Japan: Today’s Biggest Retail Energy Opportunity

by:Drew Fenton | Energy Services Group

My kids sometimes soak up knowledge better when a picture is used.  I recently started off an EMC conference presentation with the following ‘picture question’:

The answer is RETAIL ENERGY CUSTOMERS IN JAPAN!  And it’s true, there are millions of customers and Japan is a challenging but amazing opportunity for US-based REUs (REPs) to expand internationally and increase their value.

Current Retail Energy Landscape

With 85 million electric and 30 million gas meters, Japan is the largest retail energy market in the world.  It’s also the world’s 2nd largest developed open economy and demographics confirm high levels of early adoption and brand loyalty, making for long-term customers.

Japan’s 10 electric utilities offer a homogenous rule set for liberalization (the competitive energy market) that makes business easier and more consistent.  This is also good news for brokers/agents, wholesale traders, and the sphere of companies that interact with REUs.

Retail: Activity, Products, Switching

What are we seeing for activity today in Japan?  In short, a lot of it!  Companies of all types/sizes are entering the market.  This includes mass marketers, C&I-focused, startups/established US and Japanese companies.  Some of the Japanese companies come from non-energy industries (e.g. technology, homebuilding).  There is a surge of US-based companies, and already Xoom, Ambit, and Just Energy have announced plans to enter (with Xoom announcing it was the 1st foreign company to receive a license in Japan).

Currently, REUs are offering mostly ‘%-off’ utility rate price plans but many experienced companies are working on new products.  The market is similar in structure to Texas in that supplier consolidated billing offers excellent product and bundling flexibility along with strong ownership of the customer relationship.  New product ideas will create big opportunities for REUs.  Sales and marketing channels are eagerly entering the market and refining strategies to garner the most effective sales.

City gas markets are scheduled to open in 2017 and potentially offer another 30 million retail gas customers (and dual commodity marketing).  Gas rules are not yet defined but expected to be similar to electric.

Electric switching has been the most phenomenal part of the market.  By the end of the 1st year of liberalization, 5.4% of the residential customer base will have chosen a new supplier.  This is over 3.5 million customers, and they’re switching at a rate of over ¼ million per month.  In the C&I space, 2.5 million customers have switched, representing about 11% of the base.  There has been a fourfold increase in C&I switching just since the beginning of 2013.

89% of the market of customers who have switched are happy.  As an additional bonus, METI has issued an unbundling plan (rules not finalized) that will require all customers to switch by 2020.  This means a minimum of 59 million residential and 21 million C&I customers still remain for new entrants.

Wholesale: Headroom, Trading, Futures

Headroom remains excellent in most utility areas, providing good margins to REUs.  Japan is also performing a structured restart of its nuclear reactors which will continue to add cheap supply to the market and drive down wholesale costs.  Trading volumes are setting records, with the JEPX (Japan Electric Power Exchange) Spot and Hour-Ahead markets trading at historic maximum volumes.  And new options are available in the market for fixed price supply, risk free imbalance services, green power, and more.

TOCOM (Tokyo Commodity Exchange) signed a MOU with Singapore Exchange to develop Japan’s first electric and LNG futures markets.  TOCOM’s CEO, Takamichi Hamada, commented for the recent March 2017 EMC in Houston, “…we welcome the opportunity to meet with new entrants and to expand electric futures trading in late 2017”—all fantastic news for energy market participants.

Market Outlook

Entering Japan is not an easy task but the rewards can be gargantuan.  For reference, Japan offers over 12x the number of customers than Texas.  Becoming an REU is a time consuming and challenging process that requires localized business plans, systems/vendors, and cultural knowledge.  However, retail energy experience fundamentally is a competitive advantage in Japan, and dual language management systems help US-based REUs to monitor their Japan operations.  Many of the challenges are solved with less time, cost and risk by teaming with experienced vendors and local partners.

Seeing my excitement after a recent trip to Tokyo, my kids asked if they could go back to Japan with me.  I said yes…but you should go too.

About the Author

Drew Fenton is Vice President of Business Development at Energy Services Group.  ESG is a leading provider of billing, EDI, pricing, and wholesale solutions for the energy markets in the US, Canada and Japan. www.energyservicesgroup.net