The changing face of Japanese infrastructure investors

Learning lessons for the future

Another change is the emerging need to catch up with new global trends - to learn from and gain experience in offshore markets and apply these learnings to the domestic market.

This is especially prominent in the decarbonisation space where Europe is seen to be about 10 years ahead of Japan. A countless number of Japanese companies have invested in renewable power projects and energy-related technology companies in Europe, and they actively send staff to get involved in management of these businesses. 

Looking forward

The need for understanding and experience in this space is becoming only more pressing. In October 2020, the Japanese government announced its target to become carbon neutral by 2050. Since then, a series of new policies have been announced, including generating 30 to 45GW of offshore wind power by 2040. A new $US19 billion Green Innovation Fund was announced to boost Research & Development in key sectors requiring significant investment to decarbonise, and the government is updating Japan’s energy mix for 2050 to include a new renewable target of 36 to 38 per cent.

As of 2018, 85.5 per cent of Japan’s energy is sourced from fossil fuels, while renewables account for just 8.2 per cent, excluding hydrogen.² Japanese utilities and trading houses are historically heavily reliant on fossil fuel related businesses and have significant exposure to assets such as coal power plants and coal mining projects.

Previously, their shareholders praised the fossil fuel related businesses as a lucrative source of profit, however that position is changing too, reflecting the growing scrutiny of corporate ESG strategies and the investment approaches in carbon-heavy businesses.

Innovative approach

In this changing business environment, corporate Japan started thinking about how to utilise the country’s highly efficient and reliable 47GW fleet of coal power plants, and a potentially game-changing idea has emerged out of a 5-year innovation program³. That is to use sustainably produced ammonia as a fuel for the existing coal power plants, essentially converting the most carbon intensive power generation to zero emission.

JERA, one of the biggest utility companies in Japan, has quickly adopted this technology and announced their aim to establish ammonia co-firing technology by co-firing coal and ammonia at a large-scale commercial coal-fired power plant. It has also committed to accelerate hydrogen-based power generation in parallel, and to becoming net zero by 2050.

This invention may have the potential to help the acceleration of decarbonisation globally, especially in Southeast Asia, where the ‘clean up’ of relatively new coal power plants will be needed in the near future.

Both ammonia and hydrogen-based solutions are commonly recognised as having the same direction of evolution, as ammonia can be a carrier of hydrogen and are increasingly recognised as an important part of Japan’s future energy mix. Many Japanese companies have started participating in pilot projects related to hydrogen and ammonia globally and are increasingly seeking sources of overseas supply. This mimics how the LNG supply chain emerged a few decades ago – and could be a start of a whole new global industry and a very significant development in the global energy sector.

Corporates are the newest class of investors

The decarbonisation trend is also producing a new class of Japanese infrastructure investors: increasingly environmental-conscious corporates. They have come to realise that the new generation of consumers are looking for sustainably produced products, and the potential introduction of border carbon taxes has made them one of the most powerful advocates of green energy in Japan. Many have pledged to become 100 per cent renewable power operated and they want reasonably priced green energy across their global operations.

One example is NTT Group, which is the largest telecoms company in Japan and consumes 1 per cent of the country's electricity usage. It announced that 30 per cent of its business would be powered by non-fossil fuel power by 2030, and that it aims to acquire 7.5GW of renewable generation capacity.

Another is ENEOS, Japan’s largest oil and gas retailer. it already runs 45 hydrogen stations for vehicles and recently announced a further roll-out to all of its 12,000 gas stations in Japan from 2022⁴. It’s also actively testing renewable hydrogen production with Queensland University of Technology in Australia and started investing in renewable projects itself for future hydrogen production.

These corporate investors are emerging as some of the most competitive in the global market and have the potential to play a key role in global green energy projects.

New ways of working with Japanese investors

The key characteristic of the Japanese investors is that they are highly strategic. Hands-on and actively contributing to the development of  projects, they are also – importantly – willing to take risks and learn from their experiences. With a long-term view, they focus on the success of projects over an extended period and work strategically towards a future aim.

With such active, ambitious, and increasingly diverse Japanese investors with new intentions, expect to see them take key roles in infrastructure projects all over the world.