Mitsubishi Corporation

Aiming to Develop Optimized Electricity Portfolios for Each Region

Aiming to Develop Optimized Electricity Portfolios for Each Region

Electric power infrastructure is an essential part of contemporary society,
and as such needs to be safe, reliable, and affordable.
We introduce Mitsubishi Corporation's electric power operations –
businesses that are responding to unique needs in different regions around the world.

Networks, Credibility, and Judgment: Putting Key Assets to Work Why is MC Involved in the Electric Power Business?

Electric power is gaining renewed attention in the business world. The demand for power generating infrastructure – the most important infrastructure for individuals, societies, and economies alike – is rising all the time due to the rapidly swelling global population and economic growth in developing nations. Accompanying this demand is a greater call for diversity in terms of how power is generated; global warming and energy crises are becoming increasingly serious issues, and at some point alternatives to fossil fuels will need to be more readily, affordably, and broadly available.

In its capacity as a sogo shosha*, MC has forged a proud and lengthy track record delivering electric power plants and equipment to foreign utilities companies. These deliveries have become a vital element of our overall electric power business – the very cornerstone of operations in this field. Running in parallel is our business to own and operate power plants. MC was a trailblazer among the sogo shosha when it first tested these waters, and has been generating and selling its own electricity for more than 20 years since. When getting involved in the electric power business, it is essential to exercise good judgment and select the best partners. Over the years, MC has established strong networks and trust-based relationships with leading enterprises all over the world. Along the way we have developed a discriminating eye for expertise and joined forces with some of the very best.
*sogo shosha: global integrated business enterprise

Leading the Way in Electric Power Business: From the Private Sector to the Public Sector, and Back Again to the Private Sector…

The world's very first Electric power business can be traced back to the famous American inventor, Thomas Edison. In 1882, a small, 540kW coal-fired power plant was built in Manhattan, New York. It was run by the "Edison Electric Light Company", and on its first day in operation served only 85 customers. It was a privately-run business, through and through.

In the decades that followed, the power companies in most countries became government owned and operated due to the high public demand for their product. With public businesses not exposed to market principles, however, they often became high-cost operations; so beginning in the late 1970s, there was renewed momentum to re-privatize the US electric power market.

US-Led Impetus to Introduce Market Principles

The Public Utility Regulatory Policies Act (PURPA) was established in the US in 1979, during the Carter Administration. Many were of the opinion that if private enterprises could get involved in electric power, competition within the industry would result in lower electricity costs.

The first restrictions to be dropped were on co-generation businesses, allowing small-scale private operations to begin providing regions with both electricity and steam. The 1980s brought further deregulations, and new players in the market began building and operating their own large-scale power plants. The electricity they produced was sold to the existing utilities companies.

By this time MC had already built up a strong track record with respect to power plant transactions in the US. The shosha was quick to pick up on the industry changes and take action. Seeing these privatized domains as a means of breaking into and establishing a strong presence for itself in the US electric power market, in 1988 MC set up a local subsidiary called Diamond Energy, Inc. After getting a feel for the co-generation business and launching operations to sell electricity, MC set up its own 66,000kW combined-cycle power plant in Doswell, Virginia in 1992. This move established the company as a legitimate player in the sales business. In this respect MC was ahead of not only rival Japanese enterprises, but other industry players as well, including companies in the US.

Deregulations and MC Operations in Electric Power

An IPP (Independent Power Producer) is a private business enterprise that is involved in power generation but is not affiliated with existing utilities companies. Through its Diamond Energy subsidiary, MC established a presence in the US IPP industry in the 1990s, beginning with the launch of the Doswell power plant.

Deregulations that began in the US spread to other countries as well. Some of the more notable changes took place in Mexico and Southeast Asian nations. As these nations were relative latecomers in the industry itself, their electric power markets were dominated by government authorities and state-run enterprises. Deregulations opened the way for private companies to bid for rights to produce power and thereby cover a portion of the market. As one means of producing and supplying electricity, IPP businesses began taking root in many developed and semi-developed nations in the 1990s.

Applying Know-How Gained in the US to Other Operations the World Over Developing Electricity Wholesale Business in Different Countries and Regions

MC is concentrating mainly on the US, Mexico, and Southeast Asia in developing its current IPP operations. The power plant assets held by MC's IPP businesses total 3.5 million kW (in equity capacity owned), of which two million kW comes from operations in the US, 500,000 kW from operations in Mexico, and the remaining one million kW from operations in Southeast Asia and Taiwan. Most of these operations generate electricity through high-efficiency gas turbines.

To provide a sense of scale, 3.5 million kW of electricity is the same amount generated by Shikoku Electric Power Company's thermal facilities in Japan. Consider though that Shikoku Electric and the rest of Japan's utilities companies do not only operate and maintain power plants; their involvement is much more comprehensive, covering transmission, distribution, and retail sales to end-users. By comparison, MC is not involved in any of these additional activities; it engages exclusively in the wholesale electricity trade, selling power to publicly and privately operated utilities companies in different regions. In the future though, MC plans to get involved in transmission and other facets of the business, thereby expanding the scale of its overall operations.

The Challenges of Regional Production for Regional Consumption –  Best Local Partners and Methods Essential to Success in this Business

Power plant transactions are the foundation of MC's electric power business. Each day the professionals in charge of equipment exports face great challenges to improve the company's functions and services. MC can certainly be grateful for their efforts, which have resulted in solid earnings drivers. It should be noted though, that significant growth is also taking place in the company's IPP business, which are now bringing in stable profits of their own.

Electricity is ultimately a local industry. Companies cannot do things like stockpile electricity at low costs or shift operations as turnkey projects to other buyers. Unless the composition of each business is in tune with the circumstances and characteristics of the region, it will not go well. Knowing this, when MC takes on a project in a given region, it joins forces with local companies, foreign enterprises that already have a strong presence or knowledge of the region, or Japanese utilities companies. The aim here is to invest jointly with choice partners for each project, and then devise methods to supply electricity that best meet the needs of the region.

For example, with respect to operations at the Heping thermal power plant in Taiwan, MC is working with both a local firm and an electrical utilities company that boasts an enviable track record in Asia. The former, Taiwan Cement Company, has a 60% stake in the plant, while the latter, Hong Kong's CLP, holds a 20% interest. MC has the remaining 20%. Operations and maintenance of the plant are handled by a subsidiary staffed mainly by highly-skilled technicians from CLP.

MC was also part of an all-Japanese consortium that won the bid to build and operate Mexico's Tuxpan power station. A contract was signed with Mexico's CFE (Comision Federal de Electricidad), giving the consortium the rights to install the infrastructure on the vacant lands, and then operate and maintain the facility. The other Japanese participants in this project are Kyushu Electric Power Company, which assisted in the development stages, and Mitsubishi Heavy Industries, which designed and manufactured the equipment.

This project could be thought of as another successful result of MC's trust-based relationship with CFE, built up over many years dealing together on power plant projects. Once exclusively a customer for MC's electric power equipment, CFE will now be purchasing electricity from MC as well. Alongside Kyushu Electric, the Mexican authority has become an integral partner in MC's efforts to advance its electric power businesses.

Drawing Up a Strategy for Further Growth

MC is now putting together a strategy to promote further growth in its IPP business, by broadly developing regional operations established in Los Angeles and Hong Kong.

In 1999, MC set up a wholly-owned subsidiary called Diamond Generating Corporation (DGC) in Los Angeles. With new partner Nebraska-based Tenaska, an international power development firm, MC has since invested in seven projects in California and other parts of the US.

In addition, DGC has outright ownership of two power plants, which it operates and maintains through its wholly-owned subsidiary DGC Operations, Inc.

Meanwhile, the successful wind power projects that DGC has been developing since 2009, can be attributed to the company's collaborations with Ridgeline Energy, LLC, an enterprise that has been actively involved in renewable energy projects throughout the US.

MC’s Overseas IPP Businesses

Projects in Southeast Asia and Taiwan are monitored by MC's operations in Hong Kong. CLP, a company with a strong track record developing businesses throughout Asia and Australia, was selected as a partner. In 2006, MC and CLP established OneEnergy Limited as a 50-50 venture, and through this collaboration acquired assets in operational power plants in Thailand and Taiwan.

Then, in 2009, MC set up a wholly-owned subsidiary called Diamond Generating Asia Limited (DGA) in Hong Kong. The solar PV plant currently being built in Thailand and set to be among the world's largest class of these facilities is also being driven by a joint investment involving DGA. The MC subsidiary has teamed with both CLP and Thailand's EGCO on this project.

As a sogo shosha, MC has forged uncompromised project-management expertise together with strong people and information networks. Leveraging these strengths, the company is developing diverse power generation businesses around the world, each one precisely tailored to meet unique, regional circumstances. Be sure to read the following chapters detailing some of the frontlines projects that are underway, and see how MC has gone about crafting its portfolio in the IPP business.

Meeting Challenges in the World’s Largest Free Market for Electricity

Contents Produced in Cooperation with Nikkei Business Online Special / Cross Architects, Inc.

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