Investor Briefing - Electric Power Development Co., Ltd (J-POWER) 2023 AGM

Executive Summary

• The Electric Power Development Co., Ltd (J-POWER) is the second largest power utility in Japan, with operations covering power generation, transmission and distribution. Since 2000, it has undertaken assertive international expansion with these assets accounting for a quarter of installed capacity, predominantly in Asia.

• Despite claims of working “steadily to achieve carbon neutrality”, J-POWER’S climate transition plan falls far short of aligning with the goals of the Paris Agreement:

  • The company does not have a phase out schedule for domestic coal assets in line with a net zero pathway (which, in OECD countries, requires coal phase-out).
  • Short and medium term emission reduction targets are not Paris-aligned.

• While global energy markets shift towards renewables and many countries implement policies to phase out coal, J-POWER’S current energy portfolio still relies heavily on coal-fired power plants. Ongoing investments in coal-fired power plants and in unproven-at-scale technologies to prolong their life, like hydrogen/ammonia co-firing and coal gasification with CCS, create a major risk of stranded assets.

• Despite the global trend towards renewables, J-POWER's decarbonisation plan does not reflect a robust commitment to this sector. Vague targets and tepid growth plans for renewable energy expose a lack of ambition incompatible with Japan's aggressive renewable energy targets and the global shift towards clean energy.

• J-POWER’s strategy does not provide clear information on the planned retirement of coal-fired power plants - a crucial step towards achieving significant emissions reductions. This ambiguity poses significant risks to the company’s climate credibility and long-term shareholder value.

• The combination of a slow transition to renewables, over-reliance on unproven technologies, and lack of clear planning for coal plant closures could jeopardize J-POWER's profitability in an increasingly decarbonising global economy,  threatening long-term investor interests and value.

• J-Power must set a credible decarbonisation strategy and science-based short-, medium- and long-term GHG emissions reduction targets aligned with the goals of the Paris Agreement and investor expectations.

Key Takeaways:

J-POWER’s decarbonisation strategy lacks clarity, innovation, and urgency, undermining long-term investor interests and climate alignment.

1. Failure to align with Paris Agreement goals: J-POWER's decarbonisation targets fall woefully short of the rigorous standards set by the Paris Agreement. The company's lack of urgency in setting and achieving more ambitious near-term goals questions its commitment to a meaningful transition towards a low-carbon future.
2. Over-reliance on unproven technologies that prolong the use of coal: J-POWER's strategic reliance on technologies like hydrogen/ammonia co-firing and coal gasification with CCS, which are unproven at scale, is concerning. These strategies, while portrayed as innovative, have not demonstrated commercial viability or effectiveness in achieving large-scale emission reductions, thus making them a risky cornerstone of a decarbonisation plan.
3. Underutilisation of renewable energy: Despite the global trend towards renewables, J-POWER's decarbonisation plan does not reflect a robust commitment to this sector. The vague targets and tepid growth plans for renewable energy expose a lack of ambition, which is incompatible with Japan's aggressive renewable energy targets and the global shift towards clean energy.
4. Opaque power network stabilisation plans: J-POWER's power network stabilisation strategy, while seemingly a step in the right direction, lacks clarity and connection to tangible emissions reductions. This suggests a potential complacency or lack of understanding in how infrastructure modernisation can contribute to climate goals.
5. Lack of transparency on coal power phase-out: Concerningly, J-POWER’s strategy does not provide clear information on the planned retirement of coal-fired power plants - a crucial step towards achieving significant emissions reductions. This ambiguity poses significant risks to the company’s climate credibility and long-term shareholder value.
6. Remuneration linkage, unconvincing commitment to climate goals: While J-POWER's attempt to link performance-based compensation with Material Issues including climate change is a positive step, it falls short of demonstrating a robust commitment to climate change mitigation. The absence of specific, quantifiable climate-related performance targets within the remuneration structure indicates a potential misalignment between executive incentives and the urgency of the climate crisis.
7. Inadequate leadership on climate accountability: J-POWER's board of directors bear the responsibility for ensuring that the company's strategy aligns with the urgency of the global transition to a low-carbon economy. The lack of transparent, ambitious climate-related targets and strategies, as well as a lack of clear disclosure around plans for coal power phase-out, raises questions about the board's commitment to and understanding of the necessary energy transition.
8. Threats to long-term profitability and shareholder value: J-POWER's slow renewables transition, reliance on unproven technologies, and lack of coal plant closure planning could threaten long-term profitability and investor value in a decarbonising economy.

Disclaimer

This document has been prepared by the Australasian Centre for Corporate Responsibility Inc. (“ACCR”).

Copyright

Any and all of the content presented in this report is, unless explicitly stated otherwise, subject to a copyright held by the ACCR. No reproduction is permitted without the prior written permission of ACCR.

No distribution where licence would be required

This document is for distribution only as may be permitted by law. It is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or would subject ACCR to any registration or licensing requirement within such jurisdiction.

Nature of information

None of ACCR, its officers, agents, representatives or and employees holds an Australian Financial Services Licence (AFSL), and none of them purports to give advice or operate in any way in contravention of the relevant financial services laws. ACCR, its officers, agents, representatives and employees exclude liability whatsoever in negligence or otherwise, for any loss or damage relating to this document or its publications to the full extent permitted by law.

This document has been prepared as information or education only without consideration of any user's specific investment objectives, personal financial situation or needs. It is not professional advice or recommendations (including financial, legal, tax, investment or other professional advice); it is not an advertisement nor is it a solicitation or an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Because of this, no reader should rely upon the information and/or recommendations contained in this report. Users should, before acting on any information contained herein, consider the appropriateness of the information, having regard to their objectives, financial situation and needs. It is your responsibility to obtain appropriate advice suitable to your particular circumstances from a qualified professional before acting or omitting to act based on any information obtained on or through the report. By receiving this document, the recipient acknowledges and agrees with the intended purpose described above and further disclaims any expectation or belief that the information constitutes investment advice to the recipient or otherwise purports to meet the investment objectives of the recipient.

Nothing in this document is intended to be, nor should it be construed as, a “solicitation of proxies” under the FIEA.  ACCR is not soliciting any action based upon this document and will not be responsible for any decision by any shareholder or other person based on, or by reference to, any information given or opinions expressed in this document.

In this document, ACCR  is not soliciting or requesting the joint exercise of voting rights or any other shareholder’s rights, and does not have the intention to be treated as any of “joint holder” (kyoudou hoyuu-sha) or “Specially Related Persons” (tokubetsu kankei-sha) under the FIEA, or “closely related parties” (missetsu kankei sha) under the FOREX.

Any prices stated in this document are for information purposes only and do not represent valuations for individual securities or other financial instruments. ACCR does not represent that any transaction can or could have been affected at those prices, and any prices do not necessarily reflect ACCR’s internal books and records or theoretical model-based valuations and may be based on certain assumptions. Different assumptions by ACCR or any other source may yield substantially different results.

Information not complete or accurate

The information contained in this report has been prepared based on material gathered through a detailed industry analysis and other sources and although the findings in this report are based on a qualitative study no warranty is made as to completeness, accuracy or reliability of fact in relation to the statements and representations made by or the information and documentation provided by parties consulted as part of the process.

The sources of the information provided are indicated in the report and ACCR has not sought to independently verify these sources unless it has stated that it has done so. ACCR is not under any obligation in any circumstance to update this report in either oral or written form for events occurring after the report has been issued. The report is intended to provide an overview of the current state of the relevant industry or practice.

Links to Other Websites

This document may contain links to other websites not owned or controlled by the ACCR and ACCR assumes no responsibility for the content or general practices of any of these third party sites and/or services whose terms and conditions and privacy policy should be read should you access a site as a result of following a link cited in this report.

Please read the terms and conditions attached to the use of this site.