Japan’s electricity and new energy policy

Gerhard Fasol at Stockholm School of Economics

Stockholm School of Economics at the Embassy of Sweden in Tokyo (Alfred Nobel Lecture Theatre)

European Institute for Japanese Studies EIJS

Gerhard Fasol "Japan
Gerhard Fasol “Japan’s electricity and new energy policy” Embassy of Sweden

Announcement and summary on the website of Stockholm School of Economics.

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This talk is based on data from our reports:

European Institute of Japanese Studies (EIJS) Academy Seminars

About the talk: Japan’s electricity architecture was put in place in 1952 and was not much changed until 2011. Electricity liberalization, introduction of smart meters and smart grids bring very large investments in Japan’s energy infrastructure, and are creating huge opportunities for Japanese and foreign companies in Japan’s energy sector. At the same time there is much uncertainty about Japan’s nuclear program -will Japan’s nuclear power plants restart? The talk will explain Japan’s energy architecture today and how we arrived at today’s situation and will give you some tools to understand possible scenarios for Japan’s energy and electricity future.
As an introduction, you may watch Gerhard’s interview for The Economist about Japan’s energy situation here

About the speaker: Gerhard came first to Japan in 1984 to help build what was NTT’s first international R&D cooperation and has worked with Japan ever since. Gerhard is founder and CEO of Eurotechnology Japan KK, where he has worked for 100s of US, EU and Japanese companies on M&A and business development, and he is independent Member of the Board of Directors
of the Japanese company GMO Cloud KK, a cloud services company with about 500 employees and traded on the Tokyo Stock Exchange. Gerhard is also the creator and curator of the Ludwig Boltzmann Symposia on Energy, Entropy and Leadership. Gerhard graduated with a PhD in Physics from Cambridge University, Trinity College, was tenured faculty at Cambridge University in Semiconductor Physics, Associate Professor at Tokyo University’s Electrical Engineering Department, and the first foreigner to lead an elite Sakigake Research project of Japan’s Science and Technology Agency.

Date and place – Japan’s electricity and new energy policy

Date: Wednesday, June 18th, 2014
Time: 6.30 p.m. – 7.00 p.m. Drink & Snack (served before lecture), 7.00 p.m. – 9.00 p.m. Lecture and Discussion
Place: Alfred Nobel Auditorium, Embassy of Sweden, 10-3-400 Roppongi 1-chome, Minato-ku, Tokyo 106-0032
Fee: JPY3,000 per person, payable at the door, Free for those who are from sponsoring companies, Free for students, please bring your student ID
Language: English
Registration required:Please sign up by June 13 (Fri.) via e-mail to eijsjap (at) gmail (dot) com for the attention of Ms. Futagawa (EIJS Tokyo office)
In cooperation with the Embassy of Sweden

Gerhard Fasol: Japan's electricity and new energy policy
Gerhard Fasol: Japan’s electricity and new energy policy

If you can’t attend the talk on June 18th, 2014 at the Embassy of Sweden, you can download our reports on Japan’s energy situation here:

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What will happen with Japan’s nuclear power stations?

Japan nuclear power stations were all switched off in the aftermath of the Fukushima nuclear disaster. We analyze the future of Japan nuclear power stations

Watch The Economist interview on Japan’s energy policy.

Read our report on Japan’s energy sector,
and our report on Renewable energy in Japan.

Many times, often several times a day, I get asked about what will happen with Japan’s nuclear power stations – today alone twice. So here is the answer I usually give – please note that I am Physicist, and I know a lot about the Physics of nuclear power, and although I have personally avoided working in the nuclear physics field (which is much wider than nuclear power), I do not have a personal opinion for or against nuclear power:

Quick answer: it is impossible for anyone, including the Prime Minister of Japan, to know with any certainty.

Long answer: Japan is a democracy. Japan currently is quite polarized for or against nuclear power. Everyone knows that some Japanese leaders including the Prime Minister Abe, are in favor of nuclear power. On the other hand, many outstanding opinion leaders are strongly against nuclear power in Japan, these include Nobel Prize Winner Kenzaburo Oe, and also the former Prime Minister Koizumi. Currently we can observe the evolution of a democratic process in Japan to reach a consensus on the future of nuclear power stations in Japan. This process is different for every single nuclear power station, and it is impossible for anyone to make predictions.

Obviously the owners of the nuclear power stations hope to restart their power stations as quickly as possible, and they are supported by many industrial leaders and the current Prime Minister. They need to obtain the agreement by the newly established nuclear power regulator, which was newly established because the Parliamentary Committee which investigated the Fukushima nuclear disaster established that the cause for the nuclear disaster was “regulatory capture”. This committee was chaired by Kiyoshi Kurokawa, and you can read one of his speeches “Groupthink can kill”, and watch YouTube movies explaining the results of his committee here.

Sofar none of the nuclear power station was cleared by the new nuclear safety agency, and no one knows when the safety inspection program will be concluded for any of the nuclear power stations, nor which stations will be cleared to restart (in principle) and to which the nuclear safety agency will refuse the clearance.

However, clearance by the nuclear safety agency is by far not enough. In addition, in Japan, nuclear power stations need the agreement of the local communities, i.e. the local mayors and Province (Ken, Prefecture) Government Prefects. As an example, the world’s largest nuclear power plant is Kashiwazaki-Kariwa, it is currently owned by the Tokyo Electric Power Company to supply Tokyo with electricity, and it is located approximately 80 km from the Prefecture capital city Niigata-shi, which has about 1 million inhabitants. The current very outspoken Governor (Government Leader) of Niigata-Prefecture, Hirohiko Izumida (泉田 裕彦), has clearly stated his opposition both to the restart of the Kashiwazaki-Kariwa nuclear power station, and secondly he has also stated that he considers Tokyo Electric Power Company unsuited to manage a nuclear power station. Read and watch a video of Governor Hirohito Izumida here. I have read speculations that as a consequence it might be thinkable that ownership and/or management of the Kashiwazaki-Kariwa Nuclear Power station could be transferred to a different power company to overcome this local resistance. But it is not possible for anyone to predict how this will play out.

It is my understanding also, that in Japan it is not clearly defined which local authorities have to agree before a nuclear plant can operate, and which distance from the nuclear power station is still close enough that agreement of local authorities is needed. In my understanding also it seems to be unclear which type of local authorities have veto power: The Prefect (i.e. the chief of the Prefectural Government), cities, towns, villages etc. There seems to be much uncertainty here, which did not exist in the past, or which did not come out into the open in the past.

Another factor is the local geological situation for each nuclear power station. In Japan there are legal requirements that nuclear power stations need to be located away from active geological faults. Recently there have been investigations by geological experts about the geological conditions near the nuclear power stations, but my understanding is that many questions are still unsettled at least for some of the nuclear power stations.

Still another factor are the courts. Traditionally Japanese courts have rejected all complaints against the operation of nuclear power stations, but I hear that recently some court complaints against the operation, or against the restart of nuclear power stations have been successful. Court decisions also cannot be predicted by anyone.

So in summary: No-one can possibly predict what will happen with Japan’s nuclear power stations. When pushed, I sometimes say that a possible scenario will be that about 10 out of Japan’s approx. 50 nuclear power stations might be restarted in about 3 years from now. However, no one can know this for sure, and no one can assign a probability to any outcome.

There have been enquires by some non-Japanese/foreign media, which interviewed a number of experts, asked them to estimate the probability for each of Japan’s nuclear power plant, and then took some kind of average of these experts opinions. I was also asked to participate in this experts’ enquiry, but I refused to participate, and said that simply no one can know with any precision at all.

Watch The Economist interview on Japan’s energy policy.
Read our report on Japan’s energy sector,
and our report on Renewable energy in Japan.

Copyright·©2014 ·Eurotechnology Japan KK·All Rights Reserved·

Corporate governance Japan: independent Directors not only execute control in emergency situations, continuous contributions are more important

Corporate governance Japan: Prime Minister Abe urges reform of corporate governance

Reuters reports that Japan’s Prime Minister Abe urges company boards to reform corporate governance to include independent directors. I added the following comment.

Corporate governance Japan: exercise of shareholder power and emergency situations

The question of independent Board Directors is often framed in terms of exercising shareholder power over the company, as is the main message of the article above. Another focus of discussions on the role of outside independent directors, is during emergencies, and here the Olympus case is often cited.

Corporate governance Japan: steady state contributions of independent directors

However, in my experience in Japan, including my work as a non-Japanese independent Board Director of a public Japanese company, enlightened companies will welcome independent Board Directors for their know-how and contributions to the company – in the end the market decides.

Corporate governance Japan: Docomo vs SoftBank

As an example, lets compare NTT-Docomo and SoftBank. NTT-Docomo has a homogeneous pure Japanese Board, while SoftBank has independent Directors from many different countries and from many different walks of life. SoftBank recently overtook NTT-Docomo in terms of market cap, revenues, operating income and net income. http://www.eurotechnology.com/2014/05/07/softbank-overtakes-ntt-docomo-kddi/
In the end regulations have limitations, and the realities of the market decide, as is the case of SoftBank.

Corporate governance Japan: SoftBank and SPRINT

As another example, SoftBank appointed Marcelo Claure, CEO of Brightstar Corporation and of Bolivian origin, to the Board. Masayoshi Son announced the appointment with the following words: “Marcelo’s experience as an entrepreneur and businessman who created and successfully grew a global telecommunications company will bring an invaluable perspective to Sprint’s board.” Note that Masayoshi Son clearly states that Marcelo Claure is appointed to bring invaluable know-how and experience to SPRINT, Masayoshi Son does not seem to be motivated by “increasing the power of the shareholders over Sprint“.

The “power of shareholders” is usually a matter or last resort, when all other methods fail. Usually, when you have to show your power, its too late.

Copyright·©2014 ·Eurotechnology Japan KK·All Rights Reserved·

Japan’s new energy policy

Japan’s new energy policy – Gerhard Fasol interview by The Economist

Interview for The Economist

“Keeping the lights on – deregulation and Japan’s energy mix”

The interview is based on our reports:

Japan energy policy – interview outline:

Japan energy policy Question: Is the new energy policy of Japan’s Government an appropriate response to the situation or a missed opportunity

Answer summary:The Government in its new strategy summarizes Japan’s energy situation and proposes a cocktail of different energy sources. Everyone knows that Prime Minister Abe is pro-nuclear energy, but that does not mean that he is against other energy sources, such as renewables. The new energy strategy paper though misses KPIs, Key Performance Indicators. There are no many numerical targets.

Japan energy policy Question: It is often repeated that Japan is poor in energy sources, is this true?

Answer summary:Yes, that is often repeated without thinking, and thats also the case in the introduction of the new policy paper. This is only true as long as we restrict our view to traditional carbon based primary energy sources such as oil, gas, or coal. But if we widen the view to renewables such as wind, water, solar, biomass, and geo-thermal energy sources, then Japan is actually very rich in primary energy sources, and could even aim for energy self-sufficiency. Off-shore wind alone would be sufficient to make Japan energy self-sufficient.
Just by repeating the statement many times, that Japan is poor in energy sources, does not make this statement true.

The new energy policy paper also starts out by saying the Japan is poor in primary energy sources. This is not true if we widen the view to renewable energy sources.

Japan energy policy Question: Re-engineering the electricity grid. Can you explain the concept?

Answer summary:The electricity grid has evolved over many years, maybe 100-150 years. The traditional architecture of the electricity grid is a top-down one-way distribution network from large central power station such as large coal-, gas- or oil-fired power stations or nuclear power stations, to consumers. The traditional electricity grid is similar to the arteries in the human body, where there is the heart in the center, and the arteries distribute the blood to the extremities. This traditional top-down grid has served us very well for a long time, but the time as come now to evolve the grid to the next stage. There will be more distributed power generation, which feed in electricity in the opposite direction from the extremities, and there will be more intelligence in the grid.

Japan energy policy Question: How do you see Japan deal in the future with supply and demand management, how do you see electricity prices evolve in Japan?

Answer summary:With the liberalization there will be more flexibility in the pricing of electricity and supply and demand management. Prices will not necessarily go down, but will depend much more on the timing of demand, on demand/supply management, or on the value of electricity. For example, mission critical electricity consumers such as data centers or hospitals will need a different type of electricity supply, than washing machines in households. Demand/supply management and smart grid will manage the timing of less critical electricity usage.

Economist briefing “Keeping the lights on – deregulation, new and renewables and Japan’s energy mix” handouts

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Top Japanese game companies

Japan smartphone game business

25 listed top game companies listed on Tokyo Stock Exchange have total market cap of US$ 30 billion

Japan game market report (398 pages, pdf-file):
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Japan is the cradle of many global games

Japan created much of today’s global game market with icon’s such as Nintendo. However, today the moment has been taken over by new online game companies. Their combined income now exceeds the traditional icons.

Top Japanese game companies: disruption by newcomers making mobile apps

We wrote in our blog first back in 2009 about the disruption of Nintendo’s blue ocean (Wii and DS) by smartphone app stores.

Top Japanese game companies: top 25 public game companies have added market cap of US$ 30 billion

Today, 25 Japanese online game companies listed on the Tokyo Stock Exchange, have a combined market cap of about YEN 3000 billion (US$ 30 billion).

These are (data of May 9, 2014):

  1. Konami (TSE Code 9766)
  2. DeNA (TSE Code 2432) market cap = YEN 246 billion (US$ 2.5 billion)
  3. Gree (TSE Code 3632) market cap = YEN 216 billion (US$ 2.2 billion)
  4. Square Enix Holdings (TSE Code 9684)
  5. Capcom (TSE Code 9697)
  6. GungHo (TSE 3765), market cap = YEN 612 billion (US$ 6 billion)
  7. Colopl (TSE Code 3668), Market cap = YEN 257 billion (US$ 2.6 billion)
  8. find the full list in our report on Japan’s game sector

Total market cap= YEN 2954.2 billion (=US$ 29 billion)

Top Japanese game companies: list above does not include LINE

This list does not include LINE, which is a private company, and has built a substantial games business.

Japan game market report

(398 pages, pdf-file):
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LINE revenues: LINE announces YEN 14.6 billion first quarter revenues

LINE revenues for quarters since 2013

LINE revenues:

LINE announced quarterly revenues on their website, the revenue data are redrawn below, with approximate US$ amounts shown as well.

Extrapolating assuming continued linear growth, we can estimate expected annual LINE revenues of YEN 70 billion (US$ 700 million) for the full year 2014.

LINE quarterly revenues
LINE quarterly revenues

Yesterday I was interviewed by Wall Street Journal about future prospects for SONY, and we discussed SONY‘s need for new “killer” products. Considering Facebook’s acquisition of WhatsUp, we thought SONY would need a “killer application” such as LINE. However, since SONY‘s current market cap with US$ 18 billion is of similar size as WhatsUp’s acquisition value, and presumably LINE’s value will be in a similar range. Thus purely theoretically, considering the growth rates of both companies, it would be more appropriate for LINE to acquire SONY than the other way round. Purely theoretically of course.

Read our report on Japan’s games sector

Copyright·©2014 ·Eurotechnology Japan KK·All Rights Reserved·

SoftBank overtakes Docomo and KDDI in revenues and income and market cap

SoftBank overtakes Docomo and KDDI in revenues and income and market cap SoftBank overtakes Docomo and KDDI in all major KPIs

SoftBank overtakes Docomo and KDDI in all major KPIs

SoftBank presents annual results for the Financial Year which ended March 31, 2014 today, NTT-Docomo and KDDI presented their results a few days ago. Using projections published by SoftBank and using data found in the Japanese business press over the recent days, we have compared SoftBank, Docomo and KDDI financial results:

SoftBank overtook both Docomo and KDDI in all major KPIs: SoftBank’s annual revenues, operating profits and net after-tax profits are higher than NTT-Docomo’s and KDDIs.

To understand SoftBank, read our report about the Softbank Group, and read our report on Japan’s telecom sector.

The reason for SoftBank overtaking NTT-Docomo and KDDI are both excellent performance of SoftBank’s core businesses, mobile communications and media in Japan, and also a series of recent investments: SuperCell, GungHo, SPRINT, BrightStar, eMobile/eAccess, Willcom and more which all have been very successful investments sofa, not counting Alibaba, which of course is an amazing success story.

Going forward, of course the key questions now are the turn-round of SPRINT, and whether SoftBank can succeed with the much rumored acquisition of T-Mobile in the USA, and possibly also a major European acquisition.

We have today updated our Report on Japan’s telecommunications landscape, to include latest financial and subscriber data, and latest M&A activities: Japan’s telecommunications market is one of the world’s most active also regarding M&A and restructuring.

SoftBank overtakes Docomo and KDDI in Market cap (data for May 7, 2014):

SoftBank: ¥ 8908.9 billion (US$ 89 billion)
NTT-Docomo: ¥ 7049.5 billion (US$ 70 billion)
KDDI: ¥ 4925.2 billion (US$ 49 billion)

SoftBank overtakes Docomo and KDDI in annual revenues:

SoftBank overtakes Docomo and KDDI in annual revenues
SoftBank overtakes Docomo and KDDI in annual revenues

SoftBank overtakes Docomo and KDDI in annual operating income:

SoftBank overtakes Docomo and KDDI in annual operating income
SoftBank overtakes Docomo and KDDI in annual operating income

SoftBank overtakes Docomo and KDDI in annual net income:

SoftBank overtakes Docomo and KDDI in annual net income
SoftBank overtakes Docomo and KDDI in annual net income

Learn more about SoftBank, Masayoshi Son, and his 30/300 year vision for SoftBank

Report on “SoftBank today and 300 year vision” (approx 120 page, pdf file)
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To learn more: Japan’s telecommunications industry

(269 pages, pdf file)
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Corporate governance Japan: external independent directors on Japanese Boards

Corporate governance Japan is now in the focus of Prime Minister Shinzo Abe’s reforms

Reform of corporate governance is an ongoing issue in Japan, and part of Prime-Minister’s Abenomics’ “third arrow” revival efforts. Here is a note, that I added to a recent article in The Economist, entitled “Corporate governance in Japan – A revolution in the making“:

“Outside Directors” is only one step along the way to end the “inbreeding problem”. Bringing diversity into the management of Japanese companies is critical for growth in Japan: non-Japanese directors, women directors, non-Japanese women directors.

Corporate governance Japan: in the end the markets decide whether diversity is necessary, or whether in-breading wins

Of course the market decides: I believe that companies which do not bring in management diversity will find lower market capitalization than those which do.

I am European and independent Board Member of a Japanese company, traded on the Tokyo Stock Exchange. Since all business and all board meetings are in Japanese, full command of business Japanese is necessary, including the ability to read a big volume of Japanese reports 100s of pages long sometimes from one day to the next.

Corporate governance Japan: very few non-Japanese are capable of functioning on the Board of a Japanese corporation

There are only very very few non-Japanese people with the qualifications to serve as independent Board Directors, who have the necessary full command of Japanese. So there is a substantial bottle neck against bringing diversity into Japanese corporations even if there was a strong pull from Japanese corporations. Currently only a few excellent Japanese corporations exercise this pull, to pull in non-Japanese external Board Members.

One company which is remarkably advanced is HitachiHitachi several outside and non-Japanese Board Members, including also one foreign woman recently.

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