Wednesday, August 21, 2013

Retail Electricity Competition -- Nippon Paper Enters Market

According to the August 20, 2013 Nikkei, Nippon Paper will participate in retail sales of electric power from 2014.  The company is planning 2 or 3 new conventional fuel (natural gas?) generating stations to secure approximately 400MW of generating capacity, and will sell power at discounted prices to companies and local governments.  Nippon Paper expects to achieve sales second only to Ennet, the leading competitive electricity supplier, which is backed by the NTT Group as well as Tokyo Gas and Osaka Gas.

The paper industry in Japan has been in a steady to declining state for many years.  Companies have gradually merged out of existence, with the final headline transaction Oji Paper's attempt at a hostile acquisition of Hokuetsu in 2006-07, thwarted by Nippon Paper acquiring a large, defensive stake in the target.  To me, electric power retailing looks like a much better business going forward, especially for a company with a large base of industrial land, and at least some existing generating capacity for internal demand.  If I were a neighbor, I would probably prefer a gas-fired power plant to a pulp and paper mill.  (In my youth, I remember the stench of the paper mills at Camus, Washington, crossing the Columbia River into Oregon as we would head out the Columbia River Gorge from Portland!  They would always say that to Camus residents "it smells like money", ... but still, better the money without the stench.)

The Nikkei indicates that over 100 companies are expected to participate in electricity sales by end of 2013.  In addition to Ennet, other existing players are F-Power, JX Nikko Nisseki Energy, Marubeni, Summit Energy, Nihon Techno and Shin Nittetsu Engineering.

Once these companies secure significant generating capacity and access to the transmission and distribution grid, the existing utilities will see a steady, continued decline in their customers.

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