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Japanese multinational should focus on offshore wind, rather than coal, report says

Tue 31 Jul 2018 by David Foxwell

Japanese multinational should focus on offshore wind, rather than coal, report says
Marubeni needs to transition from support for coal to clean energy such as offshore wind, the IEEFA said

Japanese multinational Marubeni’s strategy is putting its global power business in jeopardy and bigger and better opportunities exist in renewables, including offshore wind, concludes a report published by the Institute for Energy Economics and Financial Analysis (IEEFA).

Marubeni Corporation’s coal-fired power generation strategy has left the company dangerously exposed to rapid changes in global energy markets.

The company’s renewable energy business, on the other hand, has the potential to drive profitability at Marubeni, one of Japan’s biggest conglomerates.

The report, Marubeni’s coal problem: a Japanese multinational’s power business is at risk, sees a substantial global opportunity in renewable energy for Marubeni, especially in the fast-developing offshore wind markets of Taiwan and Japan.

“Marubeni’s continued focus on the declining coal-fired power industry is creating needless reputational and financial risk,” said IEEFA energy analyst Simon Nicholas, co-author of the report.

The report ranks Marubeni as the 11th-largest coal plant developer in the world by total planned coal plant expansion capacity (13.6 GW). It is the leading Japanese coal plant developer, well ahead of Sumitomo (7.5 GW), J-Power (4.6 GW), TEPCO (4.6 GW) and Chugoku Electric Power Cop. (4.2 GW). Among other large Japanese conglomerates, by comparison, Mitsubishi has only 1 GW of coal-fired power expansion planned, and Mitsui has none.

Mr Nicholas noted that analysts see trends favouring renewables. “According to the International Energy Agency, renewables will capture two-thirds of total investment in generation capacity globally to 2040, with 160 GW of renewables installed per year compared to only 17 GW of coal-fired power installed per year,” he said.

“It is unwise to be on the wrong side of this trend and as coal becomes increasingly toxic in the eyes of investors, public opinion, and governments alike.”

The report said huge opportunities in renewable energy await Marubeni, and the company’s substantial experience in that area leaves it poised to become a leader in the global energy transition, but to succeed on this front, “the company will need to abandon its strategically-challenged coal-fired power development business.”

The report notes that senior members of the Japanese Government are questioning national support for both a domestic coal-fired power build-out and Japanese overseas activity that fails to meet expectations for action on carbon emissions.

“Japanese banks, insurers and investors are joining global financial institutions in turning away from the coal industry as it confronts massive technological disruption caused by cheap renewable energy,” Mr Nicholas said. “Dai-Ichi Life and Nippon Life have added their names to a significant and growing list of insurers including Allianz, Zurich, Swiss Re and Axa that are distancing themselves from coal.”

The report sees the trend as having special significance to Marubeni, since both Dai-Ichi and Nippon Life were among the top 10 lenders to the company as of 31 March 2018.

The IEEFA report said the company’s offshore wind experience overseas gives Marubeni the potential to exploit opportunities domestically as the Japanese market develops.

Marubeni has been active in offshore wind in Europe for a number of years and has only recently sold its share of the Westernmost Rough offshore wind project in British waters to Macquarie’s Green Investment Group. It is also thought to be divesting its holding in the Gunfleet Sands offshore project.

Marubeni stated after the sale of its Westernmost Rough stake that it intended to increase its renewable energy capacity to 20%, up from 10%.

The IEEFA noted that investors are increasingly attracted to large-scale offshore wind projects by the prospect of long-term, stable cash flows. “This increased activity is a strong sign of a maturing industry that will provide Marubeni and other developers plenty of further opportunities globally,” it said, noting that Marubeni has already turned its attention to the fast-developing Taiwan offshore wind industry.

Marubeni is also part-owner of Seajacks, the UK-based offshore wind installer that is seeking to expand its operations globally.

Although offshore wind development in Japan has been slow to date, the government is now working on legislation that should help the sector take off in the near future and Japan’s biggest utility, TEPCO, recently announced a shift away from baseload generation with a plan to build 6 to 7 GW of renewable power both in Japan and abroad. This will include significant investment in Japanese offshore wind.

Marubeni is well placed to use its experience gained in Europe in the domestic market and already has two projects off the coast of the northern prefecture of Akita. The company has been among those experimenting with floating offshore wind for a number of years, a technology that is likely to play a major role in the often-deep waters off the coast of Japan. In January 2018, Marubeni signed a co-operation agreement with Norway’s Equinor to collaborate on fixed and floating offshore wind projects in Japan.

MHI Vestas, a joint venture between Mitsubishi Heavy Industries and Danish wind turbine manufacturer Vestas, was launched in 2014 and is a leading global provider of offshore wind turbines. “With turbines installed across the world’s leading offshore wind markets around Europe, the joint venture is in an ideal position to benefit from the developing Asian wind markets of Taiwan and Japan, potentially followed by South Korea and India,” the IEEFA report said.

It also highlighted that a number of Japan’s major trading houses have been expanding into the rapidly developing overseas offshore wind power markets for years, moves that will allow them to gain further expertise that will help them develop Japanese offshore wind power developments now on the horizon.

Mitsubishi and its project partners are expected to begin construction of a 950 MW offshore wind project in the UK in 2018. Sumitomo is reportedly close to acquiring a stake in European offshore wind developments from Engie, adding to its European offshore wind holdings.

Japanese trading houses are also involved in Taiwan’s burgeoning offshore wind market and in May 2018, Mitsui and Co acquired a 20% stake in Taiwanese offshore wind developer Yushan Energy. This will allow the company to benefit from Taiwan’s ambitious drive into offshore wind as it turns away from nuclear power and coal and toward renewables. Mitsubishi is also working on offshore wind development in Taiwan.

“Substantial opportunities in renewable energy await Marubeni in markets where it has experience,” the report concluded.

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