SPECIAL FEATURE 2 Thriving Amid Competition

Enhanc

Osaka Gas Co., Ltd. 16 Competitive

Our energy consulting capabilities, backed by technological know-how, are ‘‘ one of the greatest strengths of Gas to stimulate customer demand and provide an optimal combination of products and systems developed to solve a specific problem.’’ FAQ:6 What are the com- petitive strengths of Osaka Gas?

FAQ:7 ing Our Acquaint us with the Company’s efforts in the commercial and industrial fields.

Osaka Gas Co., Ltd. Edge 17

This highly efficient 1MW class engine (made by Jenbacher AG) incorporates the latest technologies for a power generation efficiency of 41%. Market Development for Cogeneration Strategy for Development of High-Efficiency Engines

Electricity(kW) 50 Future goal for development of high-efficiency engines

Generating ef Proposal of large 40,000 Proposal of Customers high efficiency cogeneration systems cogeneration with surplus capacity for systems that ficienc commercial power sales 30,000 produce electricity FY04-05.3 High-efficiency engine development is in progress

as primary product y rate (%) Paper, chemical 20,000 Machinery, industries metal, chemical industries 10,000 40 Proposal of cogeneration systems FY03.3 High-efficiency engine has been commercialized that are used with oil boilers and produce electricity as secondary product Lean burn GE Paper, pharmaceutical, Conventional simple chemical industries cycle cogeneration Ternary catalyst GE 0 25 50 75 100 30 Steam (t/h) 1,000Output (kW) 10,000

STRENGTHS IN ENERGYEnhanc CONSULTATION equipment of 5-6 kW. 6 The Company is AND ON-SITE ENERGY SOLUTIONS making every effort to create demand through 6 The Company’s competitive strengths its detailed energy consulting services, which reside in its technological prowess and solu- provide advantages to customers through co- tion marketing skills. We believe that the key generation systems. to growth at Osaka Gas is its energy consult- ing capabilities, which identify and solve CREATING DEMAND FOR COGENERA-

Osaka Gas Co., Ltd. 18 Competitiveproblems faced by customers through the pro- TION IN DIFFERENT MARKET SEG- vision of optimal, customized systems devel- MENTS oped using the Company’s accumulation of 7 In the commercial and industrial fields, technological capabilities. we continue to create demand by proposing In tandem with the increasing significance solutions and developing technologies and of deregulation and environmental issues, products centered on the strategic areas of demand is growing for cogeneration systems cogeneration systems and air-conditioning at customer locations as a solution for the systems. The market for cogeneration systems on-site generation of electricity and heat. Co- is one of great potential for creating new de- generation systems offer three attractive ad- mand in various sectors. vantages: lower utility costs via energy Osaka Gas is able to propose optimal sys- conservation, reduced CO2 emissions, and tems according to industry type, even for cus- energy supply stability. tomers that need large-scale cogeneration Gas-powered cogeneration systems, where systems in plants. For instance, the Company we have accumulated more than 20 years of offers cogeneration systems with high power R&D and marketing expertise, represent for generation efficiency for such industries as Osaka Gas an increasingly strategic field. machinery and metals, which use more elec- Osaka Gas boasts an installed capacity of over tricity than heat. For papermaking, pharma- 1,100MW, and provides a product lineup that ceutical, chemical and other industries that meets a wide range of demand, from large- use mainly heat, we propose cogeneration scale facilities of several megawatts to small systems that mainly produce heat based on FAQ:6 our regenerative burner technology. TOWARD THE CREATION OF A NEW What are the com- We install large-scale cogeneration systems COGENERATION MARKET petitive strengths of at customer sites, and when customers gen- 7 Using the technological capabilities, erate more electricity than they need, we buy products and maintenance know-how of the Osaka Gas? this excess electricity from them and sell it Osaka Gas Group, the Company is focusing on the open market. These commercial en- efforts on the creation of new markets such ergy sources and cogeneration systems pro- as biogas cogeneration systems. Biogas can vide cost and environmental benefits to be generated from urban garbage, wastewa- customers through the introduction of cogen- ter and organic industrial waste. Of these, the eration systems, and also provide Osaka Gas organic industrial waste field has high needs with the benefit of securing an electricity pro- in the restaurant sector. Enacted in May 2001, FAQ:7 curement source. the Food Recycling Law requires at least 20% ing Ourof food waste to be recycled by 2006. Cur- Acquaint us with the We are also working to commercialize co- generation systems for medium- and small- rently, only about 1% is recycled. Biogas co- Company’s efforts in scale demand in the commercial, public and generation systems contribute to the achieve- the commercial and medical sectors. The Company released the ment of this recycling target by producing industrial fields. Gene-Light Series of compact 9.8-kW cogen- electricity and heat from food waste. eration systems in 1998, and followed up with

Osaka Gas Co., Ltd. 22-kW, 6-kW and 5-kW models in 2002. In OSAKA GAS PROVIDES FINANCING AND Osaka Gas Co., Ltd. Edge 19 2003, we plan to announce an 8.0-kW model. MAINTENANCE SERVICES By expanding its product lineup with so many 7 Our industrial customers are increas- models, Osaka Gas is gradually acquiring ingly expected to restrict capital investment customers from franchise restaurants and in fields other than their core businesses and medium- and small-scale office buildings. to reduce general and administrative costs.

General View of Natural Gas Cogeneration

Power generation system (Traditional) Cogeneration system

Thermal power generation Cogeneration Electric power plant Gas plant

Pipeline Primary energy 38 Primary energy Electric (petroleum oil, natural gas, coal) (natural gas) Energy Electric 100 energy 100 4 Efficiently usable Lost energy waste 58 heat

Waste heat Waste heat Energy Use Energy Use 38%

Note: Power generation efficiency is calculated using fiscal 1999 results (LHV standard). Sales Projection for ECOWILL

(Thousands of Units) 6

5

4

3

2

1

ECOWILL is a real solution for residential gas engine cogeneration systems. 0 Enhanc’04.3 ’05.3 ’06.3 Osaka Gas works to create demand and im- air-conditioning market for existing build- prove customer satisfaction by meeting these ings. needs in the air-conditioning and cogenera- tion system fields. ANNOUNCEMENT OF RESIDENTIAL GAS In response to rising needs to restrict capi- ENGINE COGENERATION SYSTEM 8 In March 2003, Osaka Gas announced the

Osaka Gas Co., Ltd. tal investment and keep assets off the balance 20 Competitivesheet in recent years, Osaka Gas is offering a industry’s first residential gas engine cogen- popular facility installation plan in the form eration system ECOWILL. The system incor- of a consumption-linked scheme (no initial porates a 1-kW gas engine developed by cost solution), which holds down initial costs Motor Co., Ltd. and a system that uses for customers through leasing. Including fi- an exhaust heat utilization system jointly de- nancing, this is a framework where the co- veloped with Gas Co., Ltd. and NORITZ generation system is owned by Osaka Gas, Corporation. The system has an overall en- eliminating costs at the customer for con- ergy efficiency of approximately 85%, and struction and the system itself, and the cus- adaptive functions that adjust according to tomer pays energy service fees in line with past energy usage patterns (self-learning power generation volume to Osaka Gas. function). The Company plans to sell 12,000 To reduce maintenance costs and quickly units over the next three years. discover and prevent equipment breakdown, We are working toward the commercializa- we offer energy management services that use tion of residential fuel cell cogeneration sys- 24-hour remote monitoring and control sys- tems in 2005. In June 2003, we signed an tems. agreement with Ebara Ballard Co., Ltd., Moreover, our new air-conditioning system Sanyo Electric Co., Ltd., Interna- Quick Multi is able to use existing cooling tional Fuel Cells Corporation and Matsushita ducts, allowing for low-cost, highly efficient Electric Industrial Co., Ltd. for the joint de- air-conditioning system replacement. We are velopment of a polymer electrolyte fuel cell concentrating our marketing efforts on the (PEFC) cogeneration system for residential FAQ:8 use. In the fiscal year ended March 31, 2003, ing services that only Osaka Gas can offer. prototypes of cell stacks and systems made by Our mainstay strategic products include What initiatives are each company in the alliance were tested at residential cogeneration systems, hot water underway in the Osaka Gas, verifying their potential for com- floor heating systems, bathroom heaters and residential field? mercialization during the fiscal year ending driers, fan heaters (forced air space heaters), March 31, 2006, based on the achievement and glass-top stoves. To further stimulate de- of technical benchmarks for durability and mand, we lowered the average rate for small- reliability as well as on a projected cost basis scale customers by 5.91% in February 2003. after commercialization. Based on these re- We also expanded our offering of rate sched- sults, Osaka Gas plans to continue develop- ules, introducing the special rate plans for ment toward commercialization and to create residential customers using gas hot water a contract for joint development from the fis- floor heating systems and ECOWILL cogen- cal year ending March 31, 2004, with a manu- eration systems. We are making efforts to re- ingfacturer from among the four-companyOurduce costs by improving the quality and alliance that agrees with the Company’s prod- efficiency of services through IT. uct commercialization schedule. One benefit we provide to customers is the use of home services offered by the Osaka Gas COMPETITIVE MEASURES IN THE Group. We are examining the provision of RESIDENTIAL FIELD services unique to the Osaka Gas Group

Osaka Gas Co., Ltd. 8 The residential gas market is under in- through synergies in non-energy operations Osaka Gas Co., Ltd. Edgefor individual families, such as home secu- 21 tense competition with homes that use elec- tricity for all their energy needs and rity and condominium management and induction-heating cooking appliances. Osaka maintenance. Gas is increasing its competitiveness by in- troducing strategic products, creating rate plans that appeal to customers, and provid-

New Technologies to Meet Demand for Gas Cogeneration Areas where increased use is expected PEFC, gas micro-engines Gas micro-turbines High-efficiency gas engines, turbines

100 Small commercial facilities Large commercial facilities Industrial facilities 90

80 Industrial plants 70 Convenience stores Offices, Shops (Metals, Machinery) 60 Areas where cogeneration is already in use is already Areas where cogeneration

50 Industrial plants Fast food, Restaurants (Paper, Foodstuffs) 40

30 Hospitals, Hotels Residential Electricity as percentage of energy demand (%) 20 Public baths District heating and 10 cooling system 0

10 100 1,000 10,000 Generation capacity (kW) (Note) PEFC: Polymer Electrolyte Fuel Cell