1

DEVELOPMENT OF POWER BUSINESS IN THE PURSUIT OF THE MAXIMUM SYNERGY WITH GAS BUSINESS

Iruru Takahashi

Tokyo Gas Co., Ltd.

Keywords: 1. Natural Gas; 2. Power Generation; 3. Multi-Energy Supply; 4. Power Producer and Supplier (PPS); 5. Independent Power Producer (IPP) 1. Introduction Tokyo gas has positioned “establishment of total energy business with natural gas at the core“ as one of key factors to achieve sustainable growth and advancement in the 2010s. To this end, Tokyo Gas intends to develop electric power business in the pursuit of the maximum synergy with gas business while aiming to improve customer value and corporate value through the wide-area development of “multi-energy supply of gas and electric power” and “energy services with a variety of one-stop solutions.” (1) Outline of Tokyo Gas Tokyo Gas is Japan’s biggest city gas supplier, with over 10.5 million customers. Its area of operations encompasses the Tokyo metropolitan area and the surrounding Kanto region, a prosperous market of huge potential demand. When Tokyo Gas was founded in 1885, Japan was just beginning to use gas on a significant scale. Since then, Tokyo Gas has helped to build the Japanese city gas and natural gas markets through its many pioneering achievements, including the introduction of natural gas as a resource for city gas in 1969. During its 120-year history, it has accumulated sophisticated gas utilization technology and earned a solid reputation for reliability as a supplier of gas to a wide spectrum of residential, industrial and commercial customers. With a brand image of "security, safety and reliability," Tokyo Gas has extended its business to include advanced energy solutions and the provision of services that help to enhance the quality of life. With an extensive network of gas pipelines and LNG receiving terminals, Tokyo Gas has steadily increased its advantage in the market. Its service area encompasses the Kanto region, which is the heart of the Japanese economy and the region with the greatest energy needs. Tokyo Gas is continually extending its pipeline network into areas where energy demand is expanding. The total length of pipelines in the network has reached over 50,000km. Natural gas demand is expected to grow because of its excellent environmental characteristics with the approach of the first Kyoto Protocol commitment period, which starts in 2008. Tokyo Gas is working to establish and expand its presence throughout the LNG value chain, participating in upstream projects and transportation as well as in import and supply operations in Japan. This strategy aims to ensure the Tokyo Gas Group's success in an energy sector that will become intensely competitive in the years ahead. The Tokyo Gas Group aims to enhance its corporate value by focusing on the development of a total energy business centering on natural gas. This vision is the key to our future as a high-profitability, high-growth group capable of achieving sustainable success and progress. Tokyo Gas will continue to provide advanced energy solutions, primarily through the supply of natural gas to meet expanding demand. As the most environmentally friendly, economical and convenient fossil fuel, natural gas has become a vital resource for modern society and lifestyles. Tokyo Gas has made natural gas the core of its diversified energy-related business.

Capitalization 141,844 million Yen

Number of employees 7,579 �Nonconsolidated basis�

15,510 �Consolidated basis�

Business areas (1) Production, supply and sale of city gas

(2) Supply and sale of gas appliances, and related construction

(3) Construction for supply of city gas

(4) Energy services

(5) Supply of electricity

Net sales�consolidated� 1,660,162 millions yen

Gas sales volume�consolidated� 13,941 millions m3

Total length of gas pipeline�consolidated� 57,158 km

Number of gas customers 10,513 thousands

Table 1 Profile of Tokyo Gas (As of March 31, 2009)

2

(2) Deregulation of electricity market in Japan The gas and electricity market in Japan has been deregulated stepwise since 1995. The status of deregulation in the gas and electricity market is shown in Figure 2. Currently, 63% of the electricity market (more than 50kW (contract demand) customer) is deregulated. While the competition in the energy market is becoming increasingly fierce, the progress of deregulation is also anticipated to expand business opportunities. Furthermore, the Kanto region's demand for electricity is forecast to grow steadily. Tokyo Gas intends to exploit these opportunities to emerge victorious in this competition and assure its continued growth and advancement. 2. Objectives of development of power business at Tokyo Gas group Under the changing energy business environment, Tokyo Gas is aiming to develop electric power business in the pursuit of the maximum synergy with gas business by utilizing environmentally friendly energy resources, its existing infrastructures, the latest technologies and relationship with its customers. With the growth of environmental awareness, natural gas is attracting attention as a cleaner energy source. Actually, Tokyo Gas’ business is based on natural gas which is an environmentally friendly energy. Compared with oil and coal, natural gas emits less carbon dioxide (CO2) and nitrogen oxide (NOx), and almost no sulfur oxide (SOx)

Figure 2 Progress of deregulation in the gas and electricity market

40%30%

63%

1995 1998 1999 2000 2004 2005 2007 2007����

0.1 million m3

or more0.5 million m3

or more

50 kWor more

500 kWor more

Gas market

Study of complete deregulation of both

electrical power and gas supply

2,000 kWor more

1 million m3

or more2 million m3

or more

30%,50%

Deregulated fields

Regulated fields

55%

Small office building

HotelFactory

Electricity market

40%30%

63%

1995 1998 1999 2000 2004 2005 2007 2007����

0.1 million m3

or more0.5 million m3

or more

50 kWor more

500 kWor more

Gas market

Study of complete deregulation of both

electrical power and gas supply

2,000 kWor more

1 million m3

or more2 million m3

or more

30%,50%

Deregulated fields

Regulated fields

55%

Small office building

HotelFactory

Electricity market

Figure 1 Service Area Facility Map

Gas

40 Oil

70

Coal

100Oil

70

Coal

100

Gas

60

Oil

80

Coal

100

Gas

0

NOx CO2SOx

Source: IEA (International Energy Agency)

Gas

40 Oil

70

Coal

100Oil

70

Coal

100

Gas

60

Oil

80

Coal

100

Gas

0

NOx CO2SOx

Source: IEA (International Energy Agency)

Figure 3 Comparison of emission on the basis of coal as 100

3

during the combustion. (Figure 3) As natural gas is a clean energy, utilization of natural gas is regarded as an indispensable option for mitigating global warming. Moreover, Tokyo Gas Group is promoting construction of natural gas fueled power stations for further improvements of electric power business infrastructures. Tokyo Gas’ power business is intended to ensure competitive advantages such as 1) adjacent to electric power demand area; 2) mitigation of environmental impact by using the latest high-efficiency combined cycle power plants; 3) site location in the vicinity of the Company’s LNG terminal; 4) strong ties with customers. (Figure 4) 3. Achievement of development of power business Tokyo Gas group has been conducting the entire value chain of electric power business including procurement and supply of natural gas to power stations, power generation, whole sale and retail. The electric power business scheme of Tokyo Gas group is shown in Figure 5. Tokyo Gas has been promoting four power generation projects, Tokyo Gas Bay Power, Tokyo Gas Yokosuka Power, Kawasaki Natural Gas Power Generation and Ohgishima Power. As of June, 2009, three projects have started business operation. ENNET is in charge of power sales as a Power Producer and Supplier (PPS).

Figure 4 Synergy between gas business and electric power business

Powerstation

Customer

LNG

Terminal

Gas pipeline network

Use of existinginfrastructure

Energy service

Tokyo Gas group

Gas sales

Gas appliances sales

Procurement of

competitive fuel

Total Energy Business

Power sales

Strong ties

with customer

Powerstation

Customer

LNG

Terminal

Gas pipeline network

Use of existinginfrastructure

Energy service

Tokyo Gas group

Gas sales

Gas appliances sales

Procurement of

competitive fuel

Total Energy Business

Power sales

Strong ties

with customer

Figure 6 Power generation projects schedule

1.2GW

�400MW× 3�Ohgishima Power

800MW

�400MWX2�

KawasakiNatural GasPower Generation

239MW Tokyo GasYokosuka Power

100MWTokyo GasBay Power

OutputNameFiscal Year

�

�

�

Environmental Assessment Construction Operation � Transfer of stocks � Feasibility Studies

Timing of construction for 3rd unit has not been decided

04�03 05 06 07 08 09 10 11 12�

1.2GW

�400MW× 3�Ohgishima Power

800MW

�400MWX2�

KawasakiNatural GasPower Generation

239MW Tokyo GasYokosuka Power

100MWTokyo GasBay Power

OutputNameFiscal Year

�

�

�

Environmental Assessment Construction Operation � Transfer of stocks � Feasibility Studies

Timing of construction for 3rd unit has not been decided

04�03 05 06 07 08 09 10 11 12�

Figure 5 Electric power business scheme of Tokyo Gas group

� � ··· Generating capacity � �··· Business partner

Power generation

Power sales

Tokyo Gas Bay Power Co., Ltd. � 100 MW �

Kawasaki Natural Gas Power Generation Co., Ltd.

� 800 MW �

�Nippon Oil Corporation�

Ohgishima Power Co., Ltd. � 1200 MW �

�Showa Shell Sekiyu K. K.�

Tokyo Gas Yokosuka Power

Co., Ltd. � 240 MW �

�Shimizu Corporation,

Tokyo Hatsuden Co., Ltd.�

Power Producer and

Supplier (PPS)

ENNET Corporation

�NTT Facilities, Inc.,

Osaka Gas Co., Ltd.�

Wholesale electric power

exchange market

Bilateral contracts

�Tokyo Electric Power

Company Inc., etc.�

Independent Power

Producer

(IPP) business

Tokyo Gas

Group Customer

Supply of gas for power

generation

4

(1) Tokyo Gas Bay Power Co., Ltd. As Tokyo Gas’ first power generation project, Tokyo Gas Bay Power Co., Ltd., a wholly owned subsidiary of Tokyo Gas, constructed a 100 MW natural gas fueled combined cycle power generation unit at Tokyo Gas’ Sodegaura LNG Terminal. Tokyo Gas Bay Power adopted a gas turbine combined cycle with a single shaft generating system to achieve high thermal efficiency (50.0%, Low heating value basis). After 17 months construction, Tokyo Gas Bay Power started business operations on October 1, 2003 to supply electric power to ENNET, a joint Power Producer and Supplier (PPS). For more effective and stable power generation, Tokyo Gas supplies natural gas directly from its LNG terminal to the power plant without calorific value adjustment, and Tokyo Gas Bay Power entrusts daily operation and maintenance work to Tokyo Gas Sodegaura LNG Terminal as synergy in Tokyo Gas group. Tokyo Gas Bay Power has been operating the power station stably and has carried out planned maintenances since 2003. Through the success of Tokyo Gas Bay Power Project, Tokyo Gas group accumulated experience and knowledge of power generation. (2) Tokyo Gas Yokosuka Power Co., Ltd. Tokyo Gas Yokosuka Power Co., Ltd. (Investment ratios: Tokyo Gas: 75%, Shimizu Corporation: 20%, Tokyo Electric Generation Co., Ltd.: 5%), is an Independent Power Producer (IPP) to supply electric power to Tokyo Electric Power Company, Inc. In 1999, Tokyo Gas Yokosuka Power won the contract under competitive bidding, which Tokyo Electric Power Company implemented for IPP. The contract calls for Tokyo Gas Yokosuka Power to supply electric power for 15 years.

Photograph 1 Tokyo Gas Bay Power Sodegaura Power Station

Table 2 Outline of power station: Tokyo Gas Bay Power

System Gas turbine combined cycle

Generation system Gas turbine and steam turbine

(Single shaft)

Gross output 102.9 MW (1 unit)

Fuel Natural gas

Cooling type Cooling tower by using industrial water

Operation mode Daily Start and Stop (DSS)

System Gas turbine combined cycle

Generation system Gas turbine and steam turbine

Gross output 239.7 MW (1 unit)

Fuel Natural gas

Cooling type Cooling tower by using treated sewage

water

Operation mode Daily Start and Stop (DSS)

Table 3 Outline of power station: Tokyo Gas Yokosuka Power

5

Tokyo Gas Yokosuka Power constructed a 239.7MW natural gas fueled combined cycle power generation unit and started business operations on June 1, 2006. Tokyo Gas Yokosuka Power adopted a gas turbine combined cycle with two shafts generating system because of limit of site location. As a part of the environmental impact assessment, a cooling water system was investigated. As a result, Tokyo Gas Yokosuka Power decided to utilize treated sewage water as cooling water from Oppama sewage treatment facility of Yokosuka City, which is adjacent to the station. The power station also adopted the underground power transmission system for all transmission lines connecting to the transmission grid of Tokyo Electric Power Company to minimize environmental impact regarding landscape. Thus, Tokyo Gas Yokosuka Power Station endeavors to protect the local environment by means of water recycling by utilizing treated sewage water and underground power transmission system. Since the commencement of operations, Tokyo Gas Yokosuka Power has been operating its power station very stably. In spite of daily start and stop (DSS) operation, Yokosuka Power Station established a record of no delay of electric power supply for about 450 days (15 months).

(3) Kawasaki Natural Gas Power Generation Co., Ltd. Kawasaki Natural Gas Power Generation Co., Ltd. was established on November 30, 2001 as a joint venture between Nippon Oil Corporation, Japan’s leading oil company, and Tokyo Gas, its leading gas company (Investment ratios: Nippon Oil Corporation 51%, Tokyo Gas 49%) to build and operate environmentally friendly power generation facilities for a PPS to enter the deregulated electricity market in Japan. Kawasaki Natural Gas Power Generation started construction of two 400-MW natural gas fueled combined cycle units with the highest thermal efficiency (57.6%, Low heating value basis) in the 400-MW class combined cycle plant at the Kawasaki Office of Nippon Oil in Kawasaki in February 2006. As a result of investigation of cooling water system, which was carried out in the environmental impact assessment, Kawasaki Natural Gas Power Generation chose industrial water as cooling water instead of sea water to avoid the drainage of warmed water from cooling towers to sea. Moreover, Kawasaki Natural Gas Power Generation installed duct burners in the heat recovery steam generators to increase steam temperature to enhance generation output. As the generation output decreases in summer because of decrease of air density, those duct burners are used especially in summer. Kawasaki Natural Gas Power Generation is the first large scale power station for PPS in Japan and started business operations of Unit No.1 on April 1, 2008 and those of Unit No.2 on October 1, 2008. With the commencement of operations at Kawasaki Natural Gas Power Generation, Tokyo Gas increased its supply of wholesale power to ENNET.

Photograph 3 Kawasaki Natural Gas Power Generation

System Gas turbine combined cycle

Generation system Gas turbine and steam turbine

(Single shaft)

Gross output 847.4 MW (423.7 MW X 2 units)

Fuel Natural gas

Cooling type Cooling tower by using industrial water

Operation mode Daily Start and Stop (DSS) 1 unit,

Continuous operation 1 unit

Table 4 Outline of power station:

Kawasaki Natural Gas Power Generation

Photograph 2 Tokyo Gas Yokosuka Power Station

6

(4) Ohgishima Power Co., Ltd. Ohgishima Power Co., Ltd. (Investment ratios: Tokyo Gas: 75%, Showa Shell Sekiyu K. K.: 25%) was established on August 1, 2003. Though Ohgishima Power has a plan to build a 1.2 GW power generation plant with three 400 MW natural gas fueled combined cycle units at Showa Shell’s Ohgishima-Nishi Oil Depot and Tokyo Gas’ Ohgishima LNG Terminal in Yokohama. For the present, two units of 400MW combined cycle are under construction. The power station is planned to start business operations in 2010. As Ohgishima Power Station is just adjacent to Tokyo Gas Ohgishima LNG Terminal, LNG terminal’s infrastructures and human resources can be utilized as synergy in Tokyo Gas group. (5) Power sales of Tokyo Gas group: ENNET Corporation For power sales, ENNET Corporation (Investment ratios: NTT FACILITIES Inc.: 40%, Tokyo Gas: 30%, Osaka Gas Co., Ltd.: 30%) was established on July 7, 2000 and started operations in April 2001, procuring power from various sources, including natural gas fueled power stations operated by Tokyo Gas Group. The name ENNET is coined from the concepts of Energy and Network. ENNET aims to contribute to society by creating value and providing services to customer through the fusion of energy and information flow. Regarding retail of electricity, Tokyo Gas supports ENNET as a retail agent by utilizing business opportunities with Tokyo Gas’ gas customers, which is synergy with gas business. ENNET sold electricity of 8.5TWh in 2008 (Fiscal Year) and is the largest PPS with 58.2% share in PPS group in Japan. Though ENNET has the highest share in PPS group, the share of ENNET in the liberalized market is only 1.5%. Therefore, from view point of customers, more competitive environment and optimal market system for PPS are needed. (6) Contribution to global warming mitigation by renewable energies In the power generation business, Tokyo Gas actively develops renewable energies including wind power generation to contribute to global warming mitigation, in addition to the use of natural gas with small environmental impact. Tokyo Gas constructed one unit of 1,990kW wind power plant at Tokyo Gas’ Sodegaura LNG Terminal and started business operations in October 2005. Tokyo Gas provides carbon dioxides free electric power

Underground transmission line Industrial water

HP steam drum

IP steam drum

LP steam drum HP steam

IP steam

LP steam Generator

Circulating water pump

Industrial water pump

Water pump for LP boiler

Generator

Condenser

Steam turbine

Gas turbine

Fuel

Ammonia Duct burner

Combustor

Stack

Industrial water tank

Purified water facility

and tank

Switching station

Waste water

treatment facility Air

Main transformer

Natural gas

HRSG Cooling tower

Catalyst

(1) Heat recovery combined cycle: Steam turbine generates power by injecting steam which is produced at the heat recovery steam generator by using gas turbine exhaust. (2) Duct burner: Duct burner is installed to keep a stable power output during higher atmospheric temperature.

Waste water to sea area

Legend

Figure 7 Conceptual Diagram of Power Generation System

(Kawasaki Natural Gas Power Generation)

System Gas turbine combined cycle

Generation system Gas turbine and steam turbine

(Single shaft)

Gross output 1.221GW (407.0 MW X 3 units)

Fuel Natural gas

Cooling type Cooling tower by using sea water

Operation mode Daily Start and Stop (DSS) 1 unit,

Continuous operation 2 units

Table 5 Outline of power station: Ohgishima Power

7

generated by the wind power plant to ENNET with an equivalent Renewables Portfolio Standard (RPS) credit. Moreover, Tokyo Gas purchased a 4.44% share of Agatsuma Bio Power Co., Ltd. (Headquarters: Maebashi-shi, Gunma Prefecture) from ORIX Corporation on August 8, 2008 to participate in a wood chip biomass power generation business. Agatsuma Bio Power has been constructing a 13,600kW wood chip (pulverized pruned branches, building material wastes, etc.) fueled biomass power station in Agatsuma-gun, Gunma Prefecture since August 2008. The power station is planned to start operations in 2010. The electric power generated at the power station will be certified as carbon free electricity and is worth an environmental friendliness. Moreover, the wood chip biomass power generation is expected to be operated steadily without influence of meteorological conditions. Tokyo Gas will purchase whole power generated from Agatsuma Bio Power to supply it to ENNET, etc. Through the participation in the Agatsuma Bio Power, Tokyo Gas ensures a long-term stable power source and will actively develop renewable energies by utilizing technologies and knowledge from the biomass power generation business.

4. Conclusions Under the changing energy business environment, Tokyo Gas makes use of its existing infrastructure, constructs the latest high efficiency power stations adjacent to major demand areas, and sells electricity to customers through one-stop, multi-energy supply of gas and electric power, to ensure both customer satisfaction and sustainable growth of the company. Actually, Tokyo Gas has been promoting power business successfully to establish total energy business with synergy between gas and electric power business. Tokyo Gas’ power business will be extended gradually, in accordance with the progress of deregulation as well as the electric power supply and demand trends. Furthermore, as a leader in environmentally friendly management, Tokyo Gas actively develops renewable energies such as wind power and biomass power to contribute to global environmental protection.

< Contact Information > Name: (Mr.) Iruru Takahashi Affiliate: General Manager, Total Energy Business Dept., Tokyo Gas Co., Ltd. Address: 1-5-20, Kaigan, Minato-ku, Tokyo 105-8527, Japan Tel: +81-3-5400-3818, Fax: +81-3-5400-3826 E-mail: iruru@tokyo-gas.co.jp

Photograph 4 Wind power plant at Sodegaura LNG Terminal

Figure 8 Perspective of Agatsuma Bio Power

Station