March 7, 2022
Company Name: ENECHANGE Ltd.
Representative: Yohei Kiguchi, Representative Director and
CEO
Ippei Arita, Representative Director and COO
(TSE Mothers Code No. 4169)
Inquiries: Takuya Sugimoto, Executive Officer / CFO
TEL: +81-3-6774-6709
Notice Concerning the Impact on our Business Performance due to the Sharp Rise in Electricity Prices
Caused by the Global High Prices of Natural Resources
We disclosed our monthly Q&A on February 25, 2022 in our "Frequently Asked Questions and Answers (February 2022)," but since then, the increasingly serious situation in Russia and Ukraine has led to a further rise in global resource prices, which has affected domestic electricity rates and wholesale electricity market prices. There continues to be concern about spillover effects. In response to these changes in the business environment, we are disclosing the impact on our company as follows for the purpose of promptly disclosing points that may be of concern to investors.
Summary
- The sharp rise in wholesale electricity prices has both positive and negative effects on the Company. In the Platform business, while the number of applications is growing strongly due to the rising demand for electricity switching, there is an increasing possibility that one-time fees from electricity companies will be reduced.
- The full-year consolidated earnings forecast for FY2022, announced on February 10, 2022, incorporates to a certain extent the impact of the sharp rise in resource prices at the time of the announcement. On the other hand, due to subsequent changes in the situation in Russia and Ukraine, we recognize that the situation has worsened from the time of publication. At this point, we do not recognize the need to revise our earnings forecast, but we will continue to monitor the situation closely and disclose the impact as necessary.
- Recurring revenue from our Platform business, in which we receive a certain percentage of users' electricity usage fees as compensation, will continue to be a stable source of earnings.
In addition, we expect that new electricity companies will focus on acquiring users through new value-added services that are not based on price competition, and that related services such as demand response will expand. We anticipate a rapid societal shift to electric vehicles (EVs) in response to soaring gasoline prices. These factors are expected to have a positive medium-term impact on our Data business.
Positive impact on the Company
- Electricity price hikes due to high resource prices (including fuel adjustment costs) have caused consumers' electricity bills to rise by approximately 20-30%, and the need for electricity switching to save on electricity bills is increasing (the number of applications in December 2021 was up approximately 100% from the previous year). For the Company, we also believe that this has led to an increase in awareness of our services among users who have looked for ways to reduce their electricity bills.
- Some electricity companies (e.g., new entrants affiliated with oil companies) are experiencing an increase in profits due to high resource prices. Therefore, some electricity companies are aggressively acquiring users, and we expect to see an increase in switching to these companies through our Platform business.
- Competitors offering electricity switching services are also expected to face difficulties in helping users switch electricity providers due to the current high resource prices and rising electricity costs. We believe that this could be an opportunity for us to increase our number of partners and possibly make strategic acquisitions.
- We anticipate that electricity rates will be raised by new entrant energy suppliers in response to higher costs in the future. As a result, it is expected to become more difficult to acquire new users by offering low prices, and new value-added services such as demand response and PPA for on-site solar power generation will be differentiators. These services are provided by our Data business, and we expect to expand the number of service providers in these areas.
Negative impact on our company
- Some energy companies (mainly small and medium-sized new entrants) have reduced their number of contracts in the high-voltage (i.e. corporate user) (as of November 2021, the latest data available). Even prior to the current situation, this segment is typically characterized by relatively thin profit margins, so while the value for corporate users to switch is high, energy companies have been less willing to take on new customers in this area.
- The higher costs for energy companies are reflected in users' electricity rates on a quarterly basis under the "fuel cost adjustment system." However, because there is an upper limit to the range of electricity rates that can be adjusted, electricity companies will still bear a certain cost burden. From the perspective of electricity supply procurement by new entrants, we recognize that the situation is such that not only the wholesale price of electricity but also the price of individual power purchase agreements are rising, as the outlook for global energy price hikes is prolonged due to the influence of the situation in Russia and Ukraine.
As future cost trends are uncertain for the new entrants, there is a current decrease in their willingness to acquire customers, and thus there is a trend toward a reduction in the one-time fee we receive from the energy companies.