Nippon Paper Mulls Power Plant Investment Amid Abe Energy Push

Nippon Paper Industries Co., Japan’s second-biggest paper producer, is considering a project to build what would be its largest power plant in Ishinomaki, a port city north of Tokyo wrecked by the 2011 earthquake.

The project, an example of Nippon Paper’s drive to expand outside its mainstay paper products, represents the kind of investment Prime Minister Shinzo Abe endorsed this week as part of efforts to deregulate the electricity industry. Nippon Paper may eventually sell some of the power generated to customers.

“The energy business presents an opportunity to grow,” Haruhi Nomura, general manager in charge of energy at Nippon Paper, said June 5 in an interview in Tokyo. “Our current focus is on creating more power to sell to customers.”

The company is studying whether to add a 30 billion yen ($301 million) plant fueled by coal and wood at the site of its Ishinomaki paper factory with output capacity of about 110 megawatt hours, Nomura said. The plan is among many unannounced projects under consideration to produce power fueled by biomass, solar and wind, he said. 

The facility is the latest example of the shift occurring at Japanese paper companies including Nippon Paper and Oji Holdings Corp. (3861) as they compensate for flagging paper sales. Japan’s paper consumption has fallen 16 percent over the past five years to 16.2 million metric tons, according to data compiled by the Japan Paper Association in 2012.

Tokyo-based Nippon Paper, which lags behind only Oji Holdings in sales, plans to start operating a biomass plant in March 2015 at its Yatsushiro factory on the southern island of Kyushu.

Electricity Investment

Abe gave his approval of the trend this week when he pledged to spur investment in the nation’s electricity industry to about 30 trillion yen in the next decade.

Nippon Paper is targeting annual sales from energy at more than 50 billion yen in about five years, according to Nomura. An energy business division will be set up as of June 27 in an organizational reform, according to a May 28 company statement.

The company, which uses energy in paper manufacturing, says it has power generation capacity of about 1,700 megawatt hours, among the biggest in Japan outside traditional utilities.

Oji Holdings said in February that it will add a wood-fueled power plant in Miyazaki prefecture on the Kyushu island by March 2015. The company is also considers a similar power plant on the northern island of Hokkaido, part of its 60 billion investment in renewable energy, Shoji Fujiwara, chairman of Oji Green Resources Co., said in an interview in Tokyo last year.

Government Incentives

Government incentives known as feed-in tariffs are proving one of the main drivers of clean energy in Japan. The program, introduced in July, requires utilities to pay above-market rates to companies producing power from renewable energy, with the added cost passed on to consumers as surcharges.

Nippon Paper hopes to make a decision on whether to build the Ishinomaki facility by the end of the year, Nomura said. Sales from the plant would be about 8.5 billion yen a year should all its electricity be sold to outside customers. Nippon Paper generated about 18 billion yen in total from electricity sales in the year ended March 2012, according to Nomura.

To contact the reporter on this story: Masumi Suga in Tokyo at msuga@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.