Japan's power market gains new entrant
Japanese money broker Nihon Tanshi Co. has become the latest company to report plans to enter Japan's fast-growing power sales business. It is planning to establish a joint venture, eRex Co, later this month. The new company will be capitalized at about �1 billion, the company said.
TOKYO�Japanese money broker Nihon Tanshi Co. has become the latest company to report plans to enter the fast-growing power sales business. It is planning to establish a joint venture, eRex Co., later this month.
The new company will be capitalized at about �1 billion, Nihon Tanshi said. Its affiliate, Nittan Capital Group, will hold 25% of the new venture, as will another money broker, Ueda Tanshi Co. Mitsui & Co. Ltd. is expected to take a 10-20% stake, while the remaining 30-40% will be held by a number of other partners.
The venture will join with existing power suppliers to start electricity sales to large-volume users such as office buildings, department stores, and hotels by yearend. It also plans to become the first Japanese firm to launch weather derivatives trading on expectations that intense competition in the power market will force the country's utilities to become more risk-conscious.
Additionally, Nihon Tanshi reported it is looking into setting up an internet-based online market for power transactions. Nihon Tanshi's disclosure comes in the wake of the March 1999 deregulation of the power retail sector.
The company is just one of a number of foreign and domestic firms that have expressed an interest in entering the electricity retail business. The market for retail electricity sales to Japan's 8,000 high-volume industrial and commercial users, which account for more than one fourth of total domestic power demand, is worth an estimated �3 trillion/year.
Trading house Mitsubishi Corp., for example, has said that it expects its 100%-owned subsidiary Diamond Power Corp. to start retailing electricity to high-volume commercial users as soon as next month.
The company�which will become the first nonutility to start operating in the sector�has already struck a deal with NKK Corp. to buy up to 20,000 kw of electricity generated at the steelmaker's Keihin plant. It will acquire a further 35,000 kw from the Ibaraki plant of Mitsubishi Chemical Corp. and Kashima Oil Co.
Other domestic companies that have expressed an interest include Marubeni Corp, Sony Corp., Tomen Corp., and Nippon Telegraph & Telephone Corp. Additionally, the country's two biggest gas suppliers�Tokyo Gas Co. and Osaka Gas Co.�have said they, too, plan to enter the retail power business.
A number of foreign players are also expected to get involved in the sector. Perhaps the most prominent of these is Enron Corp. It has set up a new venture, E Power, that could begin retailing electricity and related financial products such as weather derivatives as early as this summer. In January it struck a deal to sell a 20% stake in E Power to major leasing company Orix Corp. for $30 million.
But Enron is not the only foreign company with its eye on the Japanese power market. Other foreign firms eyeing Japan's power sector include global oil giants Royal/Dutch Shell Group and Texaco Inc., as well as French water utility and telecommunications group Vivendi SA.