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2 July 2020

NTT leap into energy will offer renewables, batteries, EV recharging

Outsiders from Japan may shrug at the idea announced today that telecoms giant NTT will enter the energy market in partnership with Mitsubishi. But this is not like Deutsche Telekom or AT&T entering the energy market, this is a virtual monopoly that has a 50% plus market share in all types of broadband, fixed line and cellular networks, it has 300,000 employees, and has pioneered its own technologies and phone designs, and is used to not just winning, but dominating.

The announcement came from both businesses, and while it is fairly unambitious as of today, spending just $9 billion over the next 9 years, the moment that NTT gets its teeth into this market, it could opt to spend two or three times that amount of money, as long as the return on investment is right.

The company plans to build its own generating facilities using renewable energy, and then sell that directly to the public and will set up its own transmission network. The likely outcome is that the regional utilities in Japan could be pushed into price cuts, consolidation and new business models.

The diagram below was provided in the press release, and shows how the business is not just about using Mitsubishi’s skills in wind energy, but also takes the model onto the high street, and involves cloud applications which sit in the middle of home supply, and EV charging units, and potentially use the phone to pay for services and for identification.

NTT says it will be generating some 7.5 GW of electricity by 2030, but given that Japan has 327 GW of capacity driving a static, to falling, electricity demand, currently about 1000 TWh a year, and that much of it today is from imports of both coal and gas, having weaned itself largely off nuclear since the Fukushima nuclear accident, it could end up with many times more. If NTT adopts a build and maintain approach that investment level may be right, but if it adopts an approach of buying existing stable generating assets, it could choose to go much faster.

The country has strong hydro generation with about 27 GW but its advanced FiT strategy on solar has been hugely successful, and it is expected to have some 70.6 GW of solar, much of it residential of small scale, by the end of this year, still ahead of the USA, and second only to China globally, although both the USA and India are expected to overtake it within 5 years. But that still leaves coal and gas dominating electricity supply with wind and solar on just 5% of total output between them.

Mitsubishi Heavy Industries is a global player in wind and partners for overseas offshore markets with Denmark’s Vestas in Vestas MHI, and Japan is set to build offshore capacity, much of it floating over the coming 5 to 7 years and MHI would be an ideal partner for that. But solar alone has “built in” growth of around 80 GW over the coming ten years, and much of who wins that will depend on who can come up with the most creative investment vehicle for residents to buy solar and home batteries, and sell electricity or shift it to EV charging on the hoof. Any high street brand could take a stab at that, and NTT will be well suited to it. Japan has had phone payments systems for over 15 years and operate well in advance of Europe or the US. FeliCa technology was developed first by Sony Corp, and used on the NTT DoCoMo cellular network, and later that technology was merged in Europe into the Near Field Communications chips we use today. NTT has its own payment by phone system as well.

NTT initially launched its entry into energy in March last year, calling it NTT Anode Energy funded with just $3.5 million in paid in capital, and said it would have revenues of over $6 billion by 2025.

It hoped to use its group assets, for instance human resources and its wider patents for technology, as well as existing buildings, to reach long-term growth. Clearly a year has gone by and even in Covid-19 year, this is such a promising opportunity, it makes sense to plough in more cash and do a partnership deal with Mitsubishi.

One area it wants to play in, is the provision of VPPs (Virtual Power Plants) where it can take the energy in either your EV car battery or your home battery, and “borrow it” and provide customers with any spare capacity.

It also says it will build an advanced EV charging business to use with energy storage and will eventually provide vehicle to grid, and power optimizing services for cars.

This will be the first time any company has entered the nationwide Japanese distribution network since the market was first liberalized in 2016.

The partners also intend to launch online software services based on software from partners Germany’s Bosch and the UK’s Ovo Energy, which will tell you when your battery is likely to fail, and potentially will then replace it. The captive customer base of NTT buildings alone and the solar on the rooftops of the buildings which house the 300,000 employees, will stand it in good stead, along with batteries on the premises also.

In fact the electricity cost reduction alone for NTT could pay for this investment on its own.

The battery in the cloud technology developed by Bosch, will be used to monitor and evaluate the residual value of batteries throughout their lifecycles. Another service developed by Ovo in the UK, which Mitsubishi invested in last year, offers the intelligent optimization of EVs and storage batteries.