Risk of fluctuations in electricity sales prices due to changes in electricity supply and demand

「Revenue increased due to higher sales prices in the wholesale electricity market, resulting from the impact of the situation in the Middle East and other factors, in addition to increased electricity sales volumes from stable operations.」

「At the Tomakomai Power Plant, the item described as "power plant revenue" was affected by a substantial decline in electricity market prices. Although the company changed its sales approach to focus on retail sales, which have higher unit prices than wholesale electricity sales, the unit prices under electricity sales contracts did not reach the previous fiscal year's level.」

「The New Electricity Business Division determined that securing profitability had become difficult due to rising electricity procurement costs and has been scaling back the business since last year. As a result, revenue was ¥1,964 million, down 54.6% year on year. Operating profit was ¥87 million, down 63.1% year on year. In the previous fiscal year, the company was able to earn a margin by selling surplus electricity procured through bilateral transactions in the wholesale electricity market, where prices were higher than bilateral procurement prices. However, in addition to the wholesale electricity market settling down, revenue declined as a result of the business scale-back.」

「The New Electricity Business Division determined that securing profitability had become difficult due to rising electricity procurement costs and has been scaling back the business since last year. Operating profit was ¥69 million, down 48.2% year on year. In the previous fiscal year, the company was able to earn a margin by selling surplus electricity procured through bilateral transactions in the wholesale electricity market, where prices were higher than bilateral procurement prices. However, in addition to the wholesale electricity market settling down, revenue declined as a result of the business scale-back.」

「The New Electricity Business Division determined that securing profitability had become difficult due to rising electricity procurement costs and has been scaling back the business since last year.」

「By the end of the cumulative third quarter of the current fiscal year, the company had completed the transfer of unprofitable electricity retail contracts to agency contracts with other companies. It also switched electricity procurement from the market to bilateral procurement, eliminating price fluctuation risk and enabling the new power business to record operating profit.」

「In the second quarter consolidated accounting period (1 July to 30 September 2022), we also eliminated price volatility risk related to electricity procurement by making bilateral procurement the primary method of procurement.」

「The transition of unprofitable electricity retail contracts to agency agreements with other companies is largely complete. To eliminate price volatility risk related to electricity procurement, we stopped accepting new electricity supply-and-demand contracts and proceeded with the transition of some electricity retail contracts to agency agreements. As a result, revenue fell 68.2% from the previous fourth-quarter consolidated accounting period, but the price volatility risk related to electricity procurement was reduced.」

「Operating loss was ¥4,435 million, compared with an operating loss of ¥529 million in the previous fiscal year. In the new electricity business, prices in the Japan Electric Power Exchange (JEPX) wholesale electricity market rose to unprecedented levels from October 2021. In March 2022, electricity supply became tight after thermal power plants were shut down following an earthquake off the coast of Fukushima Prefecture, while global energy prices also rose amid the Russia-Ukraine situation. As a result, electricity procurement costs increased substantially, driving up cost of sales.」

「The energy business reported an operating loss of ¥1,432 million, compared with operating income of ¥28 million in the previous fiscal year, as the surge in wholesale electricity market (JEPX) prices from October substantially increased electricity procurement costs and significantly raised costs.」

「The energy business reported an operating loss of ¥124 million, compared with an operating loss of ¥33 million in the previous fiscal year, as higher procurement prices from the electricity market and other sources increased costs, while expenses associated with increased staffing for expanding the third-party-owned solar power generation model also rose.」

「Operating income was ¥35 million, compared with an operating loss of ¥80 million in the previous fiscal year. Although costs associated with increased staffing for expanding the third-party-owned solar power generation model rose, profitability in the new electricity business improved as electricity procurement costs declined.」

「The energy business segment reported an operating loss of ¥529 million, compared with an operating loss of ¥485 million in the previous fiscal year, because electricity procurement costs increased more than expected as wholesale electricity market prices rose due to winter weather factors and an LNG (liquefied natural gas) shortage.」

「The number of retail electricity contracts increased 64.9%, driven by strong growth in low-voltage contracts. Meanwhile, to reduce surplus electricity sold to the wholesale electricity market (JEPX) in order to improve profitability, the company reduced the volume of electricity procured through bilateral transactions. As a result, the volume sold wholesale through JEPX declined, and revenue was ¥6,790 million, down 4.4% year on year. Although personnel and other costs increased because of higher staffing to promote a third-party-owned solar power generation model for detached houses, operating income was ¥28 million, up 180.0% year on year, as the reduction in electricity procured through bilateral transactions improved the profitability of the new electricity business.」

「To diversify procurement methods, the company combines market purchases with procurement through bilateral transactions.」

「Retail sales revenue declined due to a decrease in the number of high-voltage contracts, while lower prices in the wholesale electricity market also had an impact. Revenue was ¥7,103 million, down 13.2% year on year. Operating income was ¥10 million, down 96.9% year on year, as lower revenue and a decline in margins resulting from the higher proportion of wholesale sales affected operating profit.」

「Market prices in the group's electricity sales business fluctuate depending on trends in nuclear power plant restarts and supply and demand. Significant fluctuations in electricity sales prices or procurement prices could affect the group's operating results and financial position.」

「The electricity sales price at the Tomakomai Power Plant and electricity procurement prices may fluctuate depending on progress in restarting nuclear power plants, electricity supply and demand, and other factors.」

「Electricity sales prices may fluctuate due to seasonal changes in electricity supply and demand and changes associated with the restart of nuclear power plants. If electricity sales prices decline more than expected, the group's operating results and financial position could be adversely affected.」