Mitsubishi Corporation

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

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

From Peak-Power Gas Turbines to Wind Power Diverse Electric Power Projects in an Increasingly Open US Market

Deregulations in the US electric power market began in the second half of the 1970s, sooner than in any other country. MC's overseas IPP businesses got underway around the same time and almost unilaterally focused on the US market. In fact, more than half of MC's assets in power infrastructure are located in the US.

At present, MC is developing nine gas turbine power plants in the following States: California, Texas, Georgia, Alabama, Oklahoma, and Washington. In addition, MC began operations of a wind power farm in Idaho in October, 2010. The farm includes 83 large wind turbines.

Jointly investing with US firms in these projects is MC's wholly-owned subsidiary Diamond Generating Corporation (DGC).

Locating the Best Partners and Solidifying MC’s Presence in the Region

DGC is located in the heart of Los Angeles's business district. The subsidiary got started managing earnings from operational power plants, and by examining the acquisition of new assets and identifying partners to develop new businesses, has since established a reputable position for itself in the US industry. DGC was founded in 1999.

Among DGC's power plants are the Indigo and Larkspur facilities, located in Palm Springs and San Diego respectively. DGC handles the full gamut of operations at these plants, from managing the gas turbines to carrying out inspections. DGC set up its own subsidiary staffed by American technicians to specialize in the plant operations and maintenance. DGC's seven remaining plants in Texas and other states are owned jointly with Nebraska-based, IPP major Tenaska Energy, which handles the facilities' operations and maintenance.

DGC Operations

With an aim to re-enter the US IPP market, MC spent two years (from 1998 to 2000) searching for the best partner. Success was realized when an agreement was reached with Tenaska Energy, a Nevada-based company launched in 1987.

Tenaska has a firm base of technical expertise and rich corporate culture, very similar to MC's. The alliance was equally appealing to the American firm. Early on Tenaska had struggled to raise funds, so partnering with a financially sound company like MC was a welcome proposition. In 2000, MC decided to invest in four projects developed by Tenaska, thus beginning a strong partnership that continues to this day.

Building firm, trust-based relationships with local companies and healthy assets in power generation infrastructure can be very advantageous. Success here earns recognition for MC as a reputable player in the US IPP market, and at the same time results in more opportunities to discuss new projects or bring in fresh ideas and concepts. The employees at DGC are also very positive about the future. With due consideration of market projections and the likely scenario several years from now, they are constantly on the lookout for new business challenges.

Compensating for the Drawbacks of Wind Power Society’s Demand for Gas Turbine Power Plants

Under the Obama administration, there has been a strong push in the US to develop renewable energy.

Wind power is one such area of interest. Technologies in this field have reached maturation and some countries are reaping great benefits already; Denmark for example covers 20% of its energy needs with wind power. The US is another country that is working hard to adopt this energy source more widely.

Considering how the market is changing, MC has adjusted its own energy plan in the US accordingly. The company aims to have wind, solar PV, and other forms of renewable energy account for 15% to 20% of its US equity capacity. Considering the tax breaks and subsidies that can be taken advantage of, there has been impetus at DGC as well to develop wind power generation projects.

The Goshen II wind farm in Eastern Idaho is situated on a vast field of grassland that stretches far out to the horizon. An agreement to launch the farm was reached at the end of 2009, with DGC investing jointly in the project with Ridgeline Energy LLC, a developer of wind farms in the US. Full-scale operations at Goshen II commenced in May, 2010, and construction was completed at the end of October the same year. The farm is an impressive site, equipped with 83 large wind turbines that resemble Ferris Wheels at an amusement park.

Wind power technologies have come a long way over the years. Today we can predict with great precision how the wind will blow in a certain region, and estimate how much power can be generated in one day; we are no longer simply at the "whim of the wind" so-to-speak. That said, as a source of energy wind remains a fairly unreliable option. MC's solution to compensate for the drop-off in wind-generated electricity has been to use wind turbines in parallel with peakers, a term applied to gas-turbine power plants that operate only during peak hours of demand for electricity. The thinking here is to quickly start generating electricity through the gas turbines once the power transmissions from the wind farms drops below a certain level, and thereby provide a more stable supply. DGC has been developing peakers in addition to its wind power operations. By combining both of these methods, wind and gas turbine, we stand a better chance of meeting society's demand for power.

In the US, new laws and systems are introduced every few years that have a major impact on the electric power industry. Whether or not these changes can be successfully grasped as business opportunities will determine the success of those in the IPP market. In 2009, shortly after President Obama took office, the American Recovery and Reinvestment Act (ARRA) went into effect as a means of stimulating the US economy. Systems to promote investment in new energies became more widespread and most of the states have since adopted a Renewable Portfolio Standard, which indicates their targets for power generated by renewable energies.

The electricity generated by DGC's joint-investment wind farm in Idaho is supplied to the state of California. The reason for this is that California wants its electricity to come from renewable sources.

While locating the best partners, assessing needs and expanding its lineup of power generation methods, MC has effectively leveraged the know-how and expertise at its DGC subsidiary. All of this has been instrumental as the sogo shosha looks to meet new challenges in the US IPP market.

Forays into the Growing Southeast Asian Market

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

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