo Dentou had 5 power stations producing direct current, but later switched to alternating current with increasing power demand. In 1893,Tokyo Dentou introduced alternating power generation equipment from the German company AEG, which produced 50 Hertz alternating current. Osaka Dentou KK on the other hand used 60 Hertz equipment from the US company General Electric. The division of Japan into an 50 Hertz area in the East of Japan, and 60 Hertz in the West of Japan still persists today. During the war period 1938 - 1939 a series of laws was introduced to reform and nationalize Japan’s electricity industry, and the company Nihon Hassouden KK (Nippatsu) was created. Tokyo Dentou was dissolved in March 1942. The US Occupation Government order the dissolution of the electricity monopoly of Nippatsu, which was dissolved on May 1, 1951, and today’s 9 regional electricity monopoly companies were created (in addition, there is a 10th electricity operating company for Okinawa)
  44. 44. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 201469 Nippatsu 日発 Nippon Hassoden K.K. Japan Electric Generation andTransmission Company Founded April 1, 1939 dissolved 1951 under orders by the US GHQ Government of Japan Founder Headquarters Tokyo Stock Exchange quasi national monopoly Consolidated sales Number of employees Major share holders Major business areas monopoly for electricity generation and distribution in Japan
  45. 45. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 THE 10 REGIONAL ELECTRICITY COMPANIES 70
  46. 46. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 POWER GENERATION CAPACITY 73 Power generation capacity of Japan’s regional monopoly electricity operations. Also shown is J-Power, although not a regional monopoly operator. Other non-monopoly electricity generation plants exist and are not included here. Hokkaido Tohoku Tepco Chubu Hokuriku Kansai Chugoku Shikoku Kyushu Okinawa J Power 0 10 20 30 40 50 60 70 capacityGigaWatt generation capacity of Japan's power companies 7.4 17.2 64.0 GigaWatt 32.8 8.1 34.9 12.0 7.0 20.3 1.9 16.4 GigaWatt c2012EurotechnologyJapanKK www.eurotechnology.com
  47. 47. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 THE 10 REGIONAL ELECTRICAL POWER COMPANIES 79 Annual net income of Japan’s 10 regional electricity operators.The large negative effect of the Fukushima disaster and the switch-off of nuclear power stations is clearly visible, and produced combined annual net losses of more than US$ 20 billion every year since FY 2011 (ending March 31, 2012) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2000 1500 1000 500 0 500 1000 netincomeYENbillion Japan's regional electricity operators annual net income US$ 20 billion US$ 15 billion US$ 10 billion US$ 5 billion US$ 5 billion US$ 10 billion OKIDEN KYUDEN YONDEN CHUGOKU KANDEN RIKUDEN CHUDEN TEPCO TOHOKU HEPCO c2014EurotechnologyJapanKK www.eurotechnology.com
  48. 48. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 COMBINED NET INCOME OFTHE ELECTRICITY OPERATORS 83 This figure shows the combined net income of Japan’s electrical power companies, and shows, that the combined net income is stable until the FinancialYear FY2006, and then starts to fall. Since FY2006 the net income fall consistently, and is clearly headed deeper and deeper into the red. This figure shows that the financial instability of Japan’s electricity operators has started several years before the March 11, 2011 disaster, and also shows that reform of Japan’s electrical sector is long overdue. 1998 2000 2002 2004 2006 2008 2010 2012 2014 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 1000 2000 3000 YENBillion 0 US$ 20 Bill. US$ 20 Bill. US$ 40 Bill. US$ 60 Bill. US$ 80 Bill. US$ 100 Bill. net income of Japan's 10 electricity operators Japan's natural gas import costs c2014EurotechnologyJapanKK www.eurotechnology.com
  49. 49. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 HOKUDEN HOKKAIDO ELECTRICAL POWER COMPANY 84
  50. 50. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 TOHOKU ELECTRICAL POWER COMPANY 88
  51. 51. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 TOKYO ELECTRICAL POWER COMPANY -TEPCO 92
  52. 52. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 TOKYO ELECTRICAL POWER COMPANY -TEPCO 93 TEPCO headquarters inTokyo
  53. 53. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 TOKYO ELECTRICAL POWER COMPANY -TEPCO We found more than 30 different types of 2D bar codes mentioned currently. Some have important applications today - but others are uncertain to survive 94main entrance toTEPCO headquarters inTokyo
  54. 54. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 TOKYO ELECTRIC POWER COMPANY 97 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 25 20 15 10 5 0 5 10 15 20 25 annualoperatingandnetmargin operating margin net margin Annual margins TEPCO c2014EurotechnologyJapanKK www.eurotechnology.com TEPCO’s financial situation is strongly dependent on the Japanese Government decisions regarding tax-payer assistance to cover costs for the Fukushima disaster.
  55. 55. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 CHUBU ELECTRICAL POWER COMPANY - CHUDEN 98
  56. 56. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 HOKURIKU ELECTRICAL POWER COMPANY - RIKUDEN 102
  57. 57. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 HOKURIKU ELECTRIC POWER COMPANY- RIKUDEN 105 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 5 0 5 10 15 20 annualoperatingandnetmargin Annual margins RIKUDEN operating margin net margin c2014EurotechnologyJapanKK www.eurotechnology.com Hokuriku Electrical Power Company has stable revenues, however, as for most other Japanese electrical power companies clearly the business model is flawed, with income dropping off since a peak around 2004.Again the fall in income is clearly not related to the Fukushima nuclear disaster and the switch-off of nuclear power.
  58. 58. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 KANSAI ELECTRICAL POWER COMPANY - KANDEN 106
  59. 59. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 KANSAI ELECTRIC POWER COMPANY- KANDEN 109 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 20 15 10 5 0 5 10 15 20 annualoperatingandnetmargin operating margin net margin Annual margins KANDEN c2014EurotechnologyJapanKK www.eurotechnology.com Kansai Electric Power Company’s sales have been increasing recently due to increased power prices, however, as for most other Japanese electrical power companies, income and margins have been dropping off consistently since peaking in 2006.
  60. 60. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 CHUGOKU ELECTRICAL POWER COMPANY 110
  61. 61. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 CHUGOKU ELECTRIC POWER COMPANY 113 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 5 0 5 10 15annualoperatingandnetmargin Annual margins CHUGOKU operating margin net margin c2014EurotechnologyJapanKK www.eurotechnology.com Chugoku Electric Power Company’s margins have been falling consistently since 2000.
  62. 62. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 SHIKOKU ELECTRICAL POWER COMPANY -YONDEN 114
  63. 63. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 SHIKOKU ELECTRIC POWER COMPANY 115 Yonden number of power plants generation capacity ratio of total generation capacity water power 58 1141 MegaWatt 11.8% fossil 4 3797 MegaWatt 39.1% nuclear 1 2022 MegaWatt 20.85% renewables except traditional water power 2 2 MegaWatt 0.02% Total 64 9698 MegaWatt 100%
  64. 64. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 SHIKOKU ELECTRIC POWER COMPANY-YONDEN 116 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 0 100 200 300 400 500 600 700 800 900 1000 annualrevenueYENBillion US$ 2 Bill. US$ 4 Bill. US$ 6 Bill. US$ 8 Bill. Annual revenues of SHIKOKU Electric Power YONDEN c2014EurotechnologyJapanKK www.eurotechnology.com 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 150 100 50 0 50 100 150 annualoperatingnetincomeYENBillion 0 US$ .5 Bill. US$ 1 Bill. US$ .5 Bill. US$ 1 Bill. Annual income SHIKOKU El. Power YONDEN operating income net income c2014EurotechnologyJapanKK www.eurotechnology.com Shikoku Electric Power Company (Yonden), had the highest ratio of nuclear power capacity of all Japanese electrical power companies. For Shikoku Electric Power Company, clearly the drop in income arose in 2012 after the Fukushima disaster.
  65. 65. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 SHIKOKU ELECTRIC POWER COMPANY-YONDEN 117 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 15 10 5 0 5 10 15 annualoperatingandnetmargin Annual margin YONDEN operating margin net margin c2014EurotechnologyJapanKK www.eurotechnology.com Shikoku Electric Power Company (Yonden), had the highest ratio of nuclear power capacity of all Japanese electrical power companies. For Shikoku Electric Power Company, clearly the drop in income arose in 2012 after the Fukushima disaster.
  66. 66. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 KYUSHU ELECTRICAL POWER COMPANY - KYUDEN 118
  67. 67. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 KYUSHU ELECTRIC POWER COMPANY- KYUDEN 121 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 30 25 20 15 10 5 0 5 10 15 20 25 30 annualoperatingandnetmargin Annual margin KYUDEN operating margin net margin c2014EurotechnologyJapanKK www.eurotechnology.com Kyushu Electric Power Company has one of the highest ratio’s of nuclear capacity in Japan, and as a consequence income and margins dropped dramatically after switching off the nuclear power stations, while revenues increase due to increased electricity sales prices.
  68. 68. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 OKINAWA ELECTRICAL POWER COMPANY - OKIDEN 122
  69. 69. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 OKINAWA ELECTRIC POWER COMPANY 123 Okinawa number of power plants generation capacity ratio of total generation capacity water power the only global sea water pump-storage power station   fossil 17 1918 MegaWatt 100% nuclear renewable energy except traditional water power Total 17 1918MegaWatt 100%
  70. 70. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 OKINAWA ELECTRIC POWER COMPANY- OKIDEN 124 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 0 50 100 150 200 250 300 annualrevenueYENBillion US$ 0.5 Bill. US$ 1 Bill. US$ 1.5 Bill. US$ 2 Bill. US$ 2.5 Bill. Annual revenues of OKIDEN c2014EurotechnologyJapanKK www.eurotechnology.com 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 5 10 15 20 25 30 annualoperatingnetincomeYENBillion 0 US$ 0.05 Bill. US$ 0.1 Bill. US$ 0.15 Bill. US$ 0.2 Bill. US$ 0.25 Bill. Annual income OKIDEN operating income net income c2014EurotechnologyJapanKK www.eurotechnology.com Okinawa Electric Power Company is the only Japanese regional electricity operating company without nuclear power. Still rising LNG prices do have impact, and Okiden’s revenues are increasing steadily due to increasing electricity costs, while operating income is steadily decreasing
  71. 71. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 OKINAWA ELECTRIC POWER COMPANY- OKIDEN 125 Okiden’s operating margins are continuously falling because of increasing LNG prices. 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2 4 6 8 10 12 14 16 18 20annualoperatingandnetmargin Annual margin OKIDEN operating margin net margin c2014EurotechnologyJapanKK www.eurotechnology.com
  72. 72. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 J-POWER (ELECTRIC POWER DEVELOPMENT CORPORATION EDPC) 126
  73. 73. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014127 J-Power headquarters inTokyo Ginza
  74. 74. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014128 J-Power headquarters inTokyo Ginza
  75. 75. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 J-POWER 129 J-Power (Electrical Power Development Company EDPC) was founded on September 16, 1952 with 66.69% capital from the Ministry of Finance, and the remaining capital from the then 9 regional electricity operators. Purpose of the company is mainly to develop new sources of electric power, and the operation of transmission lines. In April 1, 2004 J-Power was reorganized into the following divisions: •JPHYTEC CO. Ltd: hydro-power and transmission system company •JPec Co Ltd: thermal power company •JP Business Service Corporation •KEC Corporation
  76. 76. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 J-POWER MARGINS 135 JPower has been developing international business, business outside Japan over the last years to become less dependent on Japan’s market alone.With one nuclear power station under construction but none in operation, J-Power is only weakly affected by the switch off of nuclear power stations. J-Power is the only Japanese electric power company with steadily increasing incomes. 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 0 5 10 15 annualoperatingandnetmargin Annual margin JPOWER operating margin net margin c2014EurotechnologyJapanKK www.eurotechnology.com
  77. 77. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 J-POWERVSTHE CHILDREN’S FUND (TCI) 136 In 2006 the investment fund “The Children’s Investment Fund” (TCI) makes an investment in J-Power amounting to 9.4% of outstanding shares, which was later increased to 9.9%. TCI later applied to METI for permission to increase this investment to 20% of J-Power’s shares, which was rejected by METI on the grounds of national energy security. TCI through a variety of actions (letters to management, proposals at share holder meetings) asked for a series of management changes, for increases of dividends, and for seats on J-Power’s board of directors. All these requests and proposals were rejected and in November 2008,TCI sold all shares in J-Power.
  78. 78. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 J-POWERVCTHE CHILDREN’S INVESTMENT FUND (TCI) 137 2006 TCI makes a purely financial investment in J-Power Jan 2007 applied to Japanese Government to increase investment March 2007 increases investment from 9.4% to 9.9%, asks for 3 times higher dividends June 2007 TCI proposal defeated by 80% majority at Annual General Shareholder meeting Dec 2007 TCI asks for seat on the Board of J-Power Jan 2008 TCI applies to METI to allow increase of investment from 9.9% to 20% Jan 2008 J-Power management rejectsTCI requests incl. for Board representation March 2008 TCI asks EU and UK Governments for sanctions against Japan and J-Power April 2008 METI rejectsTCI application for increased investment June 2008 TCI loses proxy battle against J-Power, shareholders reject 5 TCI proposals November 2008 TCI sells its entire 9.9% holding back to J-Power at a loss ofYEN 12.5 billion
  79. 79. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN ATOMIC POWER COMPANY (JAPC) 138
  80. 80. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014139 Japan Atomic Power Company Founded November 1, 1957 (first nuclear plant:Tokai Power Station, commercial operation started July 25, 1966) Founder Headquarters Tokyo Stock Exchange private company Consolidated sales YEN 145.276 Billion (US$ 1.7 Billion) (FY2011) Number of employees 1388 Major share holders TEPCO (28.23%), KEPCO (18.54%), Chubu (15.12%), Hokuriku (13.05%),Tohoku (6.12%), Chugoku, Shikoku, Kyushu, J-Power (5.37%) Major business areas Nuclear power generation 1.Tokai Nuclear Power Plant, 2.Tsuruga Nuclear Power Plant
  81. 81. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN ATOMIC POWER CORPORATION 140 JAPC number of power plants electrical capacity water power - - fossil - - nuclear 1. Tokai 2. Tsuruga 1100 MegaWatt 357 + 1160 MW new energy - - Total 2 2600 MegaWatt
  82. 82. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 THE GRID 141
  83. 83. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 REGIONAL ELECTRICITY PRODUCTION AND GRID CONNECTIONS BETWEEN OPERATORS 142 Japan’s electricity infrastructure consists of ten regional monopolies (installed electricity generation capacity is shown as the area of circles, and written in GigaWatt (GW)). The width of link lines between the power monopolies show the capacity of lines connecting the regional monopolies. Japan has no true national grid, but two essentially disconnected regional grids, and relatively weak links between local power monopolies. Several proposals for national grids are under discussion, potentially competing with each other. (note that the generation capacities shown above are those of the regional electrical monopolies.Actual regional generation capacities are actually about 30%-40% higher, because of in- house production of electricity of manufacturing companies and building companies, and because of independent electricity producers). Hokkaido generating capacity= 7 GigaWatt Tohoku 17 GW Hokuriku 8 GW Chugoku 12 GW Shikoku 7 GW Kyushu 20 GW Okinawa 2 GigaWatt Tokyo 65 GW Kansai 35 GW Chubu 33 GW Japan’s total electricy generation capacity = approx. 250 GW 600MW DC line 6310MW AC line 5570MW 5570MW 5570MW AC line 2400 MW 16600MW 1000MW DC line 1400MW 300MW (c) 2012 Eurotechnology Japan KK www.eurotechnology.com
  84. 84. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 THE 50HZ/60HZ ISSUE 145
  85. 85. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 THE 50HZ/60HZ ISSUE 146 Electrification of Japan started on March 25, 1878 at the Institute ofTechnology inTokyo/Toranomon, and in 1886 theTokyo Electric Light Company was founded. Electrification started independently inTokyo and in Osaka: •Tokyo Electric Light Company imported equipment from German AEG with the German 50Hz frequency standard, •Osaka Electric Lamp Company imported equipment from General Electric (USA) with the 60Hz frequency standard. Until today Western Japan uses 60Hz, while Eastern Japan used 50Hz. Only three frequency converter facilities (FCF) connect the western 60Hz area with the easter 50Hz area: •Shin-Shinano FCF (600MWatt) •Sakuma Dam FCF (300MWatt) •Higashi Shimizu FCF (135MWatt, from Autumn 2014: 300MWatt) It is not practically possible to change one of the areas’ frequency standard, so this 50Hz/60Hz split of Japan’s electricity system is likely to continue forever. However, in the future true national grids are likely to be built.At the moment there is no true national grid in Japan, only relatively weak connections between the regional monopoly operators, and other local links.
  86. 86. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 THE 50HZ/60HZ ISSUE 147 Only three frequency converter facilities (FCF) connect the western 60Hz area with the easter 50Hz area: •Shin-Shinano FCF (600MWatt) •Sakuma Dam FCF (300MWatt) •Higashi Shimizu FCF (135MWatt, from Autumn 2014: 300MWatt) 50Hz (historically German AEG supplied Tokyo Electric Light Co) 60Hz (historically US General Electric supplied Osaka Electric Lamp Co.) Shin-Shinano FCF 600MW Sakuma Dam FCF 300MW Higashi-Shimizu FCF (=Frequency Converter Facility) 135MW (from Autumn 2014: 300MW) (c) 2012 Eurotechnology Japan KK www.eurotechnology.com
  87. 87. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JEPX JAPAN ELECTRIC POWER EXCHANGETOKYO 148
  88. 88. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 DISTRIBUTED MODEL GREEN ELECTRICITY SELLING MARKET 150 One June 18, 2012, JEPX set up a small lots Power Exchange, where there is no lower quantity limit, and the participants are exempt from the 1.6 MillionYEN admission fee and transaction fees. Trades small-scale electricity generation of 1MegaWatt or less, including electricity in fluctuating and unpredictable amounts. Sellers can arbitrarily set prices, and can set conditions. JEPX will try to match sellers with buyers.
  89. 89. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 IMPACT OFTHE FUKUSHIMA DISASTER 151
  90. 90. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 IMPACT OFTHE FUKUSHIMA DISASTER (1) 152 All 50 Nuclear nuclear power stations have been switched off according to their 13 months maintenance cycle, and only a two nuclear power stations in Oi (Kansai Electrical Power) has been restarted after maintenance, and intensive discussions about safety by Government, local agencies, and the public.There is much resistance to restart further nuclear power stations. Since one nuclear power reactor corresponds to an installed power of about 1 GigaWatt, about 50 GigaWatt have been removed from Japan’s electricity generation capacity, ie about 25%. The sudden unplanned removal of about 25% of Japan’s electricity generation capacity has been compensated as follows: •planned, forced and voluntary electricity savings: large scale users have been forced by Government regulation to reduce electricity consumption, and smaller scale users are reducing consumption voluntarily. This summer the following targets have been announced: •all customers (households and businesses) in the regions of 6 monopoly utilities in Western Japan are asked to cut electricity usage voluntarily by 5-15% during summer 2012 compared to summer 2010, and 7% in Hokkaido •restart of retired thermal power plants using natural gas, coal and oil, resulting in very large added imported primary energy costs •planned black-outs: electricity was switched off for certain periods (e.g. 4 hours / day) in selected areas outside the center ofTokyo. Similar black-outs could also happen this summer 2012. Black-outs cause great disruption and financial damage to the economy, and in some cases deadly accidents. Some planned black-outs have not been implemented however, due to unexpectedly high voluntary electricity savings.
  91. 91. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 IMPACT OFTHE FUKUSHIMA DISASTER (2) 153 Japan’s current Energy Basic Plan (established in 2010) provides an increase of nuclear power to over 50% of total electricity generation by 2020. Clearly with all nuclear power station currently switched off (with one exception), with the forced recalculation of true nuclear energy costs (when the costs of the nuclear disaster and clean-up and decommissioning are properly included), and with rising resistance by common Japanese voters as well as industry leaders (such as Masayoshi Son), and leading politicians, the nuclear disaster forces a review of Japan’s Energy Basic Plan.A new Energy Basic Plan is currently under preparation, and is very likely to include a much reduced role of nuclear energy, and a much increased role for renewable energy as new revised national policy of Japan. Promotion of nuclear power in Japan had the character of untouchable national policy, and 10 electrical utility companies went to great lengths to eliminate any opposition to the nuclear power policy. In addition, for reasons which are still unclear to me, the 10 electrical utility companies as a rule kept “new energy”, renewable energy below 1% of electricity production. Independent of any rational argument or serious discussions, or examples in other countries, renewable “new” energy was kept below 1% as an untouchable rule, with the result that Japan until recently had the lowest investments and lowest development of renewable “new” energy of most developed countries.The Fukushima disaster has temporarily eliminated nuclear power from Japan’s energy mix, and has ended this 1% rule, and greatly accelerated the introduction and development of renewable “new” energies.
  92. 92. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 IMPACT OFTHE FUKUSHIMA DISASTER (3) 154 •an urgent implementation of the legal and regulatory framework to encourage private sector investments in traditional and renewable energy generation plants •it has been reported that manufacturing companies have relocated production sites outside Japan due to the uncertainties of electricity supply and black-outs •investment by local authorities (e.g. theTokyo Metropolitan Government) in electricity generation plants •the implementation of relatively high Feed-in-Tariffs to encourage private sector investment in renewable energy generation. Such investments are happening on a large scale now. Impact on renewable energy •Currently (new: solar, wind, geo-thermal etc) renewable energy amounts to approximately 1% of Japan’s overall electrical power output. Japan’s Government plans to work towards increasing the share of renewable energy in Japan’s energy mix to 15% - 25%.
  93. 93. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 DEMOCRATIZATION OF JAPAN’S POWER INDUSTRY (1) 155 As to be expected, there are strong movements against nuclear power as a consequence of the Fukushima nuclear disaster. Currently 10,000s of demonstrators gather regularly in public places in Tokyo, and recently also in front of the official Prime Minister’s residence2 (organizers claim 150,000 participants, police reports 17,000 participants, and Japanese media report between 20,000-45,000) These protests have caused powerful local politicians to speak out against nuclear power, especially Osaka MayorTooru Hashimoto, who is frequently mentioned as a potential future Prime Minister. Since local Governments are often the largest share holders of the regional electrical monopoly companies,Tooru Hashimoto’s voice is not only the voice of a regional political leader, but also the voice of the largest share holder of Japan’s second largest electrical utility.A the recent share holder meeting, MayorTooru Hashimoto has demanded that Kansai Electric ends the use of nuclear power. These movements are a strong indication that its likely that nuclear power generation will be reduced, much reduced, or even eliminated from Japan’s energy mix, and that renewable energy will have increasing popular and political support.
  94. 94. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 DEMOCRATIZATION OF JAPAN’S POWER INDUSTRY (2) 156 Since increasing the nuclear contribution of the energy mix to over 50% has been the National Policy of Japan with strong support especially of the industrial and political establishment, written down as National Policy in the Energy Basic Plan of June 2010, there is political discussion between many interest groups and idealists and academics and other players to reach a national consensus for the future energy architecture and energy mix for Japan. In the past Japan’s energy policy and its implementation was decided by a group of about 100 people more or less in secret. Now and for the future Japan’s energy policy is decided by a much more democratic process with the participation of many groups and many people and leaders, and the debate is public and causes much passion and interest. This change is favorable for the growth of renewable energy, and unfavorable for nuclear energy.
  95. 95. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 ELECTRICAL POWER INDUSTRY REFORM AND LIBERALIZATION 157
  96. 96. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 ELECTRICAL POWER INDUSTRY REFORM 158 The electrical power industry has essentially three components (not including equipment makers and service industries): 1.electricity generation 2.electricity transportation, grid 3.electricity sales and local distribution, including metering, invoicing and payment collection •industrial •private home users In many countries these three components have been split with mutually independent generation companies, one or more transportation or national grid companies, and electricity distribution and retail. In Japan, such a split-type liberalization has never taken place, and the electric power monopoly companies have always strongly resisted such liberalization. Partial reforms a few years ago in Japan have not brought real change to this structure, mainly because of the resistance by the incumbent 10 regional monopoly electrical operators. After the Fukushima nuclear disaster several influential leaders, including Masayoshi Son, are now demanding the liberalization and split of generation, grid and distribution. It will remain to be seen, whether such a liberalization will take place.At the moment I do not see rapid developments in this direction. As long as such liberalization does not take place, independent solar energy producers, mega-solar power plants will need to sell their generated electricity via Government mandated feed-in tariffs to the electricity operating monopolies which own the transportation grid and the distribution to end-customers.
  97. 97. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 ELECTRICAL POWER INDUSTRY REFORM METI PLAN 160 2013 2014 2015 2016 2017 2018 2019 2020 (c)2013EurotechnologyJapanKK www.eurotechnology.com generationtransmissiondistribution planninganddecisionmaking create organization for wide area grid operation total liberalization of electricity sales end government control of electricity prices maintain government control of electricity prices legally separate electrical power generation and transmission prepare liberalization of electricity sales create rules and framework to separate power generation and transmission implement separation
  98. 98. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 ASIAN GRID PROPOSALS 162
  99. 99. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 ASIAN GRID PROPOSALS 163 All European countries are connected by a strong electrical grid. Such a grid does not exist in Asia, and Japan has no true national grid and no electricity links. Several organizations are proposing Asian Electrical Power grids, which use European grids as model. Asia Pacific Power Grid proposal by Japan Policy Council Asia Super Grid proposed by Masayoshi Son and Softbank Energy (SB Energy)
  100. 100. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S CITY GAS LANDSCAPE 167
  101. 101. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S CITY GAS BUSINESS LANDSCAPE 168 Japan’s city gas business started inYokohama in 1872, and today’s big four gas companies have been founded between 1885 and 1922. Japan’s city gas business is structured into the “big four”, which are all public companies traded on the Tokyo Stock Exchange, and a large number of much smaller regional gas companies, some of which are owned by the town governments, and others are privately owned or public: •the “big four” city gas companies: •Tokyo Gas (Tokyo and Kanto) •Toho Gas (Nagoya, Chubu area) •Osaka Gas (Kinki, Osaka, Kyoto area) •Saibu Gas (Kita-Kyushi area: Nagasaki, Kita-Kyushu, Kumamoto) •180 privately owned city gas companies (including the “big four”) •29 local government owned city gas companies or city departments The “big four” gas companies are globally active gas companies investing in the complete gas business from exploration to transportation, harbor installations, pipelines, and distribution networks. Recently the “big four” are aggressively moving into the electricity business to take advantage of the the shut-down of Japan’s nuclear power generation and its replacement by natural gas.Thus the big four gas companies are one of the most important new entrants realizing the liberalization of Japan’s electricity sector.
  102. 102. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S REGIONAL GAS COMPANIES - OVERVIEW 169
  103. 103. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S GAS COMPANIES - HOKKAIDO 171 1.Asahikawa Gas Co., Ltd. 2.Bibai Gas Co., Ltd. 3.Hokkaido Gas Co., Ltd. 4.Iwamizawa Gas Co., Ltd. 5.Kushiro Gas Co., Ltd. 6.Muroran Gas Co., Ltd. 7.Obihiro Gas Co., Ltd. 8.Oshamanbe-cho Water & Gas Section 9.Takikawa Gas Co., Ltd. 10.Tomakomai Gas Co., Ltd.
  104. 104. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S GAS COMPANIES - KYUSHU/OKINAWA 177 1.Akune Gas Co., Ltd. 2.Amakusa Gas Co., Ltd. 3.Chikushi Gas Co., Ltd. 4.Daiichi Gas Co., Ltd. 5.Iizuka Gas Co., Ltd. 6.Imari Gas Co., Ltd. 7.Itochu Enex Co., Ltd. 8.Izumi Gas Co., Ltd. 9.Kajiki Gas Co., Ltd. 10.karatsu Gas Co., Ltd. 11.Kokubu Hayato Gas Co., Ltd. 12.Kurume Gas Co., Ltd. 13.Kyusyu Gas Co., Ltd. 14.Minaminihon Gas Co., Ltd. 15.Miyazaki Gas Co., Ltd 16.Nankai Gas Co., Ltd 17.Nihon Gas Co., Ltd. 18.Nishinihon Gas Co., Ltd. 19.Nougata Gas Co., Ltd. 20.Obama Gas Co., Ltd. 21.Oita Gas Co., Ltd. 22.Okinawa Gas Co., Ltd. 23.Omuta Gas Co., Ltd. 24.Saga Gas Co., Ltd. 25.Saibu Gas Co., Ltd. 26.Takamatsu Gas Co., Ltd. 27.Tosu Gas Co., Ltd. 28.Yamaga-Toshi Gas co., Ltd.
  105. 105. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S REGIONAL GAS COMPANIES -THE BIG 4 178
  106. 106. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S BIG-4 GAS COMPANIES (ANNUAL NET INCOME) 183 Net income of the big four gas companies is relatively stable, while the gas companies are growing revenues at an annual compound growth rate of 4.1%. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0 50 100 150 200 250 300 netincomeYENbillion Japan's Big 4 Gas companies annual net income US$ 1.0 billion US$ 2.0 billion US$ 3.0 billion US$ 4.0 billion Tokyo Gas Toho Gas Osaka Gas Saibu Gas c2013EurotechnologyJapanKK www.eurotechnology.com
  107. 107. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 JAPAN’S BIG-4 GAS COMPANIES (ANNUAL NET MARGIN) 187 Net margins of Japan’s big 4 gas companies are on the order of 1% - 8%. Scale is important: the largest gas companies (Tokyo Gas and Osaka Gas show highest margins and also strongest growth) 1998 2000 2002 2004 2006 2008 2010 2012 2014 2 4 6 8 10annualnetmargin Tokyo Gas Toho Gas Osaka Gas Saibu Gas Annual net margin of Japan's Big 4 gas companies c2013EurotechnologyJapanKK www.eurotechnology.com
  108. 108. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 COMPARING JAPAN’S 10 ELECTRICITY OPERATORS WITH JAPAN’S BIG-4 GAS COMPANIES 188
  109. 109. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 10 ELECTRICITY OPERATORSVS BIG-4 GAS COMPANIES REVENUES 189 While the electricity sector combined is about four times larger in terms of sales than the city gas sector, the city gas sector shows much stronger growth, with a compound average annual growth rate of 4.1%, while the electricity sector shows little growth in revenues. Japan’s big 4 city gas companies grow aggressively by entering new areas, including electricity generation, partly in cooperation and partly in competition with the electricity operators. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0 5000 10000 15000 20000 revenuesYENbillion Japan's regional electricity operators annual revenues Lehman shock US$ 50 billion US$ 100 billion US$ 150 billion US$ 200 billion OKIDEN KYUDEN YONDEN CHUGOKU KANDEN RIKUDEN CHUDEN TEPCO TOHOKU HEPCO c2013EurotechnologyJapanKK www.eurotechnology.com 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0 1000 2000 3000 4000 5000 revenuesYENbillion Japan's Big 4 Gas companies annual revenues US$ 10 billion US$ 20 billion US$ 30 billion US$ 40 billion US$ 50 billion Tokyo Gas Toho Gas Osaka Gas Saibu Gas c2013EurotechnologyJapanKK www.eurotechnology.com
  110. 110. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 10 ELECTRICITY OPERATORSVS BIG-4 GAS COMPANIES REVENUES AND MARKET-CAPITALIZATION 194 Market capitalization reflects the much more healthy situation of Japan’s big-4 city gas companies compared to the 10 electricity operators. The market capitalization / revenue ratio is substantially higher for the gas companies than for the electricity companies. Gas companies Electricity companies 0 1000 2000 3000 4000 5000 marketcapYENBillion Market cap of Japan's electrical vs gas companies Dec 18, 2012 Tokyo Gas Osaka Gas Toho Gas Saibu Gas TEPCO KANDEN CHUDEN KYUDEN HEPCO TOHOKU RIKUDEN CHUGOKU YONDEN OKIDEN c2012EurotechnologyJapanKK www.eurotechnology.com Gas companies Electricity companies 0 5000 10000 15000 20000 revenuesYENBillion Revenues of Japan's electrical vs gas companies FY ended March 31, 2013 Tokyo Gas Osaka Gas Toho Gas Saibu Gas TEPCO KANDEN CHUDEN KYUDEN HEPCO TOHOKU RIKUDEN CHUGOKU YONDEN OKIDEN c2013EurotechnologyJapanKK www.eurotechnology.com
  111. 111. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 TOKYO GAS 195
  112. 112. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 TOKYO GAS (ANNUAL INCOME AND MARGIN) 198 For the period FY1999 - FY 2011,Tokyo Gas revenues have grown with an CAGR of 4.8%, income and margins are relatively stable 1998 2000 2002 2004 2006 2008 2010 2012 2014 0 5 10 15 annualoperatingandnetmargin Annual operating and net margin TokyoGas c2013EurotechnologyJapanKK www.eurotechnology.com 1998 2000 2002 2004 2006 2008 2010 2012 2014 0 20 40 60 80 100 120 140 160 180 200 annualoperatingnet incomeYENBillion 0 US$ .5 Bill. US$ 1.0 Bill. US$ 1.5 Bill. US$ 2.0 Bill. Annual op. and net income TokyoGas c2013EurotechnologyJapanKK www.eurotechnology.com
  113. 113. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 TOHO GAS 199
  114. 114. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 OSAKA GAS 203
  115. 115. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 SAIBU GAS 207
  116. 116. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014208 Saibu Gas Founded December 1, 1930. Formed initially by a merger of Nagasaki Gas (founded in 1902), Hakata Gas, Kumamoto Gas, Kokura Gas in1913. Founder Headquarters Nagoya Stock Exchange TokyoTSE 9536 Consolidated sales YEN 128 Billion (US$ 1.5 Billion) (FY2011, ended March 31, 2012) Number of employees 1512, consolidated (March 2012) Major share holders Major business areas gas supplier for 16 cities & 16 towns: Fukuoka, Kitakyushu,Kasuga, Onojo, Fukutsu, Kumamoto, Nagasaki, Sasebo, and Shimabara
  117. 117. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 SAIBU GAS (ANNUAL REVENUES) 209 For the period FY1999 - FY 2011, Saibu Gas revenues have grown with an CAGR of 2.3%., the lowest of the big-four city gas companies. 1998 2000 2002 2004 2006 2008 2010 2012 2014 0 50 100 150 200 250 300 annualrevenueYENBillion US$ 1 Bill. US$ 2 Bill. US$ 3 Bill. Annual revenues of Saibu Gas c2013EurotechnologyJapanKK www.eurotechnology.com
  118. 118. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 SAIBU GAS (ANNUAL INCOME AND MARGIN) 210 For the period FY1999 - FY 2011, Saibu Gas revenues have grown with an CAGR of 2.3%. Income is positive but fluctuating, while margins are slowly decreasing. 1998 2000 2002 2004 2006 2008 2010 2012 2014 0 2 4 6 8 10 annualoperatingnet incomeYENBillion 0 US$ .05 Bill. US$ 0.1 Bill. Annual op. and net income Saibu Gas c2013EurotechnologyJapanKK www.eurotechnology.com 1998 2000 2002 2004 2006 2008 2010 2012 2014 0 5 10 annualoperatingandnetmargin Annual operating and net margin Saibu Gas c2013EurotechnologyJapanKK www.eurotechnology.com
  119. 119. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 THE ROLE OF JAPAN’S TRADING COMPANIES INTHE ENERGY DOMAIN 211
  120. 120. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 THE ROLE OF JAPAN’STRADING COMPANIES INTHE ENERGY SECTOR 212 This section will be included and updated in future versions of this report. Subscribe to this report, and we will regularly send you the latest versions. subscription, monthly payment, you can end the subscription any time (no refunds): http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU50334810626 subscription, annual payment, you can end the subscription any time (no refunds): http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU20789254886
  121. 121. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 RENEWABLE ENERGY 213
  122. 122. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 FEED INTARIFFS (FIT) FOR RENEWABLE ENERGY 214
  123. 123. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 RENEWABLE ENERGY 215 Japan’s renewable energy industry landscape and markets are documented in our following report: •Renewable energy in Japan •approx. 188 pages, 94 Figures, 32 tables, frequent updates •information: •http://www.eurotechnology.com/store/j_renewable/ •purchase current edition: •http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU72243111298 •subscription, monthly payment, you can end the subscription any time (no refunds): •http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU24934888016 •subscription, annual payment, you can end the subscription any time (no refunds): •http://store.eSellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU30316666940 see also: •Solid state lighting, GaN LEDs and lasers •approx. 122 pages, 25 Figures, 21 photographs, 9 tables, frequent updates •information: http://www.eurotechnology.com/store/solidstatelighting/ •purchase current edition (single copy license): http://store.esellerate.net/s.asp?s=STR651896906&Cmd=BUY&SKURefnum=SKU6322569155 •purchase current edition (corporate license): http://store.esellerate.net/s.asp?s=STR0576176470&Cmd=BUY&SKURefnum=SKU05361071140
  124. 124. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 GLOSSARY 216
  125. 125. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 GLOSSARY 217 Mega-solar Solar plants larger than 1 MegaWatt capacity, corresponding to the electricity needs of about 300 family homes 1 Joule SI-Unit for Energy. 3,600,000 Joule = 1 kilo Watt hour (= 1 kWh) 1 Joule = 2.778 x 10-7 kWh 1 Watt SI-Unit for Power. Measures energy transfer or energy conversion. 1 Watt = 1 Joule / second 1 GW = 1 Giga-Watt 1 GW = 1 Billion Watt = 109 Watt The power generation capacity of a nuclear power station is typically on the order of 1 GW
  126. 126. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 SUMMARY 218
  127. 127. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 SUMMARY: JAPAN’S ELECTRICAL ENERGY LANDSCAPE 219 Japan’s electrical industry has been almost unchanged for many years, until the Fukushima nuclear disaster struck in March 2011.The nuclear energy contribution to Japan’s electrical energy mix was around 30% and increasing this nuclear energy contribution to 50% was official policy. New renewable sources were kept below 1% of the electricity energy mix. The Fukushima nuclear disaster led to a shut-down of almost all nuclear power stations (except two), and nuclear power has for the time being been replaced by much more expensive fossil sources (mainly gas), and restarting retired aged conventional power stations. Legislation came in force on July 1, 2012 to promote renewable energy sources via feed-in-tariffs, and Japan’s energy strategy plan is currently in intense political discussions. For the future, strong increases in renewable energy can be expected.The long-term fate of nuclear power has not yet been decided.
  128. 128. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 EUROTECHNOLOGY JAPAN KK 220
  129. 129. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 EUROTECHNOLOGY JAPAN KK FOUNDED: FEBRUARY 1997 INTOKYO 221 Services and products - focus areas are high-technology, telecommunications, software, middle-ware, environmental technology and medical equipment: - Market entry to Japan for European and US high-tech companies, turn-round, reshaping, planning and building of distribution networks - European business development and strategy for Japanese companies - M&A (European and US companies acquiring Japanese companies, Japanese companies acquiring or investing in Europe) - Turn-round preparations and management of foreign business in Japan - Market research and strategy - Due diligence of high-tech companies, environmental due-diligence - Advisory services for investment fund managers and investors in technology fields - we publish a series of market reports for about 10 years, which are purchased world-wide, distributed direct and via distribution partners: http://www.eurotechnology.com/store/
  130. 130. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 EUROTECHNOLOGY JAPAN KK 222 - Leading high-technology business development boutique inTokyo, working globally - Founded in 1996/1997 - 14 years experience, relationships, cooperations and success record. - CEO works with Japan’s high-tech / telecom sector since 1984 - 27 years experience, resources, cooperations. - Wide network of cooperations in Governments, Embassies, trading companies, distributors, finance, VCs, traditional corporations, venture start-ups, industry associations - Experience: market-entry, restructuring, M&A, acquisitions, due-diligence Customers include: - More than 100 investment fund managers - Industrial customers: - NTT-Communications, SIEMENS, DeutscheTelekom, Cubic, Unaxis (now: Oerlikon), CITI Group, CLSA Asian Markets, Genscape, Google, IKEA, Isabellenhuette, Landis+Gyr, National Instruments, Swisscom,TechnoCom, - Government - NewYork Police Department, European Union,TEKES (Technology Research funding organization of the Government of Finland) Deep Japanese technology market knowledge - we publish a series of market reports for about 10 years, which are purchased world-wide.You can purchase our reports on Bloomberg: https:// www.bmart.com/search?&nuts%5B%5D=WIRE%3AEUT, and via eSellerate: http://store.eSellerate.net/ s.aspx?s=STR0576176470 and from http://www.eurotechnology.com/store/
  131. 131. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 GERHARD FASOL PROFILE: HTTP://WWW.FASOL.COM/PROFILE/ 223 - Worked successfully with Japan’s high-tech sector since 1984 - 27 years. Came first to Japan in 1984 to help build NTT’s first international R&D cooperation on semiconductor lasers - Entrepreneur inTokyo since 1996, Eurotechnology Japan KK worked with many large corporate groups (e.g. SIEMENS, NTT, DeutscheTelekom,Asahi Glass...), more than 100 investment fund managers - Assoc. Professor of Electrical Engineering atTokyo University. Record of Fasol-Laboratory atTokyo University: http://www.fasol.com/tokyo_university/ - Elite “Sakigake” (Pioneer) R&D project on Spin-Electronics of Japanese Government Science and Technology Agency.This work was evaluated by US National Science Foundation and US Department ofTrade: http://www.wtec.org/loyola/erato/ch7_5.htm - Co-initiator of spin-electronics device research in Japan, one of the first to start work on spin- electronics in Japan in 1991 - Tenured Faculty member at Cavendish Laboratory/University of Cambridge. - Assoc. Professor of Electrical Engineering atTokyo University - PhD in Solid-State Physics (Cambridge University,Trinity College, UK) - Diplom-Physiker, Ruhr-University Bochum (Diplom-Thesis on Superconductivity) - Publication list (Books, patents and publications, several publications are specifially concerning electron-spin and spin-electronics): http://www.fasol.com/profile/publications.shtml - Languages: English, German (native), French, Japanese, and some Swedish
  132. 132. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 GERHARD FASOL WITHTETSUZO MATSUMOTO, EXECVP OF SOFTBANK MOBILE CORPORATION 224
  133. 133. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 “POST GALAPAGOS STUDY GROUP” 25 JAPANESE LEADERS + 1 FOREIGNER (GERHARD FASOL) WORKING FOR ONEYEAR ON CONCEPTSTO OVERCOME JAPAN’S “GALAPAGOS EFFECT” 225 see: http://www.eurotechnology.com/2013/10/07/galapagos/
  134. 134. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 “POST GALAPAGOS STUDY GROUP” 25 JAPANESE LEADERS + 1 FOREIGNER (GERHARD FASOL) WORKING FOR ONEYEAR ON CONCEPTSTO OVERCOME JAPAN’S “GALAPAGOS EFFECT” 226 see: http://www.eurotechnology.com/2013/10/07/galapagos/
  135. 135. (c) 2014 Eurotechnology Japan KK www.eurotechnology.com Japan’s energy landscape (21st edition) June 30, 2014 CONTACT AND MORE INFORMATION 227 Contact •Gerhard Fasol PhD •Eurotechnology Japan KK,Tokyo, Japan •http://www.eurotechnology.com/ •fasol@eurotechnology.com More information: •reports:http://www.eurotechnology.com/store/ •twitter: http://twitter.com/gfasol/ •website: http://www.eurotechnology.com/ •personal site: http://fasol.com

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