Interview
Why Tokyo Gas Established a Joint-Venture with a British Energy -Tech Startup

Tokyo Gas supports energy infrastructure, working mainly in the Tokyo Metropolitan Area. The gas company is now promoting changes in the Japanese energy market structure through open innovation with an overseas startup.

Tokyo Gas formed a business alliance with Octopus Energy, a UK-based energy-tech startup, in 2020 and established a joint-venture company, “TG Octopus Energy”, in February 2021. Mr. Ryoji Etsuki, Strategic Planning Manager of TG Octopus Energy (seconded from Tokyo Gas) talked to us about setting up the Joint Venture and about how Tokyo Gas would like to drive societal change through this new business alliance (interviewed on February 22, 2021).

Q: Please tell us about Tokyo Gas.

Mr. Etsuki: Tokyo Gas has more than 130 years of history. The company is Japan’s largest gas company, with a total of some 60,000 km of gas pipelines. Since the liberalisation of Japan’s electricity market in 2016, we have been focusing on energy retail, and engage in providing energy from both gas and electricity.

Moreover, looking overseas, we also engage in engineering solutions, the sale of gas equipment, real-estate business, and an information service business, in addition to the upstream to mid- and down-stream energy business.

Q: You specify “Net-Zero CO2” in the Group Management Vision. Could you tell us about the background to this?

Mr. Etsuki: “Net-Zero CO2” is one of the challenges specified in the Group Management Vision, “Compass 2030,” announced in 2019. Consumers’ value systems have been changing and diversifying because of decarbonization and digitization. In addition, we believe that competition for liberalized energy will intensify.

We are the largest player of natural gas, but we think that the importance of renewable energy will increase going forward. It is hard to make a total transformation into renewable energy suddenly. However, combining the value of natural gas, renewable energy, and relevant new services successfully, we would like to provide a variety of solutions to address the future needs of customers, society, and the global environment.

Q: In December, 2020, Tokyo Gas announced that the company had made an investment in Octopus Energy and established a Joint Venture company. Please tell us about how you came to encounter this British energy-tech startup.
* Relevant press release(165KB)

Mr. Etsuki: Tokyo Gas first spoke with Octopus Energy in December 2019 around possible investment in their business.

Q: When Octopus Energy first made the offer, what was Tokyo Gas’s internal response like?

Mr. Etsuki: Tokyo Gas has been operating with a main focus on delivering cheaper energy to Japanese consumers in a stable manner. But we are always looking to build on our achievements, improve and grow our business and develop innovative solutions that help to make energy for Japanese customers even better - and ever more so since the liberalisation of the energy market which has opened up new possibilities for innovative businesses.

Teaming up with another company who complements our offering and brings new ideas and expertise to the table was always a potential option for us. So we were very excited when Octopus Energy approached us as they had already proven in the UK what a disruptive impact they can have in a liberalised market.

Q: Was Octopus Energy’s business performance in the UK important in going ahead with the alliance?

Mr. Etsuki: Octopus Energy started from scratch and established a tech-led energy company in the highly competitive UK market and piled up a considerable track record, acquiring nearly 2 million customers and becoming the 6th largest energy supplier in just 5 years. That’s a remarkable achievement. We were able to fully explain that this alliance would be more advantageous than going it alone, and Octopus Energy’s proven track record, technology leadership and world-class customer service made it easier to get internal consent.

Q: What was the aim of establishing a JV company, rather than creating a simple business alliance?

Mr. Etsuki: It was our wish for Octopus Energy to bring their know-how into Japan first, and to provide us with their expertise to the fullest extent.

For instance, their in-house developed technology platform “Kraken”, an end-to-end management platform which automates much of the energy supply chain, is very easy to use and highly rated. We could have simply purchased the system and received the license, with the business development being done by Tokyo Gas alone. However, we didn’t think that would result in the same achievement in Japan that Octopus Energy had in the UK.

We thought there were many benefits to be gained from the know-how of Octopus Energy, including in the way they take care of their customers, their diverse and employee-centred culture and their agile way of working. It was only when the technology platform was combined with the organizational management that we could reach 100% of the performance potential. By partnering with Octopus Energy, we are hoping to learn from each other and use Octopus' deep technology and energy expertise to bring better customer service and greener, cheaper energy to customers in Japan.

Q: I get an impression that features related to infrastructure vary from country to country and bringing in know-how seems difficult.

Mr. Etsuki: Exactly. It would be difficult to succeed in Japan in a big way only by Octopus Energy’s digital technology and marketing know-how. Octopus Energy also understands this point, so that’s why they came forward with their proposition to partner with Tokyo Gas.

We have expertise and know-how in Japan’s unique power market. In addition, we have our own power generation source. Consequently, we are able to provide power capabilities without being subjected to market prices. Furthermore, we have abundant contact points with the Japanese customers that we have developed in the gas business, so we see a great potential to expand our business.

Q: What were positive points in advancing the alliance with Octopus Energy?

Mr. Etsuki: What helped us very much in making a decision was that Octopus Energy shared with us their performance record and energy technology know-how, and they showed us how their technology platform Kraken and the unique operational model it enables led to outrageously good customer experiences. Although there are some areas of the business we could not see first-hand due to COVID-19 travel restrictions, they kindly performed online demonstrations, and we held online meetings almost every day.

They also updated us about any changes in their plans and financial situations caused by COVID-19 as needed. Octopus Energy has seen steady growth in sales and profits by using digital technology even in the COVID-19 environment, which I and the rest of the Tokyo Gas team which worked on this alliance appreciated very much.

Q: Were there any unexpected twists in proceeding with the alliance?

Mr. Etsuki: Anytime two companies from different countries enter into a business relationship for the first time, there are going to be twists and turns. We worked hard with Octopus Energy to gain a common understanding of timelines and deliverables so that we could work together through a significant investment and business opportunity. It has been a great success so far.

Q: What is attractive about Japan’s energy infrastructure market for overseas startups?

Mr. Etsuki: Compared to Europe, Japan is still in the early days of total energy market liberalization, and there are some areas where switching has not yet advanced. I think that the Japanese market has very high potential for growth going forward.

There are many players from different industries coming into the Japanese energy market. These players have expertise obtained in a completely different environment from that of the energy infrastructure companies like us. I think that if those companies add new value, there is a possibility that they will capture the market significantly.

In the UK, total liberalization of power retailing started in 1999. In Japan, it was implemented only in 2016. So far, the liberalization has been in its infancy in Japan. Having said that, market rules were pretty enhanced for the past year or two. I assume that a number of powerful players will compete fiercely and intensely going forward.

Q: Would it be difficult for overseas startups looking to advance into the Japanese energy infrastructure market?

Mr. Etsuki: Because regulations and rules vary from country to country, I assume it would be a daunting task for overseas companies that have neither the know-how in Japan nor a good understanding of Japanese language to enter the market.

That being said, if they join hands with a Japanese company with know-how, and their expertise cultivated overseas can be utilized in Japan, then they may be able to add value.

Q: Please tell us about your company's future prospects.

Mr. Etsuki: We think our mission is to create a new energy system by combining eco-friendly new technology or services, including renewable energy, with natural gas successfully.

As for the use of natural gas, services such as fuel cells called ENE・FARM and smart energy networks using a cogeneration system have already been rolled out. If cultivated expertise is used, all energies such as gas, electric power, and thermal energy can be used efficiently, and reduction in CO2 should be achieved.

Regarding open innovation, for instance, we would like to achieve energy management using new concepts and efficient digital technologies while partnering with startups who would consider new businesses with distributed-type services including solar power generation and storage batteries.

Looking ahead, we would like to focus on research and development on CCUS（Carbon dioxide Capture, Utilization and Storage）, which collects CO2 emitted and uses it as a resource.

Q: Would you tell us about future prospect of the JV company with Octopus Energy?

Mr. Etsuki: First of all, we would like to focus on electricity retailing, but specific marketing plans and tariffs are yet to be determined. We would like to offer customers better service and cleaner energy by combining Octopus Energy's customer service and technology expertise with our in-depth knowledge of Japan’s unique energy market.

Another thing I might add is this crucial point, which is that Octopus Energy rolls out 100% renewable energy-based power in the UK and is increasing its customer base. To achieve a Net-Zero CO2 society, we are going to have to reinforce renewable energy. Therefore, we think there is much to learn by doing business with Octopus Energy.

We believe that the alliance is attracting attention in the Japanese energy industry. We are proud this is a business that incorporates cutting-edge digital technology and marketing know-how into the energy industry. Therefore, we recognize that the alliance might serve as a springboard to change the Japanese energy market and Japanese people’s attitude toward energy, and lifestyle. Both companies are determined to become united as one and create new value.

We would appreciate overseas startups who have empathy for creating and nurturing Japan’s new energy culture with Tokyo Gas actively reaching out to us to propose new solutions.