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From 100 years of tradition to 100 years of future

Interview - August 18, 2022

When it comes to the construction and maintenance of power transmission towers and electrical equipment construction, ETS Holdings knows no limits as they expand their technological know-how to meet the needs of society

NORIAKI KATO, PRESIDENT AND CEO ETS HOLDINGS INC.
NORIAKI KATO | PRESIDENT AND CEO ETS HOLDINGS INC.

Can you please briefly introduce your company to our readers?

There are three areas I would like to introduce about our company. The first is power transmission, the second is renewable energy, and the third is new technologies. We are celebrating our 100-year anniversary and our core business and specialty is transmission distribution. We work closely with Tokyo Electric Power company & Tohoku Electric Power Company because Japan does not use the grid system like Europe. Because Japan is an archipelago, we use the horizontal system starting from Hokkaido to Kyushu. The upper generation is between Tohoku-Tokyo.

One of our strengths is in human resources. Currently, there is a lack of manpower in the) actual construction and be involved in connecting the lines. Normally, this work is outsourced if companies do not have the resources, but because we have the manpower, we dispatch technicians to problem areas to check the status and fix problems. Outsourcing costs money.  Having experienced and skilled workers allow us to facilitate knowledge and skill transfer and educate people to develop human resources for our company. Because of this, we can also enter overseas markets such as Malaysia and use local resources on site. We normally use the local language to train and educate locals, and they really appreciate that. They also appreciate the technical expertise that Japan can offer. Our main business is in Japan, but we are focusing on South East Asian markets in Malaysia and Myanmar for our international business.

Mongolia is not very advanced in transmission distribution, but we have two employees working with us right now who graduated from a top university in Mongolia. Right now, even those who graduated from the top universities do not necessarily have exposure to the technical aspects of power distribution, so we try to take these new graduates and train them by working with us. When they go back to Mongolia, they can contribute their technical expertise to their local transmission distribution. In the future, we are considering markets in Africa. We want to work with African people and help in their development.

The weakness of Japan’s transmission grid is its segregation. For the longest time, we did not have a strong system to connect all the power companies, but after the Great East Japan earthquake, the government created the Organization for Cross-regional Coordination of Transmission Operators (OCCTO) to remedy this situation. Right now, they are focusing on boosting the power grid connection between Tohoku-Tokyo and Akita-Tokyo via Yamagata. In Akita, they have an offshore wind project under construction.

 

Renewable energy power plants, such as wind and solar, are not constant. They depend on the natural environment, so there is no stable generation. Sometimes, there is a lot of energy but if there is no demand, the energy goes to waste. One of renewable power's biggest challenges is balancing supply and demand. Do you agree with this assessment, and what do you think are some solutions for this challenge?

It is true that renewable power sources are unstable. The Japanese government's solution is to have storage using hydrogen and strengthen the transmission grid system so that we can bring the power supply to where the demand is higher to balance the supply and demand. If you look at the Nikkei article that came out on January 3rd, there was a huge part that talked about the need to strengthen transmission power grids.

 

It is widely publicized that it is very expensive to invest in renewable energy here in Japan. Currently, the cost of solar is double that of Germany. The government has created Feed in Tariff (FIT) system which provides a purchase guarantee to renewable energy firms to establish infrastructure. According to some commentators, renewable energy still has not taken off to the full extent that it should have. What is your current assessment of the financial incentives for renewable energy?

Initially, there were a couple of problems regarding FIT which started in 2011. This year, they finished it and changed it into FIT Premium. It was initially very expensive because the investment construction cost is high in Japan, but now that the construction cost is lowering, there is now a measure of competitiveness in relation to the initial investment. Many companies participated with FIT at first, but we are now at a point where the most competitive firms are the ones remaining. I do not think that we have the best policies. When corporate Power Purchase Agreements (PPAs) like Amazon or Apple buy energy, they build the facilities or infrastructure. This decreases the supply and demand within the company. This is from an economic perspective instead of a government-sponsored program. Still, it is more expensive than Germany and other European countries.

 

Since the United Nations COP26 conference last year, renewable energy has become the theme in the energy industry and rule book was established as to how countries will be held accountable for the Paris Agreement. Mr. Suga stated that Japan must be carbon-neutral by 2050, and the government has introduced a strategic energy plan which calls for 38% of renewables by 2030. With a unique topography, lack of natural resources and prone to natural disasters, what kind of renewables do you think is most ideal for Japan, and what can your firm contribute in terms of technology?

Perovskite solar cell is a new technology that Japan is taking the lead on. It is very efficient and also cost-effective. It could be used to create solar paint. You can paint it on a surface to generate power. We believe that this is going to be the standard in the future. For storage, there will be a shift from lithium to zinc or a solid state. Right now, this new technology is used in EVs, but I believe it will be applied to the science and energy fields in the future. I am getting a lot of input from experts and professors in the academic field. We have a very ambitious target for carbon neutrality.  There are different ways that we are trying to achieve this. One way is to raise the proportion of renewable energy to 37%. Another way is by energy conservation. For example, we purchased the rights of the forests for our Carbon Capture Utilization and Storage (CCUS) and this process helps us to offset the emissions into the atmosphere.  With a combination of these different approaches, we are trying to reach 100% carbon neutrality.

To achieve this by 2050 will be very challenging. We are focusing on transmission distribution when it comes to renewable energy. Carrying out our corporate responsibility will help us cover some ground, but we have to start somewhere. We are going to give it our all when it comes to realizing our goal of carbon neutrality.

 

Your company has invested in energy storage systems. You purchased shares in the Connexx Systems, a couple of years ago, which is next-generation energy storage. You also invested in SIRC which develops power sensors. Can you tell us a bit more about your venture business and the type of companies you invest in, and why you choose these companies?

We have to think about the growth of the existing business. In addition, we need to invest in new technologies to be ready for the changes that will affect us in the future. We have a few initiatives. One of them is establishing a new corporate venture capital looking for companies that we can potentially work with together. We always look into companies that we believe will create synergy with our business. We already started investing in three corporate venture capitals. The first is in storage because we think there is potential growth in that field. The second is related to measurement because, as I mentioned, energy conservation will be very important. The third is electrolyte solution. We are not expecting an immediate investment return in any of these areas, but we hope to see growth next year in strengthening the power grid area infrastructure, which would contribute to the increased ratio of renewable energy. Recouping investments in these three areas would be from a mid to long-term perspective, but we are doing it because we would like to contribute to society.



You work with both public and private clients such as The Ministry for Land, Infrastructure, Transport & Tourism (MILT), East Nippon highway manufacturers, Obayashi and Tokyo Electric Power Company (TEPCO). What synergies have you developed between your public and private clients? How has working with the government helped you in dealing with your private clients? Are you planning to enhance your presence in the private sector?

The public work projects are under government initiatives. Utility-related projects are a combination of the private and the public sector, where the government is heavily involved. Our private clients include Obayashi and the company creating the solar power infrastructure. For our core business, we want to expand the grid business related to private leading companies such as Mitsubishi Shoji. However, they need somebody to build the substation and the grid network. We have foreseen this need, and we have already positioned ourselves to expand in that direction. This is an area where we anticipate exponential growth. It also seems to be a better choice for our company compared to government or public projects. We do not gain much working with government-related projects. We might learn from long-term R&D projects funded by the government, but we are not expecting to receive a lot of money from them. If we want to focus on the technical aspects, we can learn more from working with the private sector.

 

Let us talk more about the transmission line and construction aspect of your business. Your company developed a unique raising method called the Enark 160. Could you tell us a bit more about this method? What are its advantages compared to conventional and other methods?

The conventional method requires demolishing the existing tower and cutting off the electricity. In some cases, if we have to change locations, we need to flatten the land and perform the necessary construction work. With the Enark 160 raising method, we do not have to do all that work. We just have to increase the height of the tower with our technology. Many Japanese towers built between the 1960s and 1970s are all old and need repairs and bolstering. Sometimes, we have to raise the height to distance it from the trees that touch it. We need resources to do our work, but we have resource shortage problems and budget can be an issue. For example, we have experienced a huge blackout in Chiba because a big storm collapsed two towers. We needed to make our repairs and strengthen the towers as soon as possible with limited resources. Our technical advantage is that we do not have to demolish everything or go through blackouts. We can do it in a limited amount of time efficiently. Depending on the location, if we do not have to involve moving heavy equipment, our method will be cheaper than the conventional method. The Enark 160 is used on a case-by-case basis. We see its huge potential with drones and robotics. Normally, a person would have to climb up the high infrastructure towers and join the lines. We are installing sensors on different parts of the body to study the person's movement. With the sensor results, we are hoping to use robotics to do the job. People are getting older, and there are issues with transferring technical skills and knowledge to the younger generation. If we can use robotics to simulate the same work, maybe we can reduce the resources required to finish a task.

 

In the energy industry, renewables are an intermittent power source. There is only a brief period where they can have the full use of that energy, such as the case with wind turbines. The need for operation and maintenance (O&M) is therefore critical to ensure reliable operation when power can be generated. Digital tools that can replicate what is happening in real life are seen as a solution. What O&M tools or digital-based tools are you providing your clients to help increase their operation efficiency?

Our digital technologies can be categorized into two areas. The first area is installing the sensors as a preventive measure to avoid any downtime. We are already doing this and everything is already installed in the cloud. The second area is monitoring the supply and demand. We need to determine how much power is being generated and where the demands are. Unfortunately, the construction industry is a little slow to adopt digital transformation (DX). If we can introduce new technology in the construction industry, it can be a game changer.

 

Are you looking for a partnership that can help you do that?

We have acquired three companies since I became CEO to acquire manpower and expand. We are also considering partnership as an option, and we are currently negotiating with a company that is strong in IT, especially with IoT such as sensors and communication. As for partnerships, we are looking at venture enterprises because big companies are slow. We do want to expand overseas as well.

 

Since 1958, your company has expanded in Danim and Saigon in Vietnam. You have done a very diverse array of projects in Iran, Laos, Peru, Indonesia, Myanmar, Saudi Arabia, and many others. Which regions or countries do you foresee your services being needed? Are you considering joint ventures or M&As to further enhance your company’s capabilities?

Southeast Asia and Mongolia are countries that can take advantage of our expertise and capabilities as a company. We would like to expand to African countries as well because we should share Japan’s excellent technology globally. It would be a shame to keep everything to ourselves. The language barrier does not hinder us from sharing our technology. I had a lot of opportunities to talk with competitors, but they are very traditional. They should take some risks because if they do not adapt, China can take over.

 

We have done many construction interviews with SMEs. We have seen that the construction industry in Japan is often traditional and conservative. You have a unique profile in that you are a lot younger than the other interviewees we had. You speak different languages, have lived in America, and have worked for a Chinese company. Not only that, but you are very diverse. You are taking risks in ventures and many other endeavors. What advantages does your background bring to your business that belongs to such a conventional industry?

We need to make changes and take the risk of creating something new. This is my message to all of my employees. Changing the mindset is very important. In life, there are critical moments where we have to make our own decisions, It can be very difficult, but they have to be made. Personally, I have always taken the hardest option.  The experience of overcoming difficulty and achieving success fosters growth.

I am a product of all of my experiences, and I would like to utilize those experiences to develop something new. Nothing is wasted in what we do. We might think that we are wasting our time, but we will value our experiences in due time. It is just like connecting the dots; I would like to use all my experiences to take on more challenges.

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