Market News

 April 03, 2009
Mitsubishi's green power gamble


Mitsubishi companies, which together form Japan's largest industrial group, want to become leading global players in renewable energy

Mitsubishi group is a complex conglomerate of over 500 loosely-connected companies engaged in a wide range of industries. These include energy, electronics, automobiles, shipbuilding, chemicals, space engineering, food and general merchandise and financial services, to name a few.

Though Mitsubishi companies operate independently from each other, most of them share the brand name Mitsubishi and use the same trade mark. Member companies have established the Mitsubishi Corporate Name and Trademark Committee which formulates and enforces the guidelines for the use of the Mitsubishi name and trade mark.

The core 29 Mitsubishi companies are members of the Mitsubishi Kinyokai - a kind of informal grouping. The presidents of these companies meet every month to discuss broader issues. Extensive cross-shareholding and movement of executives among member companies is common. Mitsubishi companies have also established a common portal Mitsubishi.com to provide access link to various companies and share the philanthropic, cultural and environmental activities undertaken by the member companies.

In the energy segment, Mitsubishi Heavy Industries is considered one of the global leaders in nuclear energy systems and conventional power plants. Other member companies have a significant presence in the renewable energy market that includes manufacturing wind turbines and solar panels. Bio-fuel plants, water turbine plants and geothermal plants are other areas where the group has a growing presence.

The group companies don't report separately how much revenue they earn from energy businesses as each company is engaged in several activities. But the total revenue of the three main companies which handle most of the group's energy business stood at over $116 billion last year. These three companies that include Mitsubishi Electric Corporation, Mitsubishi Corporation and Mitsubishi Heavy Industries, are now leading the charge to make the group a global force in clean energy business.

Strategy drivers

At least three related developments in the recent years have influenced Mitsubishi companies' green strategy. The first one was basically a threat to Mitsubishi Heavy Industries' conventional fossil fuel power plant business on account of growing global warming concerns and an expanding demand to cut emissions. MHI responded to this challenge by investing in technological innovations to make less polluting fossil fuel power plants.

The second one was an opportunity presented by the promotion of renewable energy mainly by European governments and a growing clean energy demand in the US. Mitsubishi Electric and MHI grabbed this opportunity early on by getting into producing wind turbines and solar panels and at the same time investing in research and development.

The third and perhaps the most important development was Mitsubishi's home country Japan taking a leadership role in the fight against global warming. Japan, which is already a leader in green technologies, pledged last year to cut its own emissions by 60-80% from current levels by 2050. In addition, last year, Japan's then prime minister Yasuo Fukuda presented a plan- dubbed as the Fukuda Vision by the local media- to cut global emission by 50%.

Osamu Ikki, the president of Tokyo-based photovoltaic power consulting firm RTS Corporation says: "Following the Fukuda Vision, a number of policy initiatives have been launched by various ministries and government agencies to promote clean energy, particularly solar energy." While domestic policy initiatives will create greater demand for clean energy at home, Japan's push for global reduction in emission will potentially result in a bigger market for green technologies. Mitsubishi companies, and other Japanese companies, realise this.

Outside Japan, European Union's new directive on renewable energy, adopted in December 2008, sets an ambitious target for member states to reach a 20% share of energy from renewable sources by 2020. This translates into a huge market for renewable energy. Mitsubishi companies' aggressive plans for Europe are aimed at tapping the booming market.

Powering growth with solar innovation

Though Mitsubishi companies are engaged in a range of green energy businesses including photovoltaic modules, wind turbines, geothermal power plants and water turbine plants, the group companies are banking on solar energy for future growth.

Photovoltaic power, Mitsubishi companies' main strength, has a huge potential in Europe. So far, the main growth came from Germany, Portugal and Spain where the state requires utilities to buy solar power at a premium. In order to meet toughened renewable energy targets, several other governments such as Greece, France and Italy, have started adopting policies to promote solar power.

In solar business, Mitsubishi companies have so far lagged behind other Japanese firms such as Sharp, Kyocera, Sanyo and Kaneka. However, Mitsubishi companies' latest focus on photovoltaic business may change the ranking in a couple of years. Mitsubishi Electric, a leading electric and electronic equipment manufacturer with $40.5 billion in annual sales, entered photovoltaic making in 1996. It has increased the production capacity from a meagre 35 MW in 2003 to 220 MW in 2008 and plans to make it 600 MW by 2012 at an estimated investment of $456.7 million.

Mitsubishi Electric's photovoltaic business plans are partly driven by the company's Environment Vision 2021, announced in October 2007. The vision includes the company's commitment to the reduction of carbon emission from power generation by promoting the installation of photovoltaic modules and developing technology to increase module efficiency.

On the technology front, the company recently made headlines when it said that it has achieved the world's highest energy conversion efficiency rate of 18.6% for multi-crystal silicon cell technologies. The company already boasts the highest energy conversion rate of 97.5% for its Photovoltaic Inverters. By combining both the technologies, the company hopes to improve output of solar power generation and beat the competition. A Mitsubishi Electric spokesman in Tokyo said that the photovoltaic technological innovation is a key focus area for the company. Currently, the company has 25 domestic and four international patents pending.

Mitsubishi companies and other Japanese photovoltaic manufacturers have also benefitted by the Ministry of Economy, Trade and Industries' Research & Development funding programme that aims to develop photovoltaic cells with conversion efficiencies of over 40%.

Mitsubishi Heavy Industries Ltd., which has over $33 billion in annual revenue, manufactures thin-film photovoltaic modules, geothermal power plants, wind turbine generators and water turbine plants. MHI had revenue of $33.4 billion in 2007. The company developed a thin membrane that improved conversion efficiency by 50% and reduced the cost of solar panel production significantly.

The technological breakthrough helped the company to embark on an ambitious target of achieving five per cent share of the global solar power capacity in 10 years. The company increased its production capacity from a paltry 14 MW in 2006 to 128 MW in 2008 and aims to ramp it up to 600 MW by 2010. The company is also considering setting up photovoltaic panel production plants in the Netherlands and Spain in Europe and California and Pennsylvania in the US.

Wind turbines to wind farms

In another European initiative, MHI set up Bulgaria's first wind farm in a joint venture with the Bulgarian engineering firm Ion Limited. The 35 MW plant, Kaliakra Wind Power AD, began operation in August last year. The company will be introducing a newly developed 5-MW turbine in Europe in 2010.

So far, the company has been selling 1-3 MW models, mostly focusing on the US market. Massive orders from the US wind power generation developers prompted the company to triple the annual wind turbine production capacity from 400 MW in 2007 to 1200 MW in 2008 and plans to increase it to 2000 MW by 2010.

Expanding into solar power generation

The third company Mitsubishi Corporation, with over $43 billion in annual revenue, is Japan's largest trading company and has been instrumental in marketing renewable energy products of group companies. Last year, the company announced that "it is considering a full scale move into the solar power generation business in Europe."

This year in March, Mitsubishi Corporation made it first big move when it acquired a 34% stake in Amper Central Solar S.A., the Portuguese subsidiary of the Spanish renewable energy giant ACCIONA. Amper operates the 45.8 MW Amarelja project in Portugal, one of the largest solar photovoltaic power projects in the world. About the same time, the company also announced a $254 million energy park in Bulgaria in collaboration with Bulgarian energy company Dei Energy. The park to be built in Gulyantsi, Northern Bulgaria, will house a photovoltaic plant and a wind farm with a combined capacity of 160 MW.

A spokesman for Mitsubishi Corporation in Tokyo told ClimateChangeCorp.com that the company is actively pursuing new opportunities in renewable energy generation including solar photovoltaic power, solar thermal power and wind power.

The company's strategy includes acquisitions and joint ventures mainly in Europe though expansion plans include the US, the Middle East and South-east Asia. The company also plans investing in manufacturing of poly-silicon and silicon wafers, the main raw materials for photovoltaic cells, to ensure a steady supply. Global supply of Silicon in recent years has not been able to keep pace with continuously growing demand affecting manufacturers.

In line with its growth strategy, Mitsubishi Corporation teamed up with The Sumitomo Trust & Banking Co. Ltd., Nippon Life Insurance Company and The Development Bank of Japan last year to set up a $208 million private investment fund to develop wind farm projects. The fund aims to establish 1000 MW generation capacity in five years.

Mitsubishi companies have chosen a multipronged strategy to quickly expand renewable energy business that includes technological innovation, setting up production facilities globally, investing in the entire renewable energy value chain, strategic partnerships, joint ventures and acquisitions.

Not so clean sustainability performance

But Mitsubishi Corporation has its baggage of controversies which may affect its image as a champion of clean energy and sustainability. Germany-based Oekom Research, a leading rating agency for sustainable investments, gave a 'not-prime' C- rating to Mitsubishi Corp last year for lack of transparency regarding the integration of environmental considerations into products and services. These include the transport efficiency of its own fleet, subcontractor/supplier standards with regard to environmental issues, environmental requirements regarding traded products, and policy/measures to shift the company's product portfolio towards more sustainable products.

Another issue which resulted in a lower rating for Mitsubishi Corporation, according to Oekom's energy analyst Frauke Demuth, is that the company is quite active in the domestic trade, export, and import of nuclear power facilities and related equipment, as well as the transport and import to Japan of nuclear fuel. The company is actively investing in uranium production.

"Furthermore, Mitsubishi Corporation holds a 10% stake at Sakhalin Energy Investment Company (SEIC), which is developing the Sakhalin II project, which has been highly controversial on environmental grounds due to proximity to the only known feeding grounds of the critically endangered Western Grey Whale, destruction of spawning grounds for pink salmon, frequent seismic activity and landslides around the construction area of the pipelines," adds Demuth.

Demuth says that even with Mitsubishi Corporation's new vigour in investing in renewable energies, a number of weaknesses remain in the company's own sustainability performance.

Mitsubishi companies have the technological prowess and financial muscles to become significant leaders in the renewable energy market in Europe where they have their eyes set. But they may have to work harder to come clean on their own sustainability performances.