With 70 years of experience in the Japanese domestic market, Tokyo Energy & Systems Inc. (TES) specializes in the design and construction of thermal, nuclear, and hydroelectric power plants. President of TES, Tsutomu Kumagai, discusses investing in the ASEAN power grid, Japan’s competitive advantages over South Korea and China in power infrastructure, and the deregulation of the energy market in Japan.
Japan is ASEAN’s second largest trading partner and the second largest source of foreign direct investment (FDI) to the region. In terms of energy infrastructure, it is estimated that the ASEAN requires $2.5 trillion of cumulative investment by 2040, an annual average of almost $100 billion in order to enhance energy security and sustainability. Taking into account such events, Japan’s decreasing population, Asia’s demographic bonus and the infrastructure needs in Asia (particularly in the ASEAN), what potential and growth opportunities do you see in the region?
The domestic energy market is slowly decreasing, however, there is a growing demand in Asia. As not all Asian countries have enough access to clean and convenient energy, there is a need for stable electrical supply. Many regions still suffer from inexistent energy supply systems and the systems currently in use tend not to have the required capacity to sustain the region’s development.
For our expansion towards the ASEAN region to be accomplished in a sustainable manner, we cannot only focus on the infrastructural development for the distribution capacity, but we must also ensure that the distribution at stake is accomplished by abiding to high-quality standards.
Another main component in this context is global warming, which implies setting in place stable and technologically advanced energy delivery systems. Thanks to the innovative features of these new systems, we can significantly reduce our environmental impact. So instead of simply replicating or expanding the old delivery systems, we ameliorate them. From my perspective, Asia has the potential to develop and install the most efficient energy technology known to society.
There is a lot of competition coming from the rest of Asia, for instance China or South Korea. From your perspective, which are Japan’s strengths over these countries?
It is a fact that both China and South Korea are rapidly growing countries, both in terms of investment capacity and technological expertise. However, I recognize that while both China and South Korea are experiencing significant economic growth, Japan has developed a competitive edge thanks to its accumulated knowledge and experience.
Japanese quality is significantly higher due to an acute attention to detail and a continuous effort to innovate, which creates a considerably lower ratio of power failure within the transportation grids. However, that focus on quality is also reflected on the price tag and makes our services more expensive to acquire.
Nevertheless, if we look at the full lifecycle cost of Japanese infrastructure, there is a fair possibility that it will become cheaper over time because it requires less maintenance and technical intervention than what these two competitors offer.
We implement infrastructural projects that are sustainable over time. Thanks to our continued support services, we supply the maintenance required to create long-lasting projects.
Having a proper energy infrastructure in place generates better living standards for the local population who will benefit from a tool that allows them to both produce and distribute energy in the best-fit manner.
Energy systems are not just about putting a power grid and support hardware in place. It is also about making available to future local operators solid tools and support services (in which there is no match in the market to the Japanese portfolio) that enable them to manage such infrastructure in a flexible and sustainable way.
Since its establishment, Tokyo Energy & Systems Inc. has continuously been evolving, adapting and helping to develop high quality thermal, nuclear and hydroelectric power plants among others. Furthermore, its more than half of a century of history and expertise in the sector has proven its capability of fulfilling with customers’ expectations. Could you tell us how the company has evolved over the years? How would you assess the success of the deregulation of the electric power industry and how has it affected your company?
We started our activity immediately after WWII by focusing on the development of power stations, nuclear-powered and hydroelectric energy production and distribution units.
The energy sector in Japan has evolved and changed with regards to environmental concerns, and we have followed its trends to deliver solutions that produce cleaner energy.
Our competitive advantage is based on the fact that we have the ability and capacity of continuously enhancing our services through R&D and innovation in order to meet our clients’ needs. That fact enabled us to promptly and effectively respond to the Fukushima nuclear accident by supporting the reestablishment of Power Supply to the people in the regions facing power shortage after the Great East Japan Earthquake.
On the occasion of the Fukushima accident, you may have heard the story about the courageous 50 individuals (electrical engineers) that despite such an extremely dangerous situation stayed at the power stations to cool the damaged facilities down. Amongst those, there were 9 from our team.
Out of that context, we have earned a reputation of always placing society’s and our clients’ interests before any other. This incident contributed to enhancing our systems and solutions to better cope with situations of crisis by aiming at a quick re-establishment of power supply towards the regions in need. It also contributed to our philosophy of always keeping and pursuing safer energy systems.
What are Tokyo Energy & Systems Inc.’ main competitive edges?
To begin with, and following the Fukushima crisis, the Japanese Energy Sector has undergone an adaptation process.
This led our clients’ needs and awareness to evolve, and it also encouraged new companies to enter this market. While such clients do not merely expect us to deliver an off-the-shelf solution, many await us to provide support/cooperation for the proper design and architectural planning in advance for them to review. Furthermore, they expect us to ensure proper operational and maintenance support services fine-tuned towards their specific needs and expectations. This has a positive side effect on allowing us flexibility and a competitive edge when facing competitors.
How would you assess the success of the Japanese deregulation of the electric power industry and how has it affected your company?
The de-regulatory event of 2016 generated additional competitors and impacted costs as well. There have been new players entering the market who also installed solar and wind-powered energy facilities, but also new clients – whom we ended up benefiting from – since there is new potential for support and maintenance services towards those new customers’ installed infrastructure capacity.
Nevertheless, the overall domestic market is limited, which means there is no perspective for much further growth and that is why now we need to focus on expanding overseas, where the market has huge potential, by providing our expertise to other countries.
What research approach have you adopted in order to enhance innovation across the company?
Being a construction company targeting the energy market, we do not make specific products independently using our innovative technologies on a global basis. However, our R&D department focuses on the specific needs posed by our clients, tailoring solutions accordingly to a need basis.
One specific example pertains to one client that wanted to install a turbine for a thermal power plant without overly depending on human intervention. Considering this client’s needs, our R&D department modified an automated sensor connecting a device for wireless communications. This modification enabled the client to properly grasp the current situation of the turbine’s installation through the remote-controlled operation. Thus, we focus our R&D efforts and endeavor on a client-need basis.
Which is the company’s mid-term business plan or growth strategy?
Although it is a very interesting question, what I can say right now is that we are, and we will continue to shift our offering portfolio from mainly focusing on energy companies towards a wider array of market players who may benefit from our services and products.
By widening our target market, we have come to understand that many countries can make use of the knowledge and experience Japan has accumulated to attain economic growth using electric energy, and that is where we can add value both towards operation and maintenance support requirements.
As I have previously mentioned over the course of this interview, the ASEAN market bears a huge potential which derives from the large need of improving the management of its existing energy landscape. Furthermore, the ASEAN has the potential to build the best electrical infrastructure in the world, using a large scope of energy sources towards a more efficient supply (fewer losses and better productivity at lower operational costs).
Last year, our company established two joint venture companies in Thailand: SCI Enesys Co., Ltd. and TES Practicum Co., Ltd. Through these two companies, we intend to provide various services and solutions to clients in ASEAN countries.
We have recently created our Vision 2030 plan for an in-house reference, which we are promoting and sharing internally with our employees explaining our strategic approach towards accomplishing these goals.