Following deregulation of wholesale electricity supply (the business of supplying power to utilities), partial liberalization of retail electricity sales began in March 2000. Major trading companies and foreign firms started entering the electricity sales market. The seemingly unshakable regional monopoly of power companies is beginning to crumble. That said, it's also true that few new entrants are challenging the power companies with their massive operational foundations.

Following deregulation of wholesale electricity supply (the business of supplying power to utilities), partial liberalization of retail electricity sales began in March 2000. Major trading companies and foreign firms started entering the electricity sales market. The seemingly unshakable regional monopoly of power companies is beginning to crumble. That said, it's also true that few new entrants are challenging the power companies with their massive operational foundations.
This is because they must pay transmission line usage fees to the power companies and face numerous challenges, such as securing customers. Skepticism remains strong about whether true competition will actually begin. Amidst this, venture companies are emerging, challenging the power companies with their own unique know-how. One such company is Generation System Co., Ltd., which is challenging the power sales business. We spoke with President Katsuzo Iijima.
● A Pioneer in Cogeneration President Iijima is no newcomer to cogeneration. In fact, he can be called a pioneer. Indeed, Japan's very first cogeneration installation was his doing. While studying at Meiji University's Faculty of Engineering, he specialized in power transmission and distribution optics.
Even then, he envisioned docking generators to car engines to supply electricity. He even visited Germany to observe cogeneration systems, which were just beginning to be commercialized there. After graduating, he worked at a printed circuit board manufacturer and a construction company before going independent in 1984. "I decided that if I went independent, it would be based on my university research theme," Iijima states. Without hesitation, he turned to cogeneration, then known as "conventional private power generation."
He established Sanpo Engineering in Takasaki City, Gunma Prefecture, with capital of 5 million yen. "The oil shock had doubled electricity costs, and energy conservation fever was sweeping the nation, reaching near-boom levels. Amidst this, I was convinced demand for cogeneration—with its high thermal efficiency and potential for significant cost reductions—would inevitably grow." He promptly began designing and commissioned major automakers to produce power generation equipment.
Preparations were complete. However, despite explaining the cost savings, few took it seriously. Some even warned, "If you install that, the power company will reprimand you." Yet, one interested party was Takagi Hospital (Aioi City, Kiryu City), where he had overseen construction during his time at the construction company. "If it doesn't deliver results, you don't have to pay.
Please just try it for three months." After pleading with them, they installed it. It began operating in January 1988 and, unsurprisingly, was a huge success. Annual utility costs, which had been ¥45 million, dropped to ¥20 million. Furthermore, with 24-hour heating, cooling, and bath facilities, it became a hospital renowned locally. From then on, things progressed smoothly. Orders poured in from hospitals, factories, supermarkets, and others who had heard the positive reports.
Some power companies even panicked when electricity usage suddenly dropped to zero and rushed to investigate. Within a short time of founding, the company was on track to reach annual sales of 100 million yen. But then came an unexpected pitfall... "Looking back, it was truly amateurish of me as a manager. I agreed to endorse promissory notes twice, then three times, for a real estate company I knew. The total amount was 400 million yen.
Of course, I understood the payment obligations, but business was going well, and I thought, 'It'll be fine,' so I didn't worry too much. However, that real estate company went bankrupt with 40 billion yen in debt. I was completely wiped out." I sold my house and securities, combining that with my cash on hand to raise 330 million yen. That's how I managed to settle it. But as a business, and in terms of the potential of cogeneration, I wasn't wrong.
That made it all the more frustrating, and I burned with the determination to make a comeback. ● Opportunity Arrives: Establishing an Independent Power Producer After that, I moved to Tokyo relying on an acquaintance, aiming for a comeback. By day, I worked as a site agent for Toko Electric; by night, I worked for a security company. Then one day, "I saw an article in the newspaper about deregulation for selling electricity. I thought, 'Finally, it's here.'
Previously, we only handled design and construction, but this was a chance to utilize cogeneration systems in their ideal form and pursue even more ambitious ventures." All I had was my conviction, but fortunately, acquaintances I met after moving to Tokyo recognized my track record at companies like Mitoyo Engineering and Toko Electric and invested. Despite most being salaried workers, we raised 20 million yen. Using this as seed money, I established Nippon Denryoku as an independent power supplier in March 1997.
He finally achieved his long-cherished new beginning. The system the company aims to build can be simply explained like this: They install cogeneration systems using internal combustion engines like diesel engines on clients' premises, such as factories or hospitals, in exchange for rent. The clients then purchase the electricity and thermal energy produced there. The client and the company set and contract an energy fee based on the initial equipment cost, fuel expenses, maintenance, and other running costs.
For the initial five years, rates are set factoring in equipment depreciation costs, but rates are further reduced thereafter. In other words, the company is not selling the equipment; it is purely an electricity sales business. From the buyer's perspective, this means obtaining electricity and thermal energy without incurring any construction or equipment costs.
"Looking at the price per kWh, it's generally about half the cost of conventional electricity rates. However, since thermal energy is supplied simultaneously, combining electricity costs and thermal energy costs like heavy oil, calculations show a reduction of over 40% compared to the costs incurred before installation." While conventional power transmission systems have an energy efficiency of only 30% due to transmission losses, cogeneration systems achieve 70-80% energy efficiency through combined heat and power supply.
This power sales business fully leverages that efficiency. Furthermore, it offers not just actual energy cost savings but also various other cost reduction benefits. High-voltage receiving equipment, previously necessary to receive power from utilities, becomes unnecessary. Additionally, since thermal energy is also supplied centrally by the cogeneration system, multiple boilers previously installed can be eliminated, reducing associated labor costs.
The company's strength lies in its ability to build customized distribution and heat supply systems tailored to each facility. While most existing cogeneration systems rely on conventional power supply structures—specifically, high-voltage receiving equipment—this company meticulously reviews facility blueprints to design systems from the ground up, including distribution. This approach is labor-intensive and represents an area that major manufacturers or equipment sales businesses often find difficult to enter.
Including projects currently under contract, this system is scheduled to begin operation within the fiscal year at two hospitals and one meat processing plant. "Our targets are hospitals, factories, hotels, etc. The sweet spot, where both the client and our business are satisfied, is around facilities spending over 50 million yen annually on combined electricity and heat." The company aims for 600 million yen within the fiscal year, a jump to 10 billion yen next fiscal year, and plans for a Tokyo Stock Exchange listing by fiscal 2003.
With the high energy efficiency and reduced environmental impact of this distributed power generation system, coupled with significant cost savings, these goals become increasingly realistic. Right now, they are fighting hard to take on the giants.