Categories
Electricity

Japan electricity sector disruption – new business models and deregulation overdue

Japan electricity regional operators’ income peaked about 10 years ago

Japanese electricity companies’ business models face massive disruption by technology innovation and the Fukushima nuclear accident

With the annual general shareholder meetings completed and financial results published, we have analyzed the financial results of Japan’s 10 regional electric power companies (plus several other Japanese electricity companies, including J-Power) in detail.

We find that each of Japan’s electrical power companies has its own particular circumstances, and some are coping better than others, while of course Tokyo Electric Power Company is a special case due to the incalculable costs of the Fukushima nuclear accident, and due to possible changes in case of a change of Japanese Government policy regarding TEPCO.

Our financial analysis shows, that revenues of Japan’s electricity sector have increased substantially, due to increased electricity costs. On the other hand, revenues of Japan’s electricity companies overall have been declining steadily since a peak around 2005, i.e. ten years ago.

Switching off nuclear power generation contributes to financial problems, but is clearly not the root cause

From our analysis it is obvious that the financial profitability issues of Japan’s electricity sector have started about 10 years ago, long before nuclear reactors were switched off due to the Fukushima accident – while of course the switch-off of nuclear power does contribute to a worsening of the financial situation in the last 3 years.

Clearly, the electricity deregulation which is now on track with regulatory and legal changes, was long overdue, and in my opinion is more due to the declining profitability of Japan’s electricity sector, than immediately triggered by the Fukushima accident. The financial data clearly show that a change of business model for Japan’s electricity sector is needed.

Japan electricity: Combined annual operating income of Japan's regional electric power companies
Operating income of Japan’s electricity sector has been falling continuously since the peak in 2005

Chugoku Electric Power Company as an example

Our analysis shows that each of Japan’s 10 regional electricity companies have different financial circumstances.

We discuss Chugoku Electric Power Company which serves the area around Nagoya in the middle of Japan as an example. The Figure below shows that Chugoku Electric Power Company’s income peaked around 2004-2005, about ten years ago, and since then has been continuously falling, with net income dropping into the red for the first time for Financial Year 2008 (ending March 31, 2009), about two years before the Fukushima nuclear disaster. An important point to consider is that only about 10% of the electricity generation capacity of Chugoku Electric Power Company is nuclear power, which is one of the lowest ratios of nuclear power in Japan. It follows logically, that switching off this 10% of nuclear generation capacity has a much lower impact than for other regional power companies, where the nuclear contribution was about 30%.

Japan electricity: income and margins of Chuo Electrical Power Company have been continuously falling since their peak around 2004
Japan electricity: income and margins of Chuo Electrical Power Company have been continuously falling since their peak around 2004

We conclude that the peak around 2004-2005 in profitability followed by a long decline in profitability indicates a deep rooted need for change of business models which was exacerbated but not directly caused by the Fukushima nuclear accident. Japan’s Government is now reacting to this fact by deregulating the electricity sector.

Japan electricity: Why do current business models need to change?

  • Japan’s regional electricity companies enjoyed monopoly power within their regions, where the electricity prices were regulated by Government, and in exchange electricity companies could enjoy a financial model where they could charge costs + profits to customers. There was no competition and little incentive to reduce costs
  • Japan will now follow the global trend from top-down electricity grids with large central generation facilities and a top-down distribution grid to more de-centralized, localized smart-grids, driven by technological progress, and the emergence of renewable energy.

Renewable energy Japan – research report

Japan’s energy sector – research report

Copyright 2014-2019 Eurotechnology Japan KK All Rights Reserved

Categories
Japan's energy sector

Japan energy mix: Keeping the lights on in Japan – deregulation, new and renewable energy

Japan energy mix, smart grid, electricity deregulation – briefing by The Economist Corporate Network

Economist Corporate Network held a breakfast briefing today April 24, 2014 for about 50 Japan-CEOs and executives.

Shigeki (Sean) Miwa, General Manager of SoftBank’s CEO Office, and Representative Director & CEO of Bloom Energy Japan KK, and EVP of SB Energy Corporation

Mr Shigeki (Sean) Miwa, General Manager of SoftBank’s CEO Office, and Representative Director & CEO of Bloom Energy Japan KK, and EVP of SB Energy Corporation, explained SoftBank’s and Masayoshi Son’s reasons for entering the energy business, and he explained Bloom Energy’s offering of energy sources based on very efficient fuel cells in Japan.

Gerhard Fasol, CEO of Eurotechnology-Japan

Gerhard Fasol, CEO of Eurotechnology-Japan, gave an overview of Japan’s energy situation, and an outlook into the future. Here is an interview by The Economist after the breakfast briefing:

You can find detailed data and analysis in our report on Japan’s energy sector, and on Japan’s renewable energy sector.

Renewable energy Japan – research report

Japan energy market report:

Copyright 2014 Eurotechnology Japan KK All Rights Reserved

Categories
Electricity Japan's energy sector Natural Gas, LNG Renewable energy

Japan energy – myths versus reality, mantra versus smart

A lecture a the Embassy of Sweden for the Stockholm School of Economics

European Institute for Japanese Studies EIJS

Gerhard Fasol "Japan energy - myths versus reality, mantra versus smart" Embassy of Sweden
Gerhard Fasol “Japan energy – myths versus reality, mantra versus smart” Embassy of Sweden

Outline of the lecture:

  • Energy and DNA
  • Energy and Physics, why you need to understand physics to understand energy
  • Ludwig Boltzmann’s tools and laws to work with energy
  • Myth versus reality, mantra versus smart – psychology of judgment and decision making
  • Parliamentary commission results: “regulatory capture” caused the Fukushima nuclear accident
  • History: Japan’s energy architecture frozen since 1952
  • Primary energy: 96% imported
  • Why Japan pays so much for LNG
  • Electricity architecture and liberalization
  • renewable energy
  • Future: where do we go from here?

Thank you to all those who attended the event “Japan’s energy – myths vs reality” at the Embassy of Sweden – an event organized by the European Institute for Japanese Studies of the Stockholm School of Economics.

We had about 120 registrations for 100 seats in the Alfred Nobel Auditorium of the Embassy of Sweden – participants included an official from Japan’s Prime Minister’s Cabinet Office, Officials from several Embassies including the Swedish, US, Norwegian, Swiss, Hungarian and more Embassy, executives from Japanese and European telecom and energy companies, including also several independent power producers (IPPs), legal professionals, and groups of students and MBA students from Tokyo University, Hitotsubashi University and others.

We had very vivid discussion, and continued the discussions over nijikai.

Detailed data, statistics and analysis of Japan’s energy markets:

All the data of the talk are from our reports on Japan’s energy sector:

Japan’s energy market report:

Renewable energy Japan – research report

Copyright 2013 Eurotechnology Japan KK All Rights Reserved

Categories
Japan's electronics industry Japan's energy sector telecommunications

Japan trends for 2013 (New Year post)

Japan replaced nuclear electricity generation by LNG, by imported gas

Japan trends for 2013: Nuclear reactor restarts are on their way

Japan trends for 2013 Japan’s energy sector: Japan has essentially replaced the 30% of its electricity energy supply which was from nuclear power plants, by electricity produced in aging thermal power plants from urgently arranged LNG purchases at very high prices. Prime Minister Abe said that he wants to restart all nuclear power stations, which receive safety clearance by the new Nuclear Regulation Authority (NRA), and asks for these safety examinations to be completed within 3 years – however the NRA said, that 3 years is far to short to complete the safety assessment.

Given that any discussion about Japan’s energy mix, and “new” renewable energy (except for water power), liberalization and development of free energy markets were suppressed for many years in Japan, Japan now urgently needs to start innovating many components of the energy landscape including insulation and smart grids, and a new energy mix. PM Abe thinks that it will take about 10 years to settle on a new energy mix for Japan.

Japan trends for 2013: Japan is now waking up to innovation and changes of it’s energy and electricity sector

Japan’s electronics manufacturing sector is about as large as the economy of the Netherlands, but collectively showed no growth and lost money over the last 15 years, and therefore will either fade away, or very urgently needs new business models (see interview on BBC). PM Abe’s push for a lower YEN might soothe the symptoms a bit, but does not solve the fundamental problems. Hitachi’s “smart transformation” are steps in the right direction, but its really too early to tell – also “smart transformation” does not solve Japan’s traditionally low emphasis on software and other non-hard-ware-producing crafts.

Telecoms: Masayoshi Son, master of the midas touch and founder and master mind of SoftBank, acquired what was left of Vodafone-Japan and turned it around successfully within weeks, said reportedly: “I am a man – and want to be Number 1”. Now he aims to apply his midas touch to SPRINT. Expect more acquisitions by Son on the way to Number 1 in global telecoms.

Copyright 2013 Eurotechnology Japan KK All Rights Reserved

Categories
Japan's electronics industry Japan's energy sector telecommunications

Japan trends for 2013 (Christmas, Festive Season blog)

Japan trends for 2013: Energy crisis continues as a result of the Fukushima nuclear disaster

Renewables: Japan’s feed in tariffs are among the world’s highest

Japan trends for 2013: Japan’s energy sector: Prime-Minister Abe announced that he will review the Fukushima nuclear accident before taking decisions on nuclear power, essentially postponing the nuclear issue. Japan’s feed-in tariffs for renewable (new) energy sources are among the highest in the world, about three times higher than Germany’s. While renewables (except for water power) were kept below 1% by an “untouchable” rule in the past, expect the rapid built-up of renewable sources in Japan to continue, initially mainly solar energy, and later wind, geo-thermal and other sources to follow. METI is also working on liberalization of Japan’s energy markets – I would not be surprised if the election results lead to a slow-down of liberalization. (read more in our Japan-Energy-Report, outline here on slideshare).

Japan trends for 2013: Japan’s electronics industry needs “smart transformation”

Electronics sector: as we show in a previous newsletter and in our Electronics-Industry report (read outline on slideshare), Japan’s electronic component makers overall are doing much better then Japan’s electronics conglomerates, but all are in dire need of new business models. We expect winners and losers to emerge. We are impressed by Hitachi’s steps towards “smart transformation”. If successful, Hitachi’s “smart transformation” might become a model for other Japanese electronics conglomerates to follow (watch BBC-Interview).

Masayoshi Son, founder of SoftBank: “I am a man- I want to be Number One”

Telecoms: Masayoshi Son, founder of SoftBank, reportedly said: “I am a man- I want to be Number One”, and he acquired US-Telecom operator SPRINT on his way to become global No. 1 in telecoms. While Masayoshi Son was busy negotiating with SPRINT in the US, KDDI reportedly tried to snatch Japan’s No. 4 operator eAccess/eMobile away, so Masayoshi Son also acquired eAccess/eMobile on the side.

More cash revenue for Google-Play Apps in Japan than in all of the mighty USA

Mobile-App statistics provider AppAnnie recently announced that there is more cash revenue for Google-Play Apps in Japan than in all of the mighty USA. So if you are an App-Developer, and if you like to see good cash revenues, you better focus on Japan first and USA second ;) and 7 out of the Top-10 publishers by revenue on Google-Play apps are Korean or Japanese…

Japan has more FTTH subscribers than all of EU + Switzerland + Norway + Iceland

FTTH (optical fibre to the home broadband): Japan has more FTTH subscribers than all of EU + Switzerland + Norway + Iceland. EU is catching up with Japan, but Japan alone today has more FTTH broadband than all the mighty EU countries added up together. (more in our JCOMM-Report on Japan’s telecom sector).

Copyright 2013 Eurotechnology Japan KK All Rights Reserved

Categories
Electricity Natural Gas, LNG

Japan’s electricity industry suffers huge losses from nuclear to fossil switch

What is the financial impact of Japan’s switch from nuclear to fossil on Japan’s electricity industry?

Japan’s electricity operators switched from profits to huge losses

What is the financial impact of Japan’s switch from nuclear to fossil on Japan’s electricity industry?
Answer: Japan’s electricity operators switched from about US$ 10 billion/year combined net profits to US$ 20 billion/year losses – far more dramatic than the impact of the Lehman shock. – Selected graphics below in this blog, and detailed analysis in our report on Japan’s electricity and energy industry.

annual net income of Japan's electricity operators
annual net income of Japan’s electricity operators

Electricity operator losses may drive innovation

Losses are caused by high costs of fossil fuels and additional generation capacity brought online, and drive innovation, by forcing operators to look for new solutions to time-shift demand such as smart grids, and smart meters.

net margins of Japan's electricity operators
net margins of Japan’s electricity operators

Electricity sales revenues were affected much more by the Lehman shock than by switching from nuclear to fossil
The figure below shows combined sales revenues of Japan’s 10 regional electricity operators. Sales were strongly affected by the industrial downturn after the Lehman shock in September 2009, and have recovered since. There is no strong effect of the Fukushima disaster and nuclear -> fossil switch on electricity sales:

US$ 200 Billion/year = combined annual income of Japan's electricity operators
US$ 200 Billion/year = combined annual income of Japan’s electricity operators

Because Japan’s electricity operators have monopoly status in their regions, their financials are mainly affected by the economic status of their regions. All were affected dramatically on the sales side by the Lehman shock. This figure also shows that Japan’s electricity industry has been very static for many years. Japan’s Governments recent energy strategy provides for liberalization – executing this strategy will be the challenge.

More in our report on Japan’s electricity sector.

Copyright·©2013 ·Eurotechnology Japan KK·All Rights Reserved·

Categories
Electricity Fukushima Daiichi Japan's energy sector Natural Gas, LNG nuclear Renewable energy

Japan’s energy foxtrot: Two steps forward one step back

Two steps forward one step back:

describes a frog struggling to climb out of a well, slipping back one step on the ladder for each two steps upwards out of the well

Before the Fukushima disaster, Japan’s energy policy, strategy and execution were essentially decided behind closed doors by a small group of (about 100) Japanese people, and while European countries, Canada, USA experimented with electricity liberalization, Japan’s electricity industry structure went unchanged for a very very long time with a rigid top-down structure. However with the Fukushima disaster, Japan’s energy landscape has been brought onto the world stage, catching global attention for the first time.

Two steps forward (actually much more than two steps): Last Friday, September 14, 2012, Japan’s Cabinet released Japan’s new “Innovative Energy and Environmental Strategy”. We have analyzed the full Japanese text of this strategy paper, and you can find a summary on pages 5-23 in our “Japan Electrical Energy Landscape” report.

Most English language press reports focus only on the first few pages which describe a plan to phase out nuclear energy in Japan over the next 30-40 years. However this Government paper contains many other policy measures to reform Japan’s electricity industry and to completely change the principles of Japan’s energy landscape – steps which are long overdue, and where Japan has fallen behind most other advanced countries, because pre-Fukushima, Japan’s electricity industry was functioning “too well” – although at very elevated prices (for detailed analysis, read our report).

The strategy plan announced on September 14, 2012 has not yet created any irreversible facts – although two irreversible facts could soon be implemented: the Government announced a few days ago, that 3 nuclear power reactors should be decommissioned under the new 40-year-limit-rule, Tsuruga’s No 1 reactor (started March 1970), and Mihama’s No. 1 (started Nov 1970) and No. 2 reactors (started July 1972).

One step back: 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.

Subscribe to our report on Japan’s energy sector and receive regular updates.

Copyright (c) 2013 Eurotechnology Japan KK All Rights Reserved

Categories
Electricity Japan's energy sector Natural Gas, LNG Renewable energy

Japan’s new energy strategy: much more than nuclear exit

Japan’s Cabinet released Japan’s new “Innovative Energy and Environmental Strategy”

Japan’s new energy strategy

Last Friday, September 14, 2012, Japan’s Cabinet released Japan’s new “Innovative Energy and Environmental Strategy”, which the Cabinet is required to produce by law, and which actually contains much more than the plan to work towards a future nuclear power free society.

We have analyzed the full official “Innovative Energy and Environmental Strategy” in the original Japanese version, and we have prepared a 19 page English language summary which you can find on pages 5-23 of our “Japan Electrical Energy Landscape” report

Most English language press reports have focused on the three principles to work towards a nuclear free society

  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 Nuclear Safety Commission
  3. no new construction or expansion of nuclear power stations

These principles – if maintained – may lead to the last nuclear power station in Japan to be switched off around 2052, ie about 40 years from now.

However, Japan’s new energy strategy framework paper contains much more

  • five policy packages concerning: the nuclear fuel cycle, human resources and technology development, cooperation with the global community, regional measures, the nuclear industry system and system for compensation of damages
  • measures for reducing electricity and energy consumption with targets until 2030 for two different economic growth scenarios
  • measures for promoting investment in renewable energy, with renewable energy generation targets until 2030
  • targets for electricity cogeneration until 2030
  • electricity power system reform, including unbundling of generation, transport and retail with the promotion of vibrant electricity markets
  • opening, strengthening and neutral electricity grid network, fair and accessible to all electricity producers
  • and most of all, a planned transition from passive electricity bill paying consumers to aware and active market participants who as much as possible generate their own electricity, and who instead of paying electricity bills, earn money from electricity they generate

In particular, the strategy plan states explicitly:

“…. it is indispensable, that electricity grid networks can be used by anyone, and to have competitive electricity markets”.

When trying to predict the far future, whether Japan will actually go completely non-nuclear or not, keep in mind that Sweden has decided to go non-nuclear in the 1980s, and has reversed this decision around 2010.

Currently only two of Japan’s remaining 50 nuclear reactors are in operation. It will be interesting to see if and when the safety of additional reactors are approved, and how rapidly the announcement dramatic deregulation and structural reform of Japan’s electricity system will be implemented, and how much of the announced policy steps might be reversed – or accelerated – by future Governments.

The strategy plan announced on September 14, 2012 has not yet created any irreversible facts.
Subscribe to our report series on Japan’s electricity industry landscape and our report on renewable energy in Japan.

Copyright·©2013 ·Eurotechnology Japan KK·All Rights Reserved·

Categories
Electricity Japan's energy sector

Japan’s PM Noda hints at new energy policy: Phasing out nuclear power by the 2030s

Develop as soon as possible a society which does not rely on nuclear power

Eliminate nuclear power according to three principles

By law Japan’s government must prepare a national energy strategy plan. The currently valid plan provides for an increase of nuclear power from 30% to 50% and is vehemently opposed by public opinion following the Fukushima nuclear disaster and much loss of public trust in nuclear power in Japan – while at the same time many Japanese traditional industry leaders promote nuclear power as a necessity.

Decision on the new energy plan has been postponed, but is likely to be announced later this week. However, Japan’s public Radio and TV NHK reports, that Prime-Minister Noda yesterday at a Press Conference hinted at the content of the new energy policy plan. Some sources say that the new energy plan has already been approved by the cabinet.

NHK reports the following about Japan’s new energy policy

  • Develop as soon as possible (translated word by word from Japanese: “one day earlier than possible”) a society which does not rely on nuclear power
  • use all political means to enable zero nuclear power in the “2030s” (which might mean 2040 depending on the interpretation)
  • promote renewable energy in order to enable zero nuclear power
  • eliminate nuclear power according to three principles
    • no nuclear power station older then 40 years
    • restart only those nuclear power stations, for which safety has been approved by the Nuclear Safety Commission
    • no new power stations
  • operate nuclear power stations, for which the safety has been assured, as an important power source

We expect Japan’s new energy policy plan, which is required by law, to be announced later this week.

Regarding nuclear phase-out keep in mind that:

The Swedish Parliament in 1980 decided that no new nuclear power stations shall be built and that Sweden should complete shut-down of all nuclear power stations by 2010.
However, Sweden reversed nuclear phase-out, and on June 17, 2010, Swedish Parliament decided to replace the existing reactors with new nuclear reactors starting from January 1, 2011.

Therefore, if in the future Japan reverses the nuclear phase-out, Japan would not be the first country to do so.

Japan’s current nuclear near-shut down:

After the Fukushima nuclear disaster Japan effectively stopped nuclear power generation. There are no black-outs - how could Japan manage?
After the Fukushima nuclear disaster Japan effectively stopped nuclear power generation. There are no black-outs – how could Japan manage?

Detailed statistics, analysis and frequent updates – in our report on Japan’s energy sector.

Copyright (c) 2013 ·Eurotechnology Japan KK All Rights Reserved

Categories
Electricity Japan's energy sector Natural Gas, LNG Renewable energy

Japan energy dilemma

Japanese law requires the government to have an energy strategy plan in place

Keep nuclear power off – or restart nuclear?

Japan’s current energy strategy plan provides for nuclear power to provide 30% of the electricity, rising to 50% in a few years by building additional nuclear power stations.

However, contrary to the current strategy plan the figure below shows, that Japan essentially switched off all nuclear power over the last year, with 2 exceptions.

A new energy strategy plan is delayed, but could be announced in the next few days. The Cabinet is in a dilemma to decide between the interests of the pro-nuclear business association Keidanren and the pro-nuclear electrical industry and considerable anti-nuclear movements in the general (voting) population.

One major problem is that Japan’s energy architecture and electricity industry is regulated by laws and regulations established in 1952. Essentially, Japan’s energy and electricity architecture has been frozen in 1952, and has not been changed until the Fukushima nuclear accident now forces change. The contribution of “new” renewable energy to Japan’s energy mix is so minute (except for water power), that it would be too small to be seen on the figures below. Our Japan-Energy report explains the major issues facing Japan’s energy architecture and its structure.

Japan’s energy peak is in summer (because energy consumption in Japan for air conditioning in summer is higher than for heating in winter), there were no black-outs, or brown-outs – how did Japan manage successfully despite the sudden unplanned exit from nuclear power? Read below…

How did Japan cope with the sudden exit from nuclear power?

After the Fukushima nuclear disaster Japan effectively stopped nuclear power generation. There are no black-outs - how could Japan manage?
After the Fukushima nuclear disaster Japan effectively stopped nuclear power generation. There are no black-outs – how could Japan manage?

Japan's survived by reducing summer peaks, and by increasing traditional caloric power production
Japan’s survived by reducing summer peaks, and by increasing traditional caloric power production

How did Japan cope with the sudden shut-down of nuclear power?

Japan’s peak power consumption is in summer, all nuclear power (with 2 exceptions) was switched off since this spring, and there were no black-outs, no brown-outs, and no major problems. How did Japan achieve this?

As the lower figure shows, traditional caloric energy production was increased by installing new power plants, and by bringing back old caloric power plants which had already been switched off, and by reducing the summer peak compared to recent years through energy savings. It has been estimated that the additional costs for imported fuel are on the order of US$ 40 billion.

Expect Japan’s new national energy strategy plan to be announced in the next few days.

Japan’s energy architecture is maybe a victim of its pre-Fukushima success: because Japan’s electricity supply was working so well, nobody felt motivated enough to change the existing monopolies, grid, energy mix, or to develop renewable energies. More in our Japan-energy report.

Copyright·©1997-2013 ·Eurotechnology Japan KK·All Rights Reserved·