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Chubu Electric Power Company: In sync with country' power sector reforms [free access]

December 11, 2016

Chubu Electric Power Company (Chubu EPCo) is the third largest of Japan’s 10 vertically integrated Electric Power Companies (EPCos)—each of which is responsible for the supply of electricity in a particular region—in terms of power generation capacity, electric energy sold, operating revenues and total assets. The company was established in 1951 to cater to the energy needs of five prefectures in the Chubu region (central Japan), namely, Aichi, Gifu (excluding some areas), Mie (excluding some areas), Nagano and Shizuoka (all areas west of the Fujikawa River). Chubu EPCo has 33,168 MW of installed power generation capacity, most of it being thermal. It also has hydro and nuclear generation capacities. Chubu EPCo owns 12,261 km of transmission lines and 939 substations with a total capacity of 125,770 MVA. The company also has a distribution line length of 133,382 km.

 

Japan is presently formulating an evolution roadmap for the electricity sector to crack open the market, which has been dominated by the 10 vertically integrated regional monopolies for decades, and establish a more globalised market. The country is implementing a three-stage reform programme, the last stage of which entails unbundling the power transmission and distribution activities by 2020. Japan took the first step towards the reform initiative in 2014 with the establishment of a nationwide grid management body, Organization for Cross-regional Coordination of Transmission Operators (OCCTO), which coordinates with the 10 EPCos to review power supply and demand across the country and oversees plans to enhance the national transmission grid to facilitate power interchange among suppliers.

 

In line with the present deregulation phase, Chubu EPCo is in the process of changing the business environment within the organisation in response to the liberalisation of the electricity retail markets, the upcoming legal unbundling of the transmission/distribution sector and the large-scale introduction of renewable energy to its existing generation capacities.

 

Existing network

Chubu EPCo’s network operates at the 22-55 kV, 66-77 kV, 110-154 kV, 275 kV and 500 kV levels.

 

As of March 2015, the company owned a transmission line length of 12,260 km, marking a decline of 0.02 per cent over the 12,263 km it owned in the previous year. Around 52 per cent of the line length is at the 66-77 kV voltage level. Between 2011 and 2015, the company’s line length at 55 kV declined at a compound annual growth rate (CAGR) of 0.8 per cent from 1,679 km in 2011 to 1,626 km in 2015.

 

During 2011-15, the utility’s transformer capacity increased at a CAGR of 0.4 per cent from 122,571 MVA in 2011 to 124,770 MVA in 2015. The highest transformer capacity increase was witnessed at the 500 kV level during the same period.

 

The highest number of substations is at the 66-77 kV level (759 substations). The number of substations has remained stagnant over the years.

 

Table 1: Growth in Chubu EPCo’s transmission line length (km)

 

2011

2012

2013

2014

2015

55 kV

1,679

1,654

1,629

1,640

           1,626

66-77 kV

6,290

6,295

6,306

6,318

           6,321

110-154

1,910

1,910

1,908

1,904

           1,912

275 kV

1,431

1,496

1,511

1,511

           1,511

500 kV

890

890

890

890

               890

Total

12,200

12,245

12,244

12,263

12,260

Data is as of March for the mentioned year.

Source: The Federation of Electric Power Companies of Japan

 

Table 2: Growth in Chubu EPCo’s transformer capacity

 

2011

2012

2013

2014

2015

<22 kV

54

54

54

48

48

22-55 kV

2,627

2,604

2,595

2,595

2,607

66-77 kV

34,687

34,657

34,722

34,673

         34,682

110-154 kV

22,904

22,754

22,774

23,084

22,984

275 kV

38,700

39,150

39,850

39,850

39,850

500 kV

23,600

24,600

24,600

24,600

         24,600

Total

122,571

123,818

124,594

124,849

124,770

Data is as of March for the mentioned year.

Source: The Federation of Electric Power Companies of Japan

 

Table 3: Growth in the number of Chubu EPCo’s substations

 

2011

2012

2013

2014

2015

<22 kV

6

6

6

5

5

22-55 kV

67

66

65

64

64

66-77 kV

756

757

759

758

758

110-154

62

62

62

63

63

275 kV

39

39

39

39

39

500 kV

10

10

10

10

10

Total

940

940

941

939

939

Data is as of March for the mentioned year.

Source: The Federation of Electric Power Companies of Japan

 

Financial

In the financial year (FY) 2015, Chubu EPCo reported an operating revenue of JPY2,854 billion, witnessing a decrease of 8 per cent from the previous year. However, the utility’s revenues grew consistently at a CAGR of 4 per cent between FY2011 and FY2015.

 

The company witnessed a significant increase in its operating income from JPY107 billion in 2014 to JPY285 billion in 2015. In addition, the company’s net income witnessed a notable increase from JPY39 billion in 2014 to JPY170 billion in 2015. These increases are attributable to the expansion of accrued income incurred by the fuel cost adjustment system and the decrease in fuel costs due to the fall in fuel prices; the decline in thermal fuel costs in line with the expansion of hydroelectric power output; and improved management efficiency.

 

The EPCo’s capital expenditure declined at a CAGR of 1 per cent between FY2011 and FY2015. The company’s capital expenditure on transmission (including transformation) increased from JPY50 billion in FY2014 to JPY58 billion in FY2015.

 

Table 4: Chubu EPCo’s key financial indicators (JPY billion)

 

2011

2012

2013

2014

2015

Operating revenues

         2,449

         2,649

         2,842

         3,104

           2,854

Operating income (loss)

            (38)

            (14)

            (61)

            107

               285

Net income (loss)

            (92)

            (32)

            (65)

               39

               170

Note: The Company’s financial year is from April 1 to March 31 of the following year.

Source: Chubu EPCo

 

Table 5: Chubu EPCo’s capital expenditure on transmission (JPY billion)

 

2011

2012

2013

2014

2015

Capital expenditure

252.8

300.2

224.7

216.6

244.1

–Generation

128.3

167.2

110.9

116.9

126.9

–Transmission

25.5

21.8

23.6

19.1

22.1

–Transformation

32.3

52.1

32.4

30.9

36.0

–Distribution

34.0

34.6

35.5

35.0

43.9

–Nuclear fuel and others

32.7

24.5

22.3

14.7

15.2

Note: Data is as of financial year ending March 31 for the mentioned year.

Source: Chubu EPCo Investor Data Book 2014 

 

Recent initiatives

In line with the changing business environment resulting from the proposed Electricity Sector Reforms initiated by the government, the EPCo has put in place some significant management reform initiatives.

 

The company is making efforts to achieve the management efficiency target of JPY191.5 billion (average for three years from FY2014 to FY2016), which was incorporated into the calculation of the power supply cost to gain the government’s approval for the electricity rates. During FY2015, the company achieved a management efficiency of JPY226.8 billion, resulting in an increase of JPY35.3 billion over the initial target.

 

In April 2015, the EPCo, in partnership with Tokyo Electric Power (TEPCo), formed a company named JERA Co., Inc. with the aim to increase the utility’s presence in the fuel and power generation markets to enhance corporate value.

 

As part of the second stage of the reform initiative, the EPCo, in April 2016, fully liberalised its retail electricity market to expand retail competition to the residential sector. The utility also established in-house power generation, power network, and customer service and sales companies in April 2016. With these in-house companies operating in an autonomous manner, the EPCo expects to quickly adapt to changes in the power sector environment. The companies will also enhance measures to expand their business domains and survive the market competition in anticipation of future changes.

 

In addition, the company is expected to fully unbundle its transmission and distribution segment by 2020 as part of the third phase of the reform initiative.

 

Future plans and investments

Chubu EPCo does not have extensive plans to increase its line length or substation capacity. As per the company’s power supply plan, around 4,550 MVA of alternating current (AC) capacity and 900 MW of high voltage direct current (HVDC) capacity is planned to be added by 2024. Line length additions planned by the company are miniscule.

 

A key planned project is the 900 MW Tokyo–Chubu interconnecting HVDC project. Major components of the project involves the installation of two 450 MW AC/DC converter stations; 560 MVA converter transformers and a 500 MVA step-down transformer. It is expected to be commissioned by 2020.

 

Table 6: Planned additions to Chubu EPCo’s transmission network

 

2016

2017

2018

2019

2020

2021-24

Substation capacity

 -

2,200 MVA

450 MVA

 -

900 MW

1,900 MVA

Source: Chubu EPCo 2014 Electric Power Supply Plan

 

Summing up

Chubu EPCo has been in sync with Japan’s ongoing power sector reforms and has been able to leverage the reform moves to help the company reach the next level of its growth.