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Championing renewables in Japan

Interview - March 23, 2023

Renewable Japan provides end-to-end services for renewable energy development, from EPC to financing, asset management, and O&M, which is a unique business model in Japan.


Can you please introduce yourself and your company to our international readers?

My background is in investment banking. Thirty years ago, I joined Lehman Brothers in Tokyo as a new graduate. I spent 14 years at Lehman, then later moved to Barclays. In total, I spent 18 years in investment banking. About 20 years ago, the Japanese securitization business started. I became the founder of the securitization business in Lehman, Tokyo. This is very important because the financing for renewables is structured finance, nearly the equivalent of project finance or securitization. At that time, people in investment banking, trading agencies and law firms tried to collaborate to create a new market. However, we did not really have a clear goal. After 18 years in investment banking, I moved to ZAIS Group, which is a private equity firm, where I focused on CLO (collateralized loan obligation) which is a securitization product. The month I moved to ZAIS Group, Lehman Brothers went bankrupt. Most of our products from investors were securitized products. It was a great time to invest because the price was low, but nobody wanted to make any new investments. That is why we tried to find products that Japanese investors would still invest in by using our expertise, but not by securitization. We also tried to look for asset classes like Indian solar energy.

About 13 years ago, India started the FIT (feed-in tariff) system, similar to Japan. They were looking for technology such as Japan’s PV (photovoltaic) technologies. Because India's interest rates were so high and long-term interest rates were two years, they wanted to use Japanese funds for the long term and they hired our company as a financial advisor to organize their transactions. If I had not resigned from investment banking, I would never have gotten an opportunity in renewables. I spent two years working with Japanese trading companies on projects in India, Sri Lanka, Europe and the US. We brought the tax equities and transactions, while the trading companies brought construction equities. It was going well until the Fukushima disaster in 2011. We spent a lot of time on those overseas projects, but they were all gone.

The very next day after the Fukushima tsunami, I got an email from a US business partner. They provided solar-powered water purifiers to those who were affected by the earthquake in Fukushima and Tohoku. Their machine can purify river, pond and ocean water to make it safe for drinking. After receiving the email, I made a phone call to the Red Cross, and they told me that I can wire cash, but if I have a product, I need to bring it myself to Tōhoku. Finally, two local governments accepted the machine – Onagawa and Ofunato, Fukushima. We spent months coordinating everything, and we decided to go to Tōhoku in April. And I drove myself to deliver .That experience changed my life. There was no Shinkansen bullet train, so we went by car at midnight to Ichinoseki and Ofunato; from Ofunato to Onagawa is almost 200 kilometers. As we were driving, we saw some of the stadiums and hotels in the ocean because the ocean line had changed. Some big tankers were in the mountains.

It was very shocking to actually see the damage with my own eyes. The entire city had been destroyed and I wanted to do something for Tohoku. I believe most people, especially Japanese people, felt the same way. Since the meltdown, many people wanted to promote renewable energy such as solar and wind power. I thought I could do something to help in this effort, but I needed funds. As most of the rich institutions are in the financial industry, I thought I could bring money from the financial industry into the renewable energy industry through securitization. From my experience, I believe I can utilize my expertise to make this happen and contribute to the reconstruction of Tohoku.

As I sat in the car for half a day, I kept thinking about what I could do. As an investment banker for 18 years, I have always thought about how to make money and how to help other people make money. But that was a turning point for me, and I wanted to change my life. I wanted to contribute to the recovery of Tōhoku and to spend the remaining years of my life not focused on just making money. As I was thinking about what to do, the Fukushima nuclear meltdown happened. Many people and many renewable local organizations wanted to increase renewable energies such as solar or wind. I thought that this could be my contribution, but I knew that I would need funding before I could do anything. Most of the richest organizations are in the financing industry, so I thought that I could bring the money from the financing industry into the renewable industry by applying the technique of securitization. I have mentioned that 20 years ago, many people were trying to create a securitization market without a specific goal. That process could be done for renewables. Given my previous experience, I thought that I could perhaps use my expertise to realize that and contribute to the rehabilitation of Tōhoku. That was the only thing I could do. I came back to Tokyo as a member of the ZAIS Group, but the Group later changed organizations. One of the senior managers gave me the ultimatum to choose between stopping renewables or resigning. I chose to resign and then started this company with just two people, and now we have around 300.


A few years ago, it was widely publicized in Nikkei how Japan's cost of solar was twice per megawatt that of Germany. Although we see large trading houses like Mitsubishi Shoji heavily invested in domestic and overseas renewable projects, commentators still say that the return on investment in Japan is still not as competitive. We have the Feed-in Tariff Premium program providing incentives to accelerate renewable adoption and the government has stated it wants a 38% renewable energy mix by 2030. What is your assessment of the incentive structure currently in place? What do you believe remains to be done to make it more cost-competitive?

I think the FIT started at JPY 40, but it is now less than JPY 10. Even with JPY 10, we could do business, but not everyone can. A big component of the solar business is not the cost, but it is having a FIT. Buying land is costly. A unique challenge in Japan is land development. Sometimes we spend USD 30 to 50 million on land development. I do not see that in other countries, such as Spain. Moreover, there is grid cost or the cost of the utilities required. We need to hand in our applications to the utilities, and they will tell us the numbers. If we want to do business, we have to pay for that very expensive cost. There is also the EPC (engineering, procurement, and construction) cost which used to be Japan-specific expense costs. The Japanese price was not the same as the global price. Ten years ago, there was one price for PV globally, but the Japanese people never believed that because PV suppliers were not revealing or mentioning anything about their pricing.  If pricing is in line with global standards, even at JPY 10, it is possible to do business. There might be short-term difficulties due to the COVID-19 pandemic and the yen depreciation. If brokers try to push forward an extra margin, it might be difficult to conduct business. If the EPC cost is within the acceptable 10% margin, it will be doable. FIT is very simple. However, Non-FIT or FIP (feed-in premium) is more complicated, and we will have to incorporate energy management. Variety entries used to be low, but now it is very high. The FIT structure is the easiest compared to other structures and the potential market is huge. Right now, it is close to 60 gigabytes in operations towards the 2030 environmental policy target. This is our current operation and our estimated numbers. Showing the one on top to be achieved in eight years, many said that it was impossible. Prime Minister Suga pushed for carbon neutrality by 2050, with solar cells being the replacement. Thus, the market potential is huge. Japan does not have many energy resources. 80% of our energies used to come from fossil fuels. The Japanese definition of clean energy is nuclear and renewable, which is so unique. The government really wants to expand renewable energies. Energy prices are higher and if Japanese companies want to be competitive, we have to lower our costs. This is our goal but it is quite slow-moving. This is probably why the government is also pursuing nuclear energy. I am not saying that I like that idea, but that is my view.


Your business provides end-to-end service for the development of renewable energy, from EPC to financing asset management, and O&M (Operations and Maintenance) costs too. It is a unique model for the Japanese renewable energy market. Can you explain why you chose this model, and what does your background in finance bring to the company?

RJ's business provides end-to-end services for renewable energy development, from EPC to financing, asset management, and O&M (operations and maintenance). This is a unique model in the Japanese renewable energy market. When we started our business, we picked up some successful overseas developers in the U.S., Europe and other countries. We then tried to imitate their business models. Successful companies do everything from land development to obtaining permits, EPC, sponsorship and equity investment. And how the financial background contributes is through the approach of financing, creating the highest equity return. In addition, they conduct O&M, making them more cost competitive and generating higher returns. They implement financial engineering and do asset management in-house. What all global developers have in common is that they are strong in finance.

RJ has been in business for 10 years and has developed/acquired 185 renewable energy power plants with a total capacity of 887 MW so far. In addition, RJ has been entrusted with 238 O&M projects totaling 1,140 MW, and has an overwhelming No. 1 share of the Japanese project bond market with approximately 33%, giving it a significant presence in the Japanese renewable energy market. In order to expand its business not only in Japan but also overseas, RJ has set up its branch in Spain. We have already hired seven Spanish employees, which is rare for a Japanese company. And as our first overseas project, we acquired the Socovos power plant (21.6 MW) in Spain in September 2022. Going forward, we will continue to accelerate our efforts to find and acquire projects overseas by leveraging the knowledge and expertise we have accumulated as a renewable energy company and our local network through our local subsidiaries.

Renewables are hailed as the cleanest, infinite energy resource that can be provided. Nevertheless, there are still some major issues to overcome for full-scale adoption, primarily, the fact that it is an intermittent energy source. As an example, you can only generate wind power at a certain site and specific elevation with a minimum turbine speed to generate electricity. How can the renewable energy sector overcome these issues and have a power source that is more reliable and consistent?

I am not an engineer, so I am not able to respond from an engineering point of view. Believing in the future of renewables is very important. This is what I always tell others as chairman of a renewable energy company. When we started, solar energy was at JPY 40 - JPY 36. When it was JPY 36 - JPY 32, many top-tier Japanese companies such as Mitsubishi Corporation left the market. Later on, Marubeni sold their assets as well. They believed that there was no future for Japanese renewables, and outside Japan would be a much better market. In reality, we can still do business with JPY 10. This is the global standard. I really wanted to make our company's name Renewable Japan. At the time, not many people understood the meaning of renewables. Even though many people want to take the same name, I was the first person to choose the name. I chose the name so that the global market can understand that we are a renewable energy company located in Japan.


In our research, we saw that you managed more than 1000 MW of power from Hokkaido to Kyushu and you have 28 bases nationwide. In February, you generated over 1 GW of power as a result of O&M savings. How are you able to achieve such a feat? How will you achieve your goal of doubling that in the years to come?

We had asset managers starting about three years ago. Once we develop a transaction and funds, we can automatically get our asset managers and O&M in business. It does not take a lot of effort for us to start a business. In Japan, we are probably the tenth-largest company, but we realized that our prices are not competitive, and our service quality is not good for top parties. The company, including the developing team, is very aware that we have to make some changes to lower the price continually every year to be price competitive, so I spent time observing successful companies such as Smart Energy owned by Goldman Sachs, but recently there was a management buyout. That company had the number one shares and they are only doing O&M.  They are very competitive in both pricing and services. I wanted to copy what they were doing.


Given that wind is an intermittent energy source, what kind of digital tools are you using to ensure consistent quality in the operation of your plants?

We have not done O&M for wind energy yet. We are currently creating a team because we want to be number one in both solar and wind energy.  Japan is a bit behind in terms of technology. When I started the company, one of the co-founders was a friend who had an engineering background and was in charge of the solution business in the ZAIS Group, which is very strong with numbers, databases and solutions. He helped create a solar financial application for us. Every investment bank and investor for CLO securitized products use a famous application called Intex. The ZAIS Group has its own unique application, but 95% of the market is using Intex. I asked my friend to create solar as a financial product and use an application as a financing instrument. We called it Solar Value. We will try to commercialize it and may release it next year. We asked some of our key clients like Tokyo Land Corporation and others to use it for demos for free at the moment. Oftentimes, the performance is given 30 days after the closing date, so there is often a 45-day delay. This application can be used on an iPhone and you can see the results right away.


When we were looking through your history, you had many alliances. You partnered with ENEOS in 2019, with Kansai Electric the following year and Tokyo Gas too. Can you please tell us the role of these capital alliances in your business, and are you especially looking for overseas partners that can help you in that respect?

Depending on which stage we are at, our business partners might change. First, we partner with the local governments because finding the land is the key. After securing the local government land, we establish a formal partnership and agreement. After the local agreement, the local newspaper takes a photo of us shaking hands with the mayor and this gets posted in the local newspaper. This is a very important step to earning the trust of the local community. This will move other landowners to sell to us. Other important partners are the EPCs because as a small company, no one wants to do business with us because they are scared of the USD 30-50 million needed. They want to see the money.

We have to explain that we are going to create structural financing and bring in investors and financiers, so there is no need to worry, but of course, they still do. Bringing in the EPCs, financiers and equity players is very important. They are the next important partners after the local governments. Right now, some banks are our shareholder and we brought them in as a core business partner because 80% of the money comes from their side. After the financiers, our partner will change to Tokyo Land Corporation, which has expertise in land development. Land estate development is not easy and they understand it, whereas banks are a bit more rigid to work with schedules and money. They do not want to see any problems, but the reality is there will always be issues. As we successfully move to the next stages and increase our business portfolio, we also might change partners accordingly.


Japan is a really challenging country for renewables because 75% of the land is mountainous making it challenging to find good renewable energy locations. How much are you looking towards overseas opportunities to continue your business expansion?

It all really comes back to the importance of believing in the future of renewables in Japan. Now that we have a big target for renewables, we have to change our mindset back to 40 yen - 36 yen. The five factors or government issues that we have to deal with are grid, financing, permitting, off takers, and change in development style. Dealing with one of them is already difficult, but we have to deal with all five. The quality of renewables such as wind is not that great compared to Europe because Japan's land is scarce. Although the government is trying to push for a big target, we would like to achieve it. Unless we expand renewables, we cannot comply with global policies. We have to find another way to do it. When I give speeches at events such as PV Expo, I outline the five issues that we have to overcome. Last year, not many people were able to overcome these issues. However, this year, we are gradually finding solutions. If all these five issues are resolved, the market will grow exponentially. Government support is also important. Right now it has improved, but at the same time, we have to recreate the momentum by providing a stimulus. I have been invited to a renewable energy association in the LDP (Liberal Democratic Party) where I might have a chance to make a presentation. I am supposed to talk about the five major issues with politicians and urge them to do something. We have to make some kind of stimulus. We have goals that are quite difficult to imagine, so it is truly necessary to believe in them.


You have two types of revenue for your business. You have the flow-type revenue and the stock-type revenue. Can you tell us the advantages of having both sources of revenue?

The flow-type business comes from renewable asset management. Unlike in Europe, where it is well received, the asset management business is not highly valued in the Japanese stock market because not a lot of people have done it. When we conduct transactions, we have a choice to either sell to the fund or keep it on the balance sheet. In the Japanese stock market, having funds on the balance sheet is more valuable. In Europe, it could be different. Even Japan might change. In Japan, we are top-tier and we have strong asset management capabilities. We have a well-established and respected brand in the financing market. Currently, we have already issued almost USD 90 million in bonds. I think that within this year it will become USD 1 billion total. Compared to other bond issuers, we are issuer friendly toward investors. Our investors are top-tier Japanese investors. Since I used to be a sales manager for an investment bank, I know who the top-tier investors are. From an investor's point of view, if Renewable Japan develops the transaction and takes care of asset management, the local office will take care of the fund. They are fully comfortable putting their money into our financial product even if the bond conditions are a bit lower. This is our brand reputation.


What is the benefit of having a private finance model? Why have you chosen it?

We bought back public funds recently, but we usually use both for the long-term. The returns for both public and private funds in the short-term are so different. If we have a product and we sell it to the public and private funds, capital gains from private funds are much higher, but at the same time, we have a responsibility to keep and grow the public fund. The public funding structure has a kind of guaranteed cash flow. If the project fails, all the downside will come to us, not the investors.  This is the reason why we decided to buy back, but in the long run, we should have public funds because theoretically, private and public funds are structured differently. A public fund is an equity market. This means we have to pay them back. In a private fund, we have to pay the whole amount to the investors. If the market is huge, private funds might not be able to cover everything so we might need additional public funds to complete it. When we use public funds, we are not sure of the conditions in the Tokyo Stock Exchange.


We would like to ask a little bit more about the project in Spain. We would like to know how that is progressing and learn more about your international operations.

Our company has learned from international global players and now we feel like it is time to expand abroad. Japan is about three years behind Europe and the United States. If we go to Spain and the United States right now, we can learn from their business model and apply it in Japan.

We already have 10-year experience in Japan and we have just started in Europe. We have already hired seven Spanish workers, which is very rare for Japanese companies to do.


You mentioned developing synergies by bringing back technologies from overseas into Japan. What can Japan offer overseas in return for its technologies?

We can offer speed. For over 10 years, our focus has been on solar development. We are focused on larger projects like high voltage or 30 GW operations. We priced 15 GW from 13/30 projects. This is the highest number in Japan. We were able to do it because of our technologies and database. We have a good eye to judge quickly. I also find people who can finance and talk to local banks in English. Most Japanese businessmen might hesitate to talk to Wall Street people, but my background and network can help me deal with them as needed.


Among all the countries in Europe, why have you chosen Spain?

Due to the Covid-19 pandemic, Japan and many developers have a shortage in labor. They started to sell their products to us and others, just like they do in other countries. One of the global developers came to us and wanted to join our team. They have a variety of client portfolios but we chose Spain, America, and Australia. We wanted to stick to the older and established countries because it is easier to gain financing. We studied all three markets and we started doing business in Spain. The problem with the Spanish market is that they are ahead. When I went to Spain 3 months ago, I realized that we might have entered the market a little bit late in the game but I believe we still have opportunities to catch up. Some investors have already left the market because the market is too hot, but I believe we still have room.


Are you interested in hiring other foreign workers that can help you further your business in terms of engineering?

From our company's point of view, our workers do not need to be Japanese. We do not discriminate with age, gender, education or nationality. Our most recent hire is an Italian. Our founder and partners are Chinese. I believe that the smartest person in our company is Chinese. He created the database. He is the one who priced 13 GW. We have one solution, which we call RJ Academy. We hired three engineers from vocational colleges. It is very difficult to hire in this area but we were able to hire three engineers as a new company. In RJ academy, we tell the students and teachers that within 10 years, they can become licensed engineers. At the same time, we have to teach them because many of the engineers are aged 65. They might have been licensed but from our standard, their quality is not high enough for our standard engineers or special O&M, so we want to retrain them and help them become professional engineers. At a certain point, they can get a job anywhere.


If we come back three years from now and have this interview all over again, what would you like to tell us and tell all our 55 million readers? What is your goal for the next 15 years?

Three years from now, I hope I can tell you that I was right in believing in renewable energy in Japan. I also hope that three out of the 5 issues we are facing have some solutions by then.