The Coal Strategy of The Chugoku Electric Power Co., Inc.

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1 The Coal Strategy of The Chugoku Electric Power Co., Inc. The Chugoku Electric Power Co., Inc. September 6, 2011

2 Table of Contents 2 Ⅰ. Roles of coal Ⅱ. Our solutions for the issues (Partnership between coal-producing and coalconsuming countries) Ackerley

3 3 Ⅰ. Roles of coal Glandon

4 Ⅰ-1. The role of coal in world electricity generation 4 World power demand, estimated by IEA in the New Policies Scenario, will continue to increase in the future. Coal-fired power will remain as the largest source of electricity generation. Electricity generation (TWh) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 World electricity generation by type in the New Policies Scenario World electricity generation by type in the New Policies Scenario Other renewables Wind Biomass+Waste Hydro Nuclear Gas Oil Coal Source: IEA, World Energy Outlook 2010.

5 Ⅰ-2. The role of coal in Japan s electricity generation 5 After the Oil Shock, coal has been increased as one of the alternative energy resources to replace oil. In view of the nuclear power accident, energy policy is being reviewed. However, coalfired power will continue to remain as an essential base load. (billion kwh) 1,200 New energies, etc. Hydro Japan s power generation by type ,396 (billion ( 億 kwh) kwh) 9, , ,000 Natural gas 1 1 Oil, etc , Nuclear 800 7, Coal , , (FY) Oil Shock Source: METI, Outline of Fiscal 2010 Power Supply Plan.

6 Ⅰ-3. Characteristics (benefits) of coal Compared to other fossil fuels such as oil, natural gas and so on, coal is cost-effective as its price per equivalent calorie is lower. There are abundant resources of coal. Coal is widely located and can be stably supplied. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Resource reserves by region Oil Natural gas Coal Source: BP Statistical Review of World Energy Asia Pacific North America Latin America Africa Europe/Eurasia Middle East CIF prices per calorie of fossil fuels (Yen/1,000kcal) Source: JTASS, Japan Exports & Imports (Country by Commodity). Proven reserves of energy resources 42.0 years tril. barrels Oil (at the end of 2008) 60.4 years 185 tril. m 3 Natural gas (at the end of 2008) 122 years 826 bil. tons Source: FEPC, Graphical Flip-Chart of Nuclear & Energy Related Topics (FY) LP gas LNG 100 years 5.47 mil. tons 6 Oil Coking coal Steaming coal Coal Uranium (at the end of 2008) (At the end of 2007)

7 Ⅰ-4. The role of coal in the Chugoku Electric Power Compared to other Japanese electric power utilities, our company relies heavily on coal-fired power. Even in the future, coal-fired power will also account for about one third of electricity generation and function as a significant base load power. Composition of Chugoku Electric Power s electricity generation (%) 7 [Chugoku Electric Power (Note 1)] 3 [All Japan (Note 2)] Nuclear Nuclear Coal Coal 36 Coal 8 Oil Oil 4 3 Gas Oil Gas Gas Hydro Hydro Hydro New New energies New energies energy (FY) [Projected performance] [Projected performance] (Note 2) Planned values, including ten electric power companies, (Note 1) Planned values are based on the performance prior wholesale electric utilities, wholesale electric suppliers and so on, are to Great East Japan Earthquake. based on the performance prior to Great East Japan Earthquake. Source: CEPC, Outline of Fiscal 2010 Power Supply Plan Nuclear

8 Ⅰ-5. Rising price and tightening procurement due to demand increase 8 Compared to oil and LNG, coal price has been rather stable. However, as the future demand for coal will be increasing due to economic growth in emerging economies, concerns grow about the rising price and tightening procurement. Coal/LNG (thousand yen/t) Oil (thousand yen/kl) 100 Changes in fossil-fuel prices Source: Trade Statistics of Japan, MOF, General Trade Statistics Oil LNG Coal Billion kwh 1,200 1, Coal-fired electricity generation by region in the New Policies Scenario China India Other OECD OECD (Year) Source: IEA, World Energy Outlook 2010.

9 Ⅰ-6. Need for preventing global warming 9 Coal emits more CO2 per kwh electricity generation. Efforts are required to reduce CO2 emissions by developing clean coal technology (CCT). One third of total CO2 emissions in the world come from coal-fired power sector. The application of CCT prevents global warming effectively and also helps save coal resources. CO2 emissions by power sector (kg-co2/kwh) Coal Oil LNG Nuclear Hydro (Steam) CO2 emissions (Mt-CO2) 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 CO2 emissions from the power sector by region in the New Policies Scenario Total CO2 emissions Gas-fired Oil-fired Coal-fired 20,924 29,260 32,741 33,739 34,395 35,053 35, Source: CRIEPI, Evaluation of Life Cycle CO 2 Emissions of Power Generation Technologies. Source: IEA, World Energy Outlook 2010.

10 10 Ⅱ. Our Solutions for the issues (Partnership between coal-producing and coal-consuming countries) Skyne

11 Ⅱ-1. Ensuring stable coal procurement (Diversification of coal sources) 11 As an action to ensure stable coal procurement, the sources of coal supply have continuously been diversified. Together with the efforts to diversify coal-producing regions and coal ports, we are also trying actively approaching new brands of coal so as to achieve both stable procurement and cost effectiveness. Trend of diversification 当社の石炭受入先の推移 of coal procurement 100% 6% 6% 4% 4% 7% 11% 1% 1% 3% 90% 6% 6% 9% 12% 13% 13% 14% 11% Russia 80% 14% 22% 22% South Africa 70% 33% 29% 25% 34% 26% 34% 32% Canada 60% 50% 40% 30% 20% 10% 0% [Quantity [ 受入量 ] received] 63% 64% 50% 48% 54% 49% 58% 48% 50% [538 万 t] [620 万 t] [618 万 t] [683 万 t] [675 万 t] [754 万 t] [669 万 t] [532 万 t] [675 万 t] [5.38 mil. t] [6.20 mil. t] [6.18 mil. t] [6.83 mil. t] [6.75 mil. t] [7.54 mil. t] [6.69 mil. t] [5.32 mil. t] [6.75 mil. t] China Indonesia Australia (except NC port) Australia (NC port)

12 Ⅱ-2. Securing coal procurement in the future (Investment in upstream interests) 12 Chugoku Electric Power has participated in acquiring interests via Japan Coal Development Co., Ltd., a joint company of Japanese electric utilities. (Investment in two coal mines and the port of New Castle in Australia) In the future, while keeping working together with Japan Coal Development Co., Ltd., we are also trying to independently acquire overseas upstream interests. Purposes for acquiring upstream interests (1) To ensure long-term stable supply of high-quality coal for our coalfired power plants (2) To hedge coal price volatility by obtaining dividend income, etc. Things to be considered for upstream interests (1) Coal quality and reserves (2) Business stability (stable operation, economics, etc.) (3) Affairs of target counties (resource export policy, taxation and so on), etc.

13 Ⅱ-3. Stabilizing coal procurement in the future (Rebuilding Seto Inland Distribution system) 13 Chugoku Electric Power, in joint efforts with Yamaguchi Prefecture and other organizations, applied for International Bulk Strategic Port of Ministry of Land, Infrastructure, Transport and Tourism (MLIT). As a result, Tokuyama-Kudamatsu Port and Ube Port were accepted. By around 2020, the involving companies will use large ships (Cape type) in a wide-range cooperation to make shipping more economical and flexible. To promote the efficiency of total coal chain including coal-producing countries, we will endeavor to reduce demurrage at coal ports and put large ships to use. Project outline 2015: Unloading Panamax ship at two ports (1 st : Tokuyama and Ube; 2 nd : Shin-Nanyo) 2020: Unloading Cape ship at two ports (1 st : Kudamatsu; 2 nd : Tokuyama, Ube and Shin-Nanyo) Current scheme Ube Shin-Nanyo Tokuyama Tokuyama- Kudamatsu Port Kudamatsu Cooperation scheme Ube : Cape: 2 nd Port Panamax: 1 st Port Shin-Nanyo Cape: 2 nd Port Panamax: 2 nd Port Tokuyama Cape: 2 nd Port Panamax: 1 st Port Kudamatsu Cape: 1 st Port Tokuyama- Kudamatsu Port Ube Port Handymax (40,000-50,000 DWT) Ube Port Panamax (90,000 DWT) Australia, Indonesia, etc. Over-Panamax (100,000 DWT) Australia, Indonesia, etc. Legend Cape (180,000 DWT) Panamax (90,000 DWT)

14 Ⅱ-4. Development of high-efficiency coal utilization technology 14 Unit 1 of Misumi Power Station (located in Hamada City, Shimane Prefecture) has achieved high efficiency with high steam temperature and pressure by utilizing 600 ultra-supercritical (USC) generating plant. Changes of steam conditions Turbine inlet steam pressure (MPa) Subcritical Steam temperature Steam pressure Supercritical (SC) Shin-Onoda Unit 1&2 24.1MPa 538/566 Misumi Unit Ultra-supercritical (USC) Turbine inlet steam temp. ( ) Start of operation (Year) : Also including non-coal fuels Source: Central Research Institute of Electric Power Industry (CRIEPI), Review No. 46 (partly revised).

15 Ⅱ-5. Development of coal gasification technology 15 Coal gasification technology enables wider choice of coal types. Aiming at higher efficiency and cleaner power generation, we are participating in both air- and oxygen-blown projects. As for air-blown, all the electric utilities are conducting demonstration tests of integrated coal gasification combined cycle (IGCC) technology. As for oxygen-blown, Chugoku Electric Power is conducting large demonstration test stated below in cooperation with Electric Power Development Co., Ltd. to step forward for developing integrated coal gasification fuel cell combined cycle (IGFC) technology. Company name Paid-in capital Osaki CoolGen Corporation (Established on July 29, 2009) 980 million yen (Capital-490 million yen, capital reserve-490 million yen) (The Chugoku Electric Power Co., Inc. and Electric Power Development Co., Ltd. respectively contributed 50%.) Output: 170,000 kw Coal usage: 1,100 tons/day Net thermal efficiency: Equal to one million kw USC Business activities Construction/testing of large demonstration plant related to oxygen-blown IGCC technology and CO2 separation/recovery technology, which are core technologies of IGFC. Demonstration plant for CO2 separation & recovery Generating plant for IGCC demonstration test Fiscal Year Schedule Feasibility studies Environmental assessment Design/Construction Start of construction CO 2 separation & recovery test Demonstration test Design/Construction Demonstration test IGFC Design/Construction Demonstration test

16 Ⅱ-6. Overseas expansion with CCT 16 Using the CCT expertise we have developed over many years, Chugoku Electric Power helps solve environmental problems of coal-fired power plants outside Japan. Projects outside Japan Chugoku Electric Power is highly valued for its USC plant operation and maintenance technologies at Misumi Power Station. Owing to this, we entered into an MOU with China Huaneng Group (in September 2008) for renovation project with the goal of improving the efficiency of coal-fired power plants in China in order to reduce the impact of such plants on the environment. We concluded a technical cooperation agreement with Huaneng Power International, Inc. (HPI), a subsidiary of China Huaneng Group (in October 2009) regarding the operation and maintenance of coal-fired power plants. Until now, technical exchange meetings have been held three times. Chugoku Electric Power proposed a Research for Developing New Projects of High-efficiency Coal-fired Power Plants in Poland in a NEDO open project named as Research for Developing Projects Using Highefficiency Coal Utilization Systems. As a result, our proposal was adopted. (Research period: From June 2011 to March 2012) In cooperation with other relevant organizations, we are doing a feasibility study (various research, concept design and so on) on business possibilities of applying Japan s CCT into the new projects of high-efficiency coal-fired power plants in Poland. Signing ceremony held in China ENEA ENERGA Tauron Capital Warsaw PGE Poland Power Supply Map

17 Ⅱ-7. Expansion of the use of sub-bituminous coal and lignite 17 Sub-bituminous coal and ignite consist of the half of coal reserves in the world and they are not fully used yet. For increasing the use of sub-bituminous coal and ignite as well as stabilizing their prices and procurement, we have developed coal gasification technology to expand the use of sub-bituminous coal in Japan and coal-producing countries. Recoverable coal reserves Subbituminous 31.5% Lignite 17.7% bil. tons (at the end of 2007) Anthracite/ Bituminous 50.8% Recoverable years: 122 Coal production bil. tons/year Changes of coal production Source: BP Statistical Review of World Energy June 2008, et al. Anthracite/Bituminous Ignite/Sub-bituminous 85% 10% 5%

18 Ⅱ-8. Solving environmental issues by transferring CCT 18 To expand CCT worldwide, it is critical to create an effective mechanism that is able to ensure project returns (including credits) and to contribute to solving global environmental problems. Japan Government Further develop clean coal technology Further technology brush-up Establish cuttingedge CCT & accomplish best practice Construction/operation with full-scale palnt, etc. Multilateral/ bilateral agreement Government Developing countries, etc. Support & environment building Business return, credit transfer, etc. Reduce coal consumption & CO2 emissions Technology transfer, project participation, etc. Actively apply cutting-edge clean coal technology

19 Ⅱ-9. Reduction of CO2 emissions by transferring CCT 19 The demand for primary energy resources keeps on increasing in the world, especially in Asia. In this trend, the proportion of coal-fired power sector in electricity generation is expected to grow higher. More coal will also be likely consumed in the US, China and India. If the efficiency of Japan s coal-fired power generation is applied to these countries, 1.1 times of Japan s CO2 emissions (approximately 1.3 billion tons) could be reduced. Application cases of Japan s best practices (the highest efficiency in the operating plants) (Actual figures are as of 2004.) Mt-CO 2 2,000 ( 387) ( 776) 387(mil. tons) + 776(mil. tons) + 184(mil. tons) Approx. 1.3 bil. tons 1,500 1, ( 23) ( 184) 388 Actual BP case Actual BP case Actual BP case Actual BP case Japan US China India Source: The Institute of Energy Economics (IEE), Japan, Actual figures: IEA, World Energy Outlook 2006.

20 20 Chugoku Electric Power has been responding to the needs of the times by improving its coal-fired power generation. We have led electric utilities in carrying out technology development and bringing in the state-of-art technologies. Besides, we have played an active role in developing environmental technologies and contributed to stabilization of the supply and price of energy resources. To enhance the clean use of coal featured by supply stability and cost-effectiveness, we will make further efforts in stable procurement and technology development of coal. Meanwhile, we will continue to extend the partnership with coal-producing countries, and contribute to the effective use of coal and the prevention of global warming. Thank you very much for your attention.