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Japan Power Market Opportunity is Knocking

December 8, 2020

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25+ Years in Risk 30+ Years in Global Mgmt. & Trading Power & Gas Markets Industry Experience Industry Experience CEO Commerce Energy Global Commodities COO ACN Europe Futures Markets COO TransEnergy Risk Management

Hiroshi Okuyama Peter Weigand Executive Vice President Chairman & CEO

• President of a Global Trading Company • PennWell Top 50 Most Influential in Energy Markets • Built & Managed International Growth • Inc. 500 Fastest Growing – 3 Times • Risk Management Expertise • 20+ M&A Transactions • International relationships • 8 Boards of Directors • Years in US Market Leadership Role • Japan Market Expert

Tokyo, Japan Los Angeles, USA [email protected] [email protected]

My Topics

. Market Structure & Players

. Retail Electric Markets

. Physical Wholesale Markets o JEPX o OCCTO

. Financial Trading Markets o TOCOM & EEX

. Price Analytics

Japan is the world’s largest fully liberalized electricity market.

TWh

Partially Liberalized 50 60 hertz hertz Fully Liberalized

Source: IEA

Non Regulated Regulated 2019 Japan National Electricity Demand Large High Others (GWh) High Voltage Low Voltage Special Demand Voltage Deemed Retail Electric Supplier (Utilities Subsidiaries) 217,243 232,303 112,014 142,837 2,238

PPS 12,676 69,509 47,218 Specific Supply(Demand) for Inter- Group(i.e. Industrial Complexs) 41,095

Total 229,919 301,812 159,232 142,837 43,334

Source:Anre 2019 Total National Demand 877,133

Regulator: METI (Ministry of Economy, Trade & Industry)

Generation Coal Nuclear LNG/Gas Fired Hydro Biomass Renewable Oil DR/Battery 166 IPP’s

T&D Companies (Utilities Subsidiaries)

TEPCO Chubu Chugoku Shikoku Hokuriku

Kansai Kyushu Tohoku Hokkaido Okinawa

Wholesale Markets

JEPX OCCTO TOCOM EEX

Retail/Trading Entities

PPS Balancing 684 27 Trading 76 + - Retailer - Group

High Voltage (C&I) Physical Customers Low Voltage (Mass Market) Trading

Supply, Billing • T&D Charges (energy + T&D) • T&D Payment • Imbalance Charges PPS T&D Utility Retailer Does not sell Enroll/ Switch energy. Wires only Meter Data company • Scheduling • Customer Switching Balancing • Meter Data Group OCCTO • Supply Services (ISO) • Scheduling • Balancing Key Functions Markets • Credit Sleeve • Switch Mgmt. • Capacity 2020 JEPX • Scheduling • Transmission 2022 • • • Spot (day ahead) Balancing Balancing 2021 • • Intraday (real time) Meter Data - Ancillary Services Generation • • Basis (east/west) - From utilities Negawatt 2018 • • Baseload (I year) Transmission • Non-Fossil Cert. Siting • Green Certs Bilateral TOCOM Auction Model Financial Not Clearing Model EEX Markets OTC © Skipping Stone, LLC. – All Rights Reserved 2020 8 Electricity Retail Market

. 86 Million Customers Eligible to Switch (all of them) . As of June 2020: 21.6 Million Switched since the liberation in 2016. . Averaging about 400,000 switches per month

Electric Customers Utilities Fast Facts Tokyo 29,031,000 . Whether selling end users or trading physical Kansai 13,607,000 power, each company MUST HAVE Chubu 10,580,000 - METI PPS License Kyushu 8,634,000 - OCCTO Membership Tohoku 7,715,000 - Wheeling Agreement with T&D Utilities Chugoku 5,243,000 . Each utility is a separate market Hokkaido 4,023,000 . Every switched customer gets a smart meter Shikoku 2,849,000 . All power supply is scheduled thru OCCTO Hokuriku 2,106,000 . Retailers bill customers, including T&D charges Okinawa 875,000

Rank in July Rank in MWh MWh Company Name RCE 2020 June 2020 in June 2020 in July 2020

1 1 Ennet 966,034 1,068,358 3,988,214 . 684 Licensed PPS 2 2 TEPCO Customer Service 882,022 960,323 3,584,916 3 3 Tokyo Gas 658,430 714,565 2,667,493 - Mass Market (low voltage) 4 4 ENEOS Corporation 485,048 542,237 2,024,188 5 5 Kyuden Mirai Energy 445,707 529,502 1,976,647 - C&I (high voltage) 6 6 F-Power 412,355 462,965 1,728,262 - Municipalities 7 7 Osaka Gas 336,167 414,420 1,547,043 8 8 KDDI 329,829 369,499 1,379,351 - Utility Subs 9 9 SB Power 257,330 300,707 1,122,549 - Physical Trading Companies 10 10 Eneres Power Marketing 250,860 271,241 1,012,551 11 Synergia Power Co.,Ltd. 238,959 11 262,913 981,462 . 12 12 Marubeni Power Retail Corporation 231,036 256,376 957,060 Bundles are Popular 13 13 Idemitsu Kosan 212,810 244,722 913,555 - Electricity & Gas 14 14 Haluene Co., Ltd. 192,643 235,473 879,028 15 35 CD Energy Direct Co.,Ltd. 73,280 196,004 731,689 - Club Points 16 15 Evergreen Marketing (EREX Co., Ltd.) 162,429 180,229 672,800 - Telecom 17 16 Mitsuuroko Green Energy 151,985 171,636 640,723 18 17 Orix 147,954 159,550 595,605 - Home Services 19 19 SymEnergy Inc.(Koyo Electric) 126,277 143,963 537,418 . 20 18 Kanden Energy Solution Co., Inc 130,325 141,262 527,335 Municipalities are a big 21 22 West Electric Power Co.,Inc 123,572 140,473 524,390 untapped market participant 22 20 Summit Energy 125,518 138,516 517,085 23 21 HOPE, INC 124,522 137,867 514,662 24 23 Nihon Techno 109,130 124,696 465,494 25 24 TOHO GAS Co., Ltd. 102,787 123,134 459,663 Source: Skipping Stone Monthly Japan Energy Market Report © Skipping Stone, LLC. – All Rights Reserved 2020 11 Wholesale Market

I. When retail markets fully opened in 2016, wholesale option then was only JEPX . At the time JEPX was only 3% of the physical market, now 42%.

II. Today Japan has several wholesale markets . JEPX – Spot (Day Ahead), Intraday, Indirect Transmission, Baseload, Forward, Non-Fossil Certificate . OCCTO – Capacity, Transmission (2021-2022?), Ancillary (opens April 2021) Nagawatt (2022) . Futures markets – TOCOM & EEX

. OTC market – growing steadily . Bilateral market – METI mandate forcing utility generators to play . IPP market – METI forcing IPP’s to unwind utility contracts and put generation in the spot or bilateral market

III. The number of trading firms has grown since 2016 . In 2016 there were about 20 active trading firms, today over 70 . International trading firms are entering the Japan market . Brokers and market makers have entered the market

 Spot (Day ahead) Market ---Flagship of JEPX . Most Actively traded in the exchange . Priced in 30-minute increment auctioned a day before . Each 9 regional utility market priced separately as such Tokyo, Kansai, Hokkaido, Tohoku…

 Trading volume on JEPX has increased significantly since full deregulation from 3% to 42% of total electricity generation

 Fiscal 2019 (April-Mar) Daily Average 799 GWh Covid-19  In August, for the first time over 100GWh was executed in one day.

 2020 April 1st – November 30 Daily Average 832GWh

Source JEPX

 Intraday Market  30-minute increment auctioned by one hour before same day (like real time)

 Indirect Transmission Market  Buy or sell differentials of prices of two regions apart.

 Baseload Market  One-year fixed price fixed volume auction  Held three times a year

 Forward Market  Exists, but very little traded (bulletin board model)

 Non-Fossil Certificates  4 Auctions a year with a floor price

Capacity Market . Launched in Summer 2020 . 3- year bid auction model . Retailers will be required to procure capacity for load served Transmission Market . Rules still under review, plans to launch in 2021 or 2022 . Main hurdle is utilities with preferred rights and ownership Ancillary Market . Called Supply Demand Balancing Market in Japan . Launching in April 2021 . Generation, storage, VPP and demand response can participate . This market will replace current utility back-up supply option for retailers Negawatt Market . This market will be tied to Ancillary Market in 2022 . Market already exists, but low volumes and odd rules . For example, DR aggregator must pay utility for load reduction derived from tariff customers . Anticipate retailers to become buyers to avoid peak spot prices or imbalance penalties

TOCOM EEX

Started in September 2019 Started in May 2020

. East Area Base Load . Tokyo Area Base Load . East Area Peak Load . Tokyo Area Peak Load . West Area Base Load . Kansai Area Base Load . West Area Peak Load . Kansai Area Peak Load . JEPX Spot (Day Ahead) Contract Month . JEPX Spot (Day Ahead) Contract Month Average for each area respectively Average for each area respectively . Contract Size 100KWh . Contract Size 1MWh . Contracts - Monthly . Contracts - Monthly(current and next 6 (15 Consecutive Months including month) + Weekly & Quarterly, Season, Current Month) Yearly with Cascading Feature . Cleared by Japanese Local Brokers . Cleared by Western Large Institutions

Monthly Volume and Monving Average (3months) (MW) Monthly Both Average TOCOM EEX Exchange Volume Combined (3months) Sep20-Dec20 44,867 44,867 11,217 Jan 2020 144,241 144,241 55,558 Feb 2020 19,782 19,782 58,413 Mar 2020 34,586 34,586 66,203 Apr 2020 36,732 36,732 30,367 May 2020 45,901 11,760 57,661 42,993 June 2020 111,052 104,520 215,572 103,322 July 2020 46,968 36 47,004 106,746 Aug 2020 28,656 58,464 87,120 116,565 Sep 2020 55,822 42,264 98,086 77,403 Oct 2020 92,663 111,492 204,155 129,787 Nov 2020 23,092 150,120 173,212 158,484

Open Interest (MWh)

TOCOM EEX TOCOM&EEX East West East West Kansai Kansai Tokyo BL Tokyo PL Total Area BL Area BL Area PL Area PL BL PL Jan-2020 107,407 17,568 21,504 514 146,993 Feb-2020 96,473 13,476 21,164 468 131,581 Mar-2020 72,461 9,578 21,776 403 104,219 Apr-2020 107,424 8,760 21,673 - 137,857 May-2020 105,168 8,040 19,238 - 11,760 - 144,206 June-2020 190,346 7,296 22,280 1,260 110,400 4,560 336,143 July-2020 195,103 6,576 20,453 1,260 73,200 2,400 298,992 Aug-2020 187,469 5,832 19,157 1,200 129,264 - 3,600 - 346,522 Sep-2020 178,392 5,448 19,138 7,274 87,408 7,320 - - 304,980 Oct-2020 178,392 5,448 19,138 7,274 162,936 10,920 23,484 - 407,592 Nov-2020 173,858 21,912 11,610 1,200 205,872 7,200 27,444 - 449,096

TOCOM EEX

Trade Participants 57 Trade Participants 14 Clearing Brokers (FCMs) 9 Clearing Brokers (Banks) 7

As of November 27, 2020 Total Open Interest 3221 lots Source: JPEX TOCOM Long Short Commercial 2875 lots 89% Commercial 1957 lots 61% Overseas Traders 316 lots 10% Overseas Traders 1264 lots 39% Retail 30 lots 1%

OCCTO Capacity Ancillary Physical Negawatt Financial Transmission

JEPX EEX Intraday Spot Baseload Both TOCOM Basis Futures Certificates Trading Partners Bilateral Swaps Options Others

23 Price Analytics

There is a very high correlation between crude and electricity price

Tokyo Area Monthly Electricity & Fuel Price Adjusted by Fuel Efficiency

Source: Trade Statistics of Japan, Japan Customs Platts JPEX

¥30.0 JEPX Tokyo Area Day Ahead 9/2019 11/2019

¥25.0 Jan-Feb 4/10,19/2019 2018 Shotupto ¥20.0 JPY60 4/7/20 Covid-19 ¥15.0 SoE

¥10.0

¥5.0 JEPX Tokyo Day Ahead Market JEPX Tokyo Day Ahead 30 days Average ¥0.0

2016 to 2020

Summer Summer Summer Summer Summer

Winter Winter Winter Winter

April 1, 2020 - October 31, 2020 JEPX Tokyo Area Day Ahead Price (¥/kwh) 60.0¥/kwh

50.0¥/kwh

40.0¥/kwh

30.0¥/kwh

20.0¥/kwh

10.0¥/kwh

0.0¥/kwh 4/1/2020 5/1/2020 6/1/2020 7/1/2020 8/1/2020 9/1/2020 10/1/2020 April 1, 2020 - October 31, 2020 Tokyo Area Temperature 40C

30C

20C High Over 30C 10C ⇐ ⇒ 0C 4/1/2020 5/1/2020 6/1/2020 7/1/2020 8/1/2020 9/1/2020 10/1/2020

Source JEPX

The Last 2 Months of September 2020 Futures Contracts

September 2020 Futures Contract Expiration on 9/30/2020

8/1/2020

The Last 2 Months of November 2020 Futures Contracts November 2020 Futures Contract Expiration on 11/30/20

10/1/2020 Source JEPX TOCOM EEX

Source EEX &TOCOM *EEX has longer maturity period contracts than shown as such EEX 2021 Summer Quarter, Season (Summer & Winter) and Year contracts. EEX 2021 Winter

My Topics

. Opportunity Knocks

. What’s Coming Next

• Diet • METI • Retail • Wholesale • Technology

. An Abundance of Opportunities

. Market Entry Models & Options

UK Where else in the world is there an EU AU US opportunity to join a large market that isn’t already mature?

I hear a lot of people say

(fill in blank) JP “I’m waiting for …………....” The international players who have already entered the market want you to fill that blank in with “forever”

Global Power Market Maturity Curve Retail & Wholesale Commodity Perspective

32 What’s Coming Next

. Zero Emissions by 2050 . Prime Minister Suga declared zero emission goal by 2050 in Oct 2020 . Market changes and new mandates just starting planning stages

. Restart More Nuclear . Been a goal to increase from current 9% of supply to 20% . Expect renewed, more aggressive approach to meet 2050 target

. Power Grid Disaster Recovery Upgrade Prime Minister Suga . With climate change Japan has more typhoons and earthquakes than ever . Disaster recovery is driver for funding for storage, microgrids, transmission upgrades

. Transmission Infrastructure Upgrades . Recent rule change allows for private transmission ownership . Upgrades needed to bring offshore wind to market . Government wants more transmission between utilities, currently very little

. Hydrogen . Relatively new initiative, group to pursue it recently formed . Government subsidies for pilots in the works

34 What’s Next – METI Viewpoint

. Move to Feed in Premium, Delete FIT for Renewables . FIP Based on JEPX Formula . Utilities no longer required to buy output

. Subsidies for VPP, Microgrid, Storage . Key element of disaster recovery and net zero goal . Grants, tax breaks, etc.

. Offshore Wind . First auction held . Second auction shortly

. Faster EV Adoption . EV goal of 50 to 70% by 2030

. Create New Market Participant – Aggregator . Grid Edge (VPP, Storage, etc.) & IPP’s . METI mandate for IPP’s not to renew with utilities

. Increase Wholesale Liquidity – Eliminate Unfair Practices . Utility retailer can no longer buy under market from utility generator . Utility generator being pushed into JEPX or bilateral by METI

35 What’s Next – Retail Viewpoint

. High Voltage Customer Subsidies Ending . Utilities no longer allowed to sell “special deals” . Most contracts roll of by the end of 2021

. Municipality Partnerships . Over 100 municipalities with PPS license, very few active . Besides selling electricity to citizens high interest in storage and microgrids

. Migrate from M2M Variable to “hedge” Pricing Plans . Retailers (especially low voltage) are selling M2M variable, but want to differentiate . Most don’t know how to trade, hedge or use wholesale markets to structure

. Beginning of Retail Consolidation . 2020 saw 4 acquisitions of little fish by big fish . Expect that number to grow a lot more

. Early Stage of C&I Broker Model Adoption . Customers have no expertise in buying electricity, want help . High voltage retailers now entering commission deals with brokers

36 What’s Next – Wholesale Viewpoint

. Both Futures Markets Significantly Increase Liquidity . Easy prediction, already happening

. Increase in Traders Participating in Both Physical and Financial Markets . To maximize opportunities, doing both makes sense

. Trading Companies Partnering with Renewable Generators . Natural fit as generators don’t typically understand how power sales works . Also fits partnering with IPP’s who are leaving utility contracts

. Trading Companies Providing “Hedge” Price Plans to Retailers . We see this dynamic everywhere else in the world, Japan won’t be different

. More Grid Edge Assets (storage, microgrids, etc.) Participate in Wholesale . Makes sense to increase revenue stack with wholesale options . Another reason for trading companies to play in the physical market

. LNG/Power Trading Grows Substantially . The correlation and arbitration opportunities too good to pass up . More gas fired generation in Japan will need LNG and power pricing protection 37 What’s Next – Technology Viewpoint

. Grid Edge Hardware & Software and/or Business Model Growth . Government funding, wholesale revenue potential, need I say more?

. Increased Market Data Access for Analytics Solutions . METI approved a slate of data for more open access . Databases of market information now exist and are growing

. Transaction Management & Risk System Growth . Interest in risk management and systems for Japanese companies is very high . Before market got complex, Excel was just fine

. Dramatic Increase in Japanese VC Funding . Used to be one, now there are about 10 energy funds

. Next Gen Retail Systems Growth . Level of sophistication will go up with more pricing plans (hedge products) . Complex requirements for commodity, VPP, green certs, etc.

38 An Abundance of Opportunities

ETRM Solution Retail Hedge Services Municipality Partner SaaS Model Trading Renewable Generation BPO Model Finance Retail BPO Services Systems Integrator Asset Options Billing/CIS Microgrid & Storage

Microgrids & Storage Consultant Analytics Solutions Hardware This is Grid Management Finance a Terrible Generation Control Systems Opportunity Trading Aggregator Retail

Electric Vehicles C&I Broker Transmission Hardware Energy Management Finance Software Software O&M Blockchain Recurring Revenue Control Systems Aggregator Platform Play Aggregator

Too Obvious to Highlight: Retailing & Trading 40 Market Entry Models & Options

Planning Stage

Market Research Business Case – Project Team Plan Strategy - Plan – Budget Approved (Buy, Build, Partner, Combo)

Incorporation in Japan Local Presence: Leader Localize the Sales – Marketing – Office – Website – Email, etc. Solution Partnerships

Technology Player Buy, Build, Partner, Funding

Incorporation in Japan Local Presence: Staff – Office – Systems Implementation Website – Email, etc. Hiring and/or OCCTO Membership Outsourcing JEPX Membership METI PPS License Counterparty Utility Wheeling Agreements Agreements Physical Commodity Market Player Buy or Build Option

42 Trading Participation Models

Requires a Requires a Requires an Requires Need at least Physical and Japan METI PPS OCCTO & utility one person in Financial corporate license JEPX wheeling Japan entity membership agreements

Financial No need to Japanese Limited to Could trade ….. hard to be in Japan company TOCOM & other do if you Only not required EEX trading derivatives – aren’t in but…… Japan

I. The Japanese welcome international newcomers but expect you to do business the Japanese way.

II. If you are doing research using Google, you will be frustrated because there is very little in English

III. If you use Google translate to convert Japanese documents into English, you will be misled

IV. Use Google translate to convert English to Japanese, and give it to someone, you will be embarrassed

V. Don’t use a law firm to apply for a METI license or OCCTO membership, you will be sorry

VI. Most people think they should visit Japan before deciding to enter the market, you don’t

VII. The level of person you first meet with at a Japanese company dictates your odds of success

VIII. Being introduced and how you are introduced is critical

IX. It’s true, very few Japanese speak English, in a meeting they may nod, but that just means they hear you

X. The Japanese prefer to do business with other Japanese, keep that in mind when you are planning

Lessons based on 6+ years in Japan, over 70 weeks personally and 15+ market entry projects

We would like to hear about your Japan plans, share more of our knowledge, and explore how we might assist you in entering the Japan market.

Peter Weigand Hiroshi Okuyama Chairman & CEO Executive VP, Japan [email protected] [email protected]

Bridging Global Energy Markets