ENECHANGE supports new entrants in business crisis caused by rising fuel prices, launched proprietary fuel cost adjustment consulting service for new entrants.

ENECHANGE Ltd. (Head office: Chiyoda-ku, Tokyo, CEO: Yohei Kiguchi, COO: Ippei Arita; hereafter: ENECHANGE) taking seriously the impact on Japan’s electric power industry of the upward trend in fuel prices, including crude oil and liquefied natural gas (LNG), which has been continuing since September 2021, will launch a consulting service for energy companies regarding “fuel cost adjustment for new entrants” (hereafter, the “Consulting Service”).

Background

ENECHANGE will provide this consulting service to support the management of new entrants that have been forced to withdraw from the business or temporarily stop accepting new applications due to the following three market backgrounds.

1. Soaring Fuel Prices Against the Backdrop of the Situation in Ukraine
While fuel prices have soared since September 2021, they rose again in March 2022, despite a temporary decline since the end of last year. The international fuel price spike has also caused electricity trading prices on the Japan Electric Power Exchange (“JEPX”) to soar, and there are concerns that this will be prolonged.

2. Inconsistency of Fuel Cost Adjustment System
Many of the new entrants do not have their own fuel cost adjustment systems and use the fuel cost adjustment amounts of the major power companies as they are, so their rates do not reflect the actual power supply composition of the new power companies or the prices traded on JEPX. The current fuel cost adjustment system set by the major energy companies was introduced in 1996 with the aim of promptly reflecting international fuel prices in rates and stabilizing the management of power companies.

3. Frequent “electricity contract refugees” due to large increases in electricity prices or refusal to renew contracts
In the high-voltage (for corporate customers) market, there is a growing trend of refusing to renew contracts with existing subscribers and of encouraging large increases in basic rates and electricity volume rates in the middle of the contract period, and there is a growing trend to introduce final guaranteed supply clauses (temporary electricity rates offered by power transmission and distribution companies to consumers who are forced to change contracts due to bankruptcy of electricity retailers, etc.). There are frequent occurrences of “electricity contract refugees” who are forced to sign contracts. In this matter, as pointed out at the 71st System Design Expert Meeting held by the Electricity and Gas Transactions Monitoring Committee on March 24, 2022, the Final Guaranteed Supply Clause is being relied upon in a manner contrary to the purpose of the system. On the other hand, an increasing number of electric power companies are withdrawing from the retail business or temporarily suspending the acceptance of new applications even for low-voltage (residential) customers, which means that subscribers who were released due to withdrawal from the business cannot switch freely to other electric power companies, and there is a risk of electricity outages.

About our unique fuel cost adjustment consulting service for new entrants

Although the original “fuel cost adjustment system” was designed to realize a stable supply of electricity to consumers by promptly reflecting changes in international resource prices in rates and stabilizing the operations of energy companies, for the reasons stated above, the fuel cost adjustment system is not fully functioning at new entrants. Therefore, rather than uniformly following the fuel cost adjustment system of major energy companies, new entrants need to set up their own fuel cost adjustment system to suit their own power supply structure.

Among the top 100 major new entrants in terms of electricity sales, there are currently 5 new entrants that set their own fuel cost adjustments and disclose them on their websites, etc. According to our research, the definitions of the five main items (adjustment unit price, procurement unit price when the meter reading date is not the first day of each month, reduction standard value, additional billing standard value, and pass-on ratio) are we found that each company differs. There is a concern that if proprietary fuel cost adjustment systems with such different “definitions” were to become disorganized, mutual comparisons would become difficult, and post-contract electricity rates would become unclear to consumers.

Consulting Service will utilize our knowledge of the electricity industry to provide support for setting up and publicizing unique fuel cost adjustments suited to each electric power company. By adopting a common definition for the unique fuel cost adjustment for new electric power companies, we will support the setting of various standard values that allow differentiation in terms of individual power source composition and JEPX procurement ratios, while ensuring transparency in comparative studies from the viewpoint of subscribers. We will implement Consulting Service in a manner that does not conflict with the Antimonopoly Act and related laws and regulations after consulting with the Japan Fair Trade Commission in advance.

Definition of our recommended proprietary fuel cost adjustment system

Method of calculating procurement adjustment costs

Power Procurement Coordination Fee	fuel cost adjustment (set by major energy companies) + adjusted procurement cost
Procurement Adjustment Expense (return)	(reduction standard value – procurement unit price) x amount of electricity used (kWh) x [transfer ratio]%.
Procurement Adjustment Cost (additional billing)	(procurement unit price – additional billing standard value) x amount of electricity used (kWh) x [shift ratio]%.

Procurement Unit Price	Procurement unit price when the meter reading date is other than the first day of each month	Reduction Threshold	Additional billing threshold	Ratio of Turnover
Area price average	Calculated for the period from Nth month 1 to the last day of Nth month	Purchase price determined by area/yen	Purchase price determined by area/yen	Each company’s own set value

Comments from Yohei Kiguchi, Co-Founder and CEO of ENECHANGE Ltd.

We are pleased to announce that we have invited Ms. Kana Bogaki as our first female director. We have also raised funds to strengthen advertising in its platform business, and is aggressively developing online advertising, including video advertisements on SNS media, etc., which it had not done before. We believe it is very important to strengthen our marketing activities from the perspective of women, given that the ratio of male and female users of our electricity and gas comparison site for households, “Enechange,” is almost equal. We are confident that Ms. Bogaki’s knowledge and experience in marketing will lead to strong growth in our platform business. We have also appointed Tatsuya Sogano, who has participated in the platform business since its inception and has led the platform business’s services for households and corporate clients, to the Board of Directors. We believe that Mr. Sogano is well suited to make important management decisions and supervise the execution of business operations. With three board of directors and five outside directors, we will strive to further strengthen management and governance.

About ENECHANGE Ltd.

ENECHANGE is an energy technology company that promotes a carbon-free society through digital technology with the mission of Changing Energy For A Better World. We offer services based on data utilization in the field of the 4Ds of Energy: Deregulation, Digitalization, Decarbonization, and Decentralization. Our company’s roots come from an energy data lab at the University of Cambridge, U.K., a country where liberalization is mature. ENECHANGE has a British subsidiary, SMAP Energy Limited, as well as a global network and analytical technology for energy data.

URL: https://enechange.co.jp/en/

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ENECHANGE Ltd.
pr@enechange.co.jp