Global Utility White Paper CONFIDENTIAL
Electron’s structural changes: Asia-Pacific ex-Japan
e China power market policy changes to address record pollution levels
e Impact on China’s power market of selective coal plant approvals
e = Accelerating development of shale gas in China
e Urgently-needed power reform in India to address fuel, power tariff and grid issues ¢ Potential carbon trading and Renewable Portfolio Standards (RPS) in China
e Increasing promotion of natural gas usage and price reform in China
e Fuel cost passthrough implementation amid a potential power shortage in Korea e Continued support for nuclear power by China — new-build approval delay impact e Increased robustness of fuel cost passthrough regimes
e = Indian import duties on equipment
e Increasing pressure on electricity tariffs in HK
e __ Rising Australian domestic gas prices on LNG export arbitrage
e = Australian carbon market future
e Consolidation of the Australian supply market into an oligopoly
e Australian state regulatory evolution (e.g., electricity in Queensland)
e Japanese Utilities
The impact of the Fukushima incident on Japanese utilities will last for years. Nuclear policy will continue to be reviewed — notably the decision whether to restart nuclear power plants — which will affect the utilities’ long-term fuel mix and therefore cost base.
For example, Kansai Electric Power, which has the largest exposure to nuclear generation after Tokyo Electric, stopped paying dividends after the nuclear shutdown. Every 1% change in its nuclear fleet utilization rate will affect earning by almost 10% over a normalized level; nuclear policy decisions can thus create outcomes for share prices of +/- 50%.
The ripples from changing nuclear policy will have a long-lasting impact, both negative and positive, on companies involved in the nuclear value chain (e.g., reactor manufacturers such as Mitsubishi Heavy) and other power-related sectors such as gas and renewable energy. Relative to other regions, Japanese utilities will be the most affected by macro factors (e.g. the Yen, interest rates, fossil fuel prices, etc.).
Below is a partial list of structural changes driving long/short opportunities in Japan:
Electron’s structural changes: Japan
e = Fukushima incident’s impact on Japan’s power-related sectors such as LNG and power equipment e Derating of sector as a result of the government’s response to Fukushima
e Restart of nuclear plants with Abe administration and prefecture support
e Fuel cost impact from Yen depreciation
e Movement to higher value-added renewable energy systems
11 Electron Capital Partners, LLC
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