You are listening to Redefining Energy. Your co hosts from Berlin, Gerard Reed
and from London Laurel Segalam. Today on Redefining Energy, Jihob, we're going
to talk about Japan and the challenges of the energy transition Japan. Yeah,
thank you very much for actually doing this, Laurent. This is a special
one for me because I went and took a week earlier on the year and
spent it in Tokyo, and I was I was quite taken back by the
place. It was an enigma in lots and lots and lots of different ways.
And obviously the energy situation is an incredible enigma to all of us because
let's let's be really clear, is thirteen years ago, almost to the date
Fukushima happened. And so I thought it was very interesting just to explore what's
happened in Japan over the last thirteen years and then what's going to happen going
forward. That was sort of what was in my head anyway. But first
of all, from our partner, Equalitor Capital is a sustainable investment company headquartered
in Hamburg, Germany. Equalit Capital investment real assets such as clean energy,
sustainable infrastructure, energy efficiency and growth private equity on behalf of its clients.
But yeah, the relationship between Japan and energy has been a conundrum for the
past one hundred years, if not more. The first half of the twentieth
century, they tried it the hard way. I think they got punished along
the way. So after nineteen forty five they're trying the smart way, which
is not easy because if you consider that they probably have to import ninety percent
of their energy, and also considering the fact that their neighbors, their direct
neighbors, are not very collaborative. That requires a very deep thinking about what
you can do, and you cannot rush any policy. So they're to play
a very balanced game, considering the fact that, of course we're going to
talk about about it, but you know, they have no coal, they've
got no gas, they have limited place for wind. The sun got a
bit of sun the south. It's a tough one, it is. You're
absolutely right. And the one thing we also need to add is that Japan
is an island. Actually it's a series of islands. That makes it even
more difficult. And in terms of natural resources, it's very mountainous, it's
got lots of forests and it's got lots and lots of people, and it's
surrounded by very deep waters. That makes it a little bit difficult. It's
very very challenging. I agree with you. But what's also interesting is don't
forget Japan is home to amazing innovation, an amazing company. Let's think the
lithium ion battery, which is revolutionizing our world. Ultimately, that's a Japanese
invention. If you think companies like Panasonic have been leading in these areas for
decades, and you've also got other areas, and just thinking in the whole
heat pump area, you've got Dyking and companies like that. They've got some
very very interesting businesses in and around this energy transition. So you met a
lot of people in Japan and you had a bit of a romance with our
guests today. Can you introduce him please? I can, indeed, so
I'm very happy to bring on the show. Shoe Cava Mora and Shue is
the head of EE Investment and that is a growth equity stroke venture capital business
in the energy space in Japan. What's interesting about them is they don't just
invest in Japan, they also invest globally and part of the reason they do
that, and it is to actually learn because they realize listen, as an
island, you have to go and learn from people outside your country. And
this is part of their strategy to do this to basically to find big business
models in other countries and bring them back to Japan, you know. Yeah,
and that all investor private equity mindset. That's really rare for Japan.
I mean, you will find a lot in your hope and probably even more
in the US. But here, that's very interesting that he has very deliberately
adopted a model which is not natural in Japan, where you have a lot
of monopolies or big companies and there's a lot of vertical thinking, and he
thinks orizantal and so I think we're going to have a quite interesting discussion with
Shoe. And also I want to say he thinks in the future, and
that also is very very important. So he's investing in innovation. That's what
he's doing. Let's bring him in. Shoe. Thank you very much for
coming on the show. Thank you. I'm pretty honored to be here today.
What we really want to do is talk about the energy transition in Japan
and just by chance or thirteen years after the Fukushima disaster. I'd love you
to maybe talk a little bit about how that's changed Japan. I would change
the energy landscape and just give us a little overview. Yes, it was
a disaster, as you can imagine, has made a significant and change in
the energy sector. Up until Kushima, about the thirty percent of girl ours
was composed of nuclear generation. But all of a sudden, because of the
disaster of Gushima, that went to zero, which you might imagine the magnitude.
So as a system we had a very SEVERI act respect to the lack
of generation all of a sudden. This has made the beginning of the discussion
of how we recreate the entire energy system, including how we increase the capacity
of renewable generation, which was probably at the time less than hypercentos. In
fact, it has enhanced the necessity to rethink how we pushed the idea when
the transition, which at the time was already occurred in our European countries.
Can I ask you there just about maybe if you moved to present today right
talking a little bit about the electricity system today? I mean, are the
nuclear plants all back up and running now at this point in time, are
they closed, tell us a little bit about what's going on in the energy
mix today, and then also how did you get through it? I mean,
having forty percent of your generation just goal and you're an island. It's
not as if you can certainly take power in from your neighbors. What did
you do? So two questions. Really, Yeah, it's related. Japan
has lack of natural resources, including oil and gas. The policy try to
diversify the generation mix, a mix used to be composed of nuclear and manie
hydros and energy based yes generation and coal and oil, and the mixed nuclear
genation the handle largest portion. Suddenly they were gone down to zeros. So
what happened was increase the import of energy as well as increase the import of
coal to compensate for the loss of the new GRA generation, now very limited.
Part of the new grad generation has come back, but still the composed
poorly around ten percent or less than temper cent renew holes has been increasing,
but compared to the European situation, we still without the level of any European
countries respect to the portion of being able energy in this moment. As we
are financiers, the market response is also of interest to US, And if
I understand, well, before Fukushima you add a series of vertically integrated original
utilities and since then we've seen a market develop. We'll see more private actors.
They will probably not really price signals before, but now you start having
price signals. And of course Japan being the archipelago, and you have you
found the part in fifty earths and all the part in sixty earths, so
it's a complex grid. How would you qualify the way the interscale actors and
the financial actors have been also evolving the past ten years in respect to the
deregulation of the power industry, kushimaid has justly promoted the deregulation of the industry
resembled the German system or the US system. There were nine large utilities regional
molo police and they had all the functions including generation, transmission, distribution and
retail, so it was integrated utty. But after Kushima we had a dregulation
still integrated U eighties, but the grid has become open access and the one
can enter into both generation or in the trading at the wholesale market. And
also the retail is entirely open. So like six hundred companies new entrants came
in as a new retail company or at once, say sixty six hundred,
six hundred. Yeah. Ok so, including the large ones like telecom companies,
as well as proper and mamber small companies that believe that they can tell
electricity. So we went through that process. Now the number keep down listen,
and probably I think the meaningful bricktail companies are like twenty or so new
ages plus the ten hours in companies. So we have been through that drastic
transition. That's not the German model. That's the British model. Yes,
yes, yes, when it comes to industry. Look at Germany when covered
markets, Look at England. By the way, she says a Frenchman,
says a Frenchman. Can I return to something you said, because I was
quite surprised by it. If I look at the impact that Fakushima had in
Europe. Okay, firstly the country of living in Germany, they decided to
get out of nuclear, but it actually really speeded up the transition to renewables,
and the reason was we haven't And then actually what then, how some
days we've had this Ukrainian crisis not even accelerated even more. But you said
something which interesting was that Japan has not accelerated as much as Europe. And
I suppose my question to you is why surely Japan has to do it,
So why didn't they include some kind of late goal or issues. But the
incumbents used to promote nuclear and they still do, and they had some kind
of distrust to like pvs or winds because it was unstable, so they were
not from all the renewable energy, so that incorporated some way into their PNA.
In the past, the question was who will promote including the finance part
of the new renewables. Then the startup Probably, unlike in other countries,
the gap was filled partly by the startups. There were several startups that had
started to develop renewable projects pvs and winds, some of them very very large
in the Japanese energy landscape resemble some part of Europe. But the incomers were
a bit reluctant to promote the even after Fukushima and maybe come just switching topics
a slight bitch. What you do for a day job is you invest in
businesses. Now you're very unique because you invest in Japanese businesses and you also
invest in the international business so can I ask you to talk a little bit
about what you're investing in and why. Initially, we have looked at what
business has worked in Europe and plant of US for example PPP businesses or third
party old renew war projects, and since we didn't have that kind of businesses
in Japan, we have created a couple of companies from STRETCH to do the
similar businesses. For example, we have invested in the energy efficiency companies that
provides escort services to supermarkets to six thousand, seven thousand stores in Japan.
Large supermarkets. At one time realized that all the supermarkets have rooms stops and
we can use that. So we have created a company called VPP Japan together
with the ESCO company was a sales and marketing as well as finance play.
We have like third party owned pvs on the rooftops of thousands of supermarkets.
This is like a business model based investment, nothing new in terms of technology,
but they worked and the company got pretty big. Now they are entering
into the second stage where they are starting to put storages in some stores evs
so that we can sort of you know, maximize the output of the renewables
as well as optimized the storage, went to store and went to the electricity
generated on the roof stops. So it's becoming a VPP And while we invested
in Europe and other parts world, I think in the field of example PPP
Europe has tested all kinds of technologies including software, how to maximus optimize the
generation and the storage, and how to predict generation, etc. So we
have been looking, for example, in those areas through are the winners and
losers, what kind of system might work when we bring the system back into
Japan. So that's an example how we look at the investment opportunities. So
and again that's one of my first principle is look at the geography. Japan
has to adapt to his geography, which means that we don't have the choice
of having those big planes in the US where you could put a lot of
wind, or the North Sea we're same, it's shallow, we can put
a lot of wind. Just physically, the number of additional generations you'll be
able to put on mainland Japan is going to be limitted. If I understand
correctly. The old thinking has been really around demand management, energy efficiency,
and this is where you've seen the opportunity and the most technological pot Guys,
what of those sectors would you say that Japanese is really world class right now?
Yeah, energy efficiency related technologies. When it comes to a startup investment,
the ecosystem is still developing stage. But as a company as a whole,
we have created and there are abundant efficiency technologies Japan. The supply side,
we used to have PB technologies, but all of them are gone to
China or our career or other parts of the world. And also we did
have city the art battery technologies in the past, but I think that that
has been shifted to other parts of the world. So demand side is probably
one area we still have the interesting technologies. We also when it comes to
the next generation decarbonization, like the couple culture, all the new membranes or
capitalists and so on, I think there will be a possibility for the Japanese
tecnmogency is to be been interesting. So the technology in the future, and
she was probably a good thing to do to talk a little bit about the
future. So because you maybe just as we look in the future, just
I'd be interested to hear your thoughts on how Japan decarbonizes going forward. Come
back to what Moronzols said earlier is that Japan's strength and also its weakness is
its geography. How does the government see then, how do you personally see
it going forward? And just to piggyback on jart question, there's a word
I would like to hear in your voice. It's the word hydrogen to see
if you consider it's part of the future or not. Please at the macro
level, since you have rightly indicated we lack the things your land for pvs
and also we not be too like North Sea or other parts of US California,
the good places put within projects. At the macro level, there are
opportunities, of course because as a business the demand supply situation, I think
the demand will access the tought supply as an investment that I think you make
sis. But as a country we have to think about what we can do
outside Japan. Just looking at the decobalization in the Japanese land is quite limited.
So political argument is we have to either go back to nuclear or we
have to do something abroad. So that that's a discussion, and abroad goes
back to Laurent's point. Is it hydrogen or do you take electricity into interconnectors?
From your neighbors and the macro level. Hydrogenal ammonia is discussed at the
policy level, government level. If you look at all the heavy industries or
there are a huge portion of industry. Is a heavy industry in Japan.
So when we look at the steel, chemical, paper and power cement,
all the industries or automobiles should look at not just that ACTU see but also
other things including hydrogen ammonere and other technologies. And maybe the last question,
because we did start with Fokushima talk certainly in the Western world talks about a
renaissance and in nuclear talks about moving to small modular reactors. And how is
the view from the industry in Japan? Is there innovation taking place in this
industry? Are people looking forward positive about it? Or how does the industry
viewers and then how does the customer viewers? The innovation in the small nuclear
system is probably not so popular in Japan compared to a US or other possible
world, but the incumbent as well as the industries looking forward in the future
for those technologies as well as the nuclear system that is now some root nuculders
get back into operation, but the consumers are relatively cautious, which we also
had not as big as cush. Well, we had a huge earthquake on
the first of January this year in the region of Kurku area. Consumer knowing
that we are living in a landscape with full of earthquakes and natural disasters,
very litically, people are quite concerned and probably a bit cautious to go back
into the days of Yukorea operation. Fully, we have a mixed idar mixed
feeding this moment. Sure, compared to Geran, I'm a very pragmatic man.
I'm not a big thinker, so I'm going to ask you a very
direct question. Sure, I want to make money in Japan in energy.
Where do I put my money? Now? Renewable PPA business first, because
companies like Amazon or Global Japanese companies just started to procure renewable power with additionality
which is literally zero in Japan, so that business will grow. Secondly,
second business is the BPP businesses with batteries. That's the business that you should
invest. We have like four main islands and one of the island which is
like probably a size larger than whales. They have too many PV solar systems.
So fifteen to twenty percent of the generation is wasted. Oh right,
okay, yeah, so someone could make a business out of there's fifteen twenty
two hours that are not used. People will make a business up a bit.
Third, we are living in an Asian society and we lack drivers,
especially in the transport seas them. So if someone can do something in that
transportation business with BABS, it's going to be interested. Within like three to
five years, we're gonna circle back where we started before pushing the button record.
I believe that the best investments for Japan is a subsecable with Korea.
You will see your money in one year, but it will take you twenty
years to convince the politician. But you have it auchally, you have the
best technology in the world, and Korea has a lot of great technology as
well. It's not a technological problem, it's politics. Am I just dreaming
because I love subsecables? Yeah, it makes sense, totally makes sense.
And with Japane career, we're living in this relatively similar time zone, so
I think you will make more sense to connect to other auts of Asia,
which is a long distance of course, but we live in a slightly different
pig zones with respect to pvs or probably make a lot of sense. So
I just want to ask, would you put money in Lauran's cable to South
Korea from Japan? YEP, looking forward to well you. It's been very
good having you on. Thank you very very much. Thank you. It's
been an on hour and we wish you the best. And for our listeners.
Some people are blessed with a good geography or the need to fight,
and I respect a lot of Japan to be able to thrive and having to
fight for every electrons which are given away in other parts of the world.
So a lot of respect. Thank you very much, Thank you so much.
Enjoying the conversation. Thank you. So Lauren, what's your take.
Well, it's a tough one. It's a tough one because on the generation
side, with all those vertically integrated utilities, and I'm in their obsession with
nuclear, which I can understand by the way before for Kushima they really got
flat footed and they had very limited alternatives. The good side of thinking long
term is that all their energy supply contracts were long term and linked to a
noil formula. And I'm not going to go into the weeds, but basically
you pay seventeen percent of the price of a barrel, which means they didn't
have the energy shock that we got in Europe after Ukraine. They managed to
continue to buy energy at a reasonable price. That said solar. They already
put something like seventy gigawad of solar, and they're trying to do floating offshore
wind, but that's going to take some time. So I really appreciate the
fact that was clear in his mindset. It's all about efficiency, so all
the work is midstream and downstream. Yeah, well, listen, I think
you've done a very good summary of the challenges. I just want to maybe
take a step back a little bit from now. They's a fascinating thing.
The enigma in Japan starts with its economy, because what you've got is this
incredible export led economy and then you've got this government running this massive government budget
deficit, right, which is economists you sort of look in this and go
on, how does this work? Well, actually, how it works is
that the result has been that the currency has devalued and the economy has stayed
very competitive. Like that was for me quite mind boggling and mind opening really
to go there and just realize how low cost everything is. I was quite
taken back by in a lot of ways. I would say forty to fifty
percent lower costs in Europe, which means that for an export type economy,
that's great. However, there's a very very big butt, and the very
big butt is they're selling stuff from companies and let's say, positions that were
built up in the twentieth century, and I'd really concern about the positioning of
this country in the twenty first century. The best way I can describe this
is just in and around electric vehicles. I did not see any electric vehicles
there. You go anywhere in Europe and you see electric vehicles in Japan's I
did not see any. And if you actually look at the statistics, five
percent of automobile sales last year were electric. Okay, well, China was
at thirty percent. Europe we were at fifteen percent. And I think Europe
is being slow in this transition, and that gives me a sort of concern
really, because he's sort of say, you're living on the past as opposed
to living in the future. That was one of the conclusions I had of
my time there. That's what I'd say, I don't know what much thinking
of that is in the automotive sector. Of course, it's so lit by
Toyota and their opposition with hydrogen. Now they might be right in relation to
hybrids, especially if the grossy V is not as fast as we can so
maybe they still have a way around the eyebrids where there were the pioneers.
But something you told me which I found fascinating is that you said there's no
chimney in Tokyo. Yeah. The interesting thing about the chimneys is with he
pumps. Every single building has done my heat pumps, so it's not gas
or anything like this. And that's pretty pretty interesting because the one thing that
the Japanese have done incredibly well is focus on efficiencies. Let's take that unit
of energy and get the most out of it, which goes back to your
whole point about toilet and the hybrid car. That was the thing about It's
not about going and doing something radical, it's about can we improve can we
improve efficiency coming through And they've certainly done that in the heat sector. And
if you just look, it's a very simple point about it is that if
you take the case of Germany, Germany's eighty million people and it's called peak
demand at eighty gigawats. Japan has peaked demand of two hundred and fifty gigawots
and it's not twice the size of Germany. Well, the point I'm making
is it's all going into heat. Okay, so terms of heat incredible.
So they've done a great job in terms of energy efficiency, Lauren, because
they've had to. While if I contrast what we've done in Europe, we've
sort of said, well, let's go and renewabilize our generation. Well,
what they've done is I've made their system more efficient. I think that's the
if i'd say the philosophical difference, I would say between as a Western Europe
and Japan. When I look at the statistic from the Energy Institute, the
power production in Japan is one thousand what hour, which is roughly fifty percent
more than Germany. Like Eurepe, the generation has been flat over the past
ten years. But if you compare with India, for instance, in two
or twelve, Japan was producing a bit more power than India and now India
is eighty percent bigger. Yeah, it's a conservative model. It's an efficiency
model, it's not really a growth model. But you know that was part
of the discussion, what are we going to do if we have the data
centers, the AI, the evs, growing that production is going to be
difficult. So how much can they squeeze more about energy efficiency? That's an
interesting debate. Actually, by the way, that's the point I make.
I actually think if sort of you can't anymore, you have to change technologies
if you're going to do it. So in other words, the case of
the car, it can't get more out of the internal combustion engines. You
can only so much hybridize. If you want to take the next day,
you have to go on electrifi it right fully electrified. But I want to
go back to the one thing that I also said to you. Yeah,
you're rhapsode right. I didn't see a lot of chimneys, but I was.
I was up, and I was very high up in the building I
was staying, and I could see across the whole of Tokyo, and I
was quite taken back by the fact that I didn't see any solar or any
of the roofs Okay, even though Japan has a huge amount of solar,
but I didn't see it in the city of Tokyo. And actually that was
pretty interesting, and I actually asked you a question, Rong, how much
renewable do you think they installed twenty twenty three on you know the size of
the country, right, if you've talked about it, right, Oh,
okay, let's say five gig, Yeah, five gig. But just to
put it into perspective, Germany did three times that. I spent a lot
of time comparing Germany to Japan, because both were very clearly impacted by Fukushima.
Both decided, hey, listen, we're going to close our nuclear plants.
Germany said, okay, well, we're actually going to have to change
the way we're going to do stuff, and we're going to go and renewabilize
really really quickly. You didn't see this in Japan, and I find that's
quite strange. So I think the only conclusion I can get to is a
little bit what you said earlier on what you've got is these old monopolies,
they've got huge amounts of power and they're just blocking change. And actually really
what they want to do is turned the nuclear power stations back on. Right.
Well, I'm going to conclude by the words of Tim Marshall in his
book, and as the books called prisoners of geography. Japan is the prisoner
of its geography. But on a positive note, when you talk to guys
like Shuan and others, don't count them out because they're very as suit very
dynamic engineers and they're probably not going to be the innovative, but when they
take any system, they can really bring a lot of efficiency to it.
So I see it live in Japan. Yeah, I go along with that
as well. I would actually see them as they're not the first movers,
but what they are is the fast follower. That's what they are, right,
There's no doubt about that. Okay, job got my friend. That
was an interesting conversation and we thank Aquila for supporting the show and I talk
to you next week forward. Thank you for listening to Redefining Energy. Don't
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