INTEGRATEDREPORT
2023

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erex INTEGRATED REPORT 2023

erex INTEGRATED REPORT 2023

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Corporate Philosophy

CONTENTS
1

Corporate Philosophy

2Company History

6

President’s Message

14

Our Company DNA and Strengths

18
Special Feature	Strengthening Biomass Power Generation by
Expanding into the Fuel Business22

Toward New Growth: Outlook to 2030

26

Financial Management

30

Strategies by Business
Fuel Business
Power Generation BusinessTrading Business
Retail Business

34

Working Toward Sustainability
Environment
Society
Corporate Governance

50

Roundtable Discussion with Outside Directors

53

Board of Directors“Realizing a sustainable society”

To become a pioneer in the new
era of electric power withrenewable energy at its core
MissionValuesCo-creation

Opening up our futurewith new ideas and actions

Challenge and speed
Do not forget the venture spirit
and work boldlyWith trust and cooperation
Creating value with various
stakeholders

54	Investor Relations Activities / Company Information /Stock Information

erex INTEGRATED REPORT 2023

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Company History—
1999
Taking Advantage

2011—

of Industry Deregulation to
Establish a New BusinessTransforming
our Business to Meet
the Changing Needs of Society

There has been a global trend toward deregulating the energy industry and Japan is no exception. Since 1995, Japan

In the aftermath of the nuclear disaster caused by the Great East Japan Earthquake in 2011, Japan confronted thehas been gradually liberalizing the industry in an attempt to increase competition to improve management efficiency,

issue of securing safe and stable energy supply, and system reform was rapidly accelerated. In the context of thecorrect high cost structures, and address the gap between the price of electricity in Japan and overseas.

growing need to promote renewable energy, erex decided to take on the challenge of generating biomass energy

It was against this backdrop that erex was founded in 1999, to create the top energy business in a liberalizing electricity market. Following the deregulation of retail sales for extra-high voltage customers in 2000, erex entered thewhen feed-in tariffs (FIT) were introduced, because biomass energy, unlike solar and wind energy, is not affected byweather conditions and can produce a steady flow of electricity 24 hours a day.

market as a new electricity retailer.
The Company initially based its retail business on buying and selling surplus energy from Asahi Kasei Corporation’s
Nobeoka Plant in Mizyazaki Prefecture, before gradually diversifying its procurement contracts and expanding its
sales area.

Our Beginnings as a Start-Up

Collaborating with Partners

Erex’s First Power
Generation Project

Accelerated Growth after Listingon the Tokyo Stock Exchange

JEPX
When erex entered the market as a new electricity retailer
in March 2000, the deregulation of the energy industry
was focused on extra-high voltage customers, such aslarge factories and office buildings. The industry, however,
was dominated by major energy companies, and newer
companies such as erex were virtually unknown. This
made it difficult to attract customers, and the Company’s
only recourse was to differentiate itself by its pricing.
In 2004, further reforms were introduced and sales tohigh voltage customers were also deregulated. The following year, the Japan Electric Power Exchange (JEPX) wasestablished to facilitate the wholesale electricity market.
These developments provided a tailwind that accelerated liberalization, which in turn bolstered the company’sbusiness activities.

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erex INTEGRATED REPORT 2023

We gradually expanded our sales area from the Kyushu,
Kanto, and Tohoku regions by introducing a sales partner
system, and we then steadily grew the number of sales
partners by holding recruitment events in various
locations.
In addition, we invited chief electrical engineers, who
can supervise the safety of electrical equipment, tobecome our sales partners.
The leveraging of partnerships through the sales partner
system demonstrates the business-building know-howthat has become the Company’s most important strengths
and helped it survive as a start-up with minimal capital.

Having long had the goal of owning and operating a
power plant to ensure the Company’s growth.
To bring this goal to fruition, erex purchased a retired
coal-fired power plant in Tosa, Kochi Prefecture, from
Taiheiyo Cement Corporation and converted it into a­biomass power plant.
The Tosa Power Plant (Erex New Energy Co., Ltd.)
entered commercial operations in 2013 and is the firstbiomass power plant in Japan to use palm kernel shell(PKS)*1 as its main fuel.
Since then, our efforts in the power generation business have been strengthened by partner companies who
have provided personnel and technical support to reinforce our workforce, including power plant operators.
One of our management philosophies is co-creation,and this is a flagship project for our goal of engaging insuccessful business partnerships with various
stakeholders.

Following the success of the Tosa Power Plant, erex fully
embarked on its biomass power generation business,
listing its shares on the Mothers Market segment of theTokyo Stock Exchange in 2014 to further solidify its business foundation. At the time, erex’s then-vice president
Hitoshi Honna (now president) noted that assembling
the right people would be the catalyst for expansion
and lead to stable growth, reflecting the Company’sview that securing human resources was just as vital asraising funds.
The Company then moved to the Tokyo Stock
Exchange’s 1st Section in 2015*2, further accelerating its
rate of growth. At the same time, discussions about theneed to bolster the upstream fuel business to promote
growth centered on the biomass power generation business began in earnest.
*1 PKS is an agricultural byproduct of palm oil production. Because of its low watercontent and high calorific value, erex decided to use PKS as the main fuel for
Japan’s first thermal power plant.
*2 Erex moved to the Prime Market segment of the Tokyo Stock Exchange in April 2022.

erex INTEGRATED REPORT 2023

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Company History

2016—

2018—

From New Energy Supplier toIntegrated Energy Company

From Japan to Overseas

With the full liberalization of the electricity market in 2016, a year after erex’s listing on the 1st Section of the Tokyo

Although erex started out with a handful of employees, it has managed to establish its current business model andStock Exchange and its establishment of Okinawa Gas New Power Co., a new joint venture with Okinawa Gas Co.,

accelerate its efforts to decarbonize by moving upstream into the fuel business.

Ltd., the Company needed to secure a sufficient supply of energy. Therefore, in addition to its retail business activi-

To expand the supply of energy generated via biomass, it has been necessary to secure a large amount of inexpen-

ties, the Company sought to increase energy supply by constructing new biomass power plants. Entering the bio-

sive fuel in-house.

mass fuel business, which has become the foundation of its business activities today, is just one example of how
erex has taken on various challenges to promote Company growth. A major turning point for the Company was theconstruction of its first new-build power plant, the Saiki Power Plant in Saiki, Oita Prefecture.

Noting the abundance of resources that could be used as biomass fuel in Vietnam and other Southeast Asian
countries, erex began to develop its own new source of biomass fuel overseas.
Currently, erex promotes global decarbonization by building new biomass power plants in Vietnam and other
Southeast Asian countries and converting existing coal-fired power plants to biomass power plants.

New Biomass Power Plants

Building a Stable Value Chain

A Pioneer in the Biomass Field
Steady growth of overseas businesses

Vietnam• New biomass power plant development

19 locations (1,120 MW)· Including the Hau Giang biomass power plant (20 MW) scheduled to commence
operations in 2024

• Conversion of coal-fired power plants

6 locations (1,585 MW)· Vinacomin Power Holdings• Development and production of biomass fuels
It goes without saying that we did not achieve the successful construction and commercial operation of the
Saiki Power Plant (erex New Energy Saiki Co., Ltd.) alone.
At the time, erex was a small energy company with fewer
than 50 employees. To fully seize the opportunity to grow,we focused on building a business that would be beneficial to our partners. Thanks to personnel and technicalsupport from many of our partners—including Taiheiyo
Cement Corporation, which has provided us with a great
deal of support since the Tosa Power Plant commenced
operations—we have been able to build a new businessthat we could not have created alone.
The successful operation of the Saiki Power Plant gave
us the confidence to move forward with the constructionof subsequent power plants in Japan, including theBuzen Power Plant through joint venture Buzen New
Energy Co., Ltd.

4erex INTEGRATED REPORT 2023

As of 2016, erex had two power plants in commercial
operation and plans to build three more. Stabilizing thequality, cost, and quantity of fuel was essential to ensuring
the stable operation of its power plants.
To that end, erex started directly securing its own fuelsources in addition to purchasing fuel from trading companies. Employees surveyed producers of biomass fuelsin various countries, including those in Southeast Asia,
to verify production conditions and build relationships oftrust within the supply chain. These persistent efforts
have borne fruit and led to the stable procurement ofhigh-quality fuel. Erex not only consumes fuel in-house forits own retail business but has also grown to the point
where it can play the role of a trading company and sellfuel to other companies.

Working
Toward a
DecarbonizedSociety• Establishment of an R&D center	Developing new fuels, securing wood andCommitted to providing a stable supply

agricultural residuesof electricity and to decarbonization,

Constructing biomass fuel pellet plants

erex has made undeterred progress

Cambodia• Development of a hydroelectric power plant(80 MW)· Scheduled to commence operations in 2025
· Further hydroelectric power development downstream under consideration• New biomass power plant development
Up to 5 locations by 2030 (50 MW per power plant)

Taiwanand overcome challenges that haveshaken the energy industry, such as
soaring electricity prices.
We are working toward a decarbonizedsociety through our power generation
business and making strides not only inJapan but also overseas, especially inSoutheast Asian countries withinadequate power supply.

• Development of an integrated aquaculture andsolar power generation project (55 MW)

erex INTEGRATED REPORT 2023

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Acting with a Sense of
Urgency to Persistently
Strive for a Better Future
Plans to Limit Losses to the Current Fiscal Year, Regroup,and Move Forward to the Next Stage of Growth

Hitoshi Honna
Representative Director and President

President’s
Message6erex INTEGRATED REPORT 2023

Regrettably, the Company posted a significant loss
for the first half of fiscal 2023, especially in comparison to the previous fiscal year, for which it
posted record profits. I would like to take amoment to explain the broader factors that led tothis outcome. Looking at Japan as a whole, energy
supply was sufficient due to the successful securing of a large amount of fuel, but demand was
sluggish, partly owing to growing electricity conservation efforts. As a result, the Company had asurplus supply of power that had been procured in
the previous fiscal year. In addition, energy trading
prices on the Japan Electric Power Exchange(JEPX) fell sharply, in part due to fossil fuel prices
settling down. These circumstances directly
impacted the Company, which had secured its
supply in the previous fiscal year when energy
prices were still relatively high. It was then forced
to sell the surplus on JPEX at a loss in the first halfof fiscal 2023 after prices had already fallen, contributing in no small part to the decrease in profit.
In the second half of fiscal 2023, erex will inevitably have to sell any additional surplus power
procured in fiscal 2022 at a loss, which is expected
to further impact business performance negatively.
Going forward, the Company will take drastic measures to prevent a similar situation from occurringin the future.
Specifically, based on detailed sales and power
generation forecasts, erex has adjusted its organizational structure so that the division that procuresenergy can communicate more promptly andsmoothly with the retail division. There have also

been changes to the existing energy procurement
strategy to ensure that there will be as little surplus
as possible in fiscal 2024. As a result of thesemeasures, the Company will be able to procure
energy without excess supply or shortfalls. Even if
the electricity market fluctuates significantly in thenext fiscal year, we expect to avoid further losses.
In contrast, if we consider only erex’s electricity
retail business, it made a profit in the first half offiscal 2023. Since its establishment more than 20
years ago, the Company’s retail business hasgrown through collaboration with local sales partners. The retail business has capitalized on its
strengths, such as its ability to develop energy rateplans not offered by other companies by leveraging its sales network and trading techniques suchas electricity futures contracts.
As for the overseas business, erex is constructing
biomass power plants and fuel manufacturing
plants in Vietnam, where coal production peaked in2015, while in Cambodia, where local electricity
supplies cannot meet demand, the Company isconstructing a hydroelectric power plant and, at therequest of the Cambodian government, it is investigating the viability of potential biomass power plant
projects. Erex believes that through its business
operations in these countries, it will be able to contribute to decarbonization as well as to reducing
poverty and resolving other social problems.
The world is facing extremely difficult times.
As exemplified by the US-China conflict that has
escalated in earnest in recent years, ideologicalconflicts between nations and economic activities

erex INTEGRATED REPORT 2023

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President’s Message

have become inseparable. In addition, geopoliticalevents such as Russia’s invasion of Ukraine andthe conflict between Israel and Hamas have triggered turmoil across the globe, and the fragmentation of the international community is unlikely to
subside in the near future. As geopolitical risks
increase, political conflicts are spilling over into
economic activities, and it is predicted that theworld economy will remain uncertain and continue

to undergo rapid change. Furthermore, the environment surrounding erex is about to change significantly amid concerns about tight supply anddemand for energy resources leading to issues
such as inflation and compromised energy security.
In these chaotic times, all erex divisions areunited in their efforts to further develop theJapanese economy and, more broadly, theeconomy of Asia.

A Steadfast Vision since the Foundation
Since its establishment in 1999, erex has boldly
embraced challenges that seemed impossible toovercome, by valuing strategy and creative ideas
stemming from its inexhaustible passion and determination above all else.
The Company started out by purchasing surplus
electricity from power plants and selling it at retail.
Compared to larger electric power companies,
erex had limited management capital in terms of
employees, technology, and equipment, but it
overcame these limitations by strengthening its
alliances with numerous partners, such as sales
investors and joint investors in power plants. These
partnerships proved essential to the developmentof the Company. To ensure its continued growth,erex has developed and used frameworks for business transactions that balance its own interests
with those of its partners, thereby expanding business opportunities and breaking new ground in theenergy sector.
Despite starting with small-scale transactions,these partnerships, including those with sales partners in the retail business, have since been very
profitable for the Company. A more detailed example is erex’s partnership with Taiheiyo Cement
Corporation, which previously sold surplus electricity to the Company. In 2013, erex purchased Tosa
Power Plant from Taiheiyo Cement Corporationand converted it from an inactive coal-fired power
plant that provided energy for private use into
Japan’s first biomass-fired power plant using palm
kernel shells (PKS) as fuel. Erex has continued tocooperate with Taiheiyo Cement Corporation in theconstruction of subsequent biomass power plants,
both at a technical level and at a practical level tosecure land for power plants, and this partnershiphas become a cornerstone of erex’s business.
Including Tosa Power Plant, erex currently operates five biomass power plants in Japan.
Erex was founded on the concept of “always
looking ahead, thinking ahead, and taking on challenges.” Working proactively, erex demonstrates its
ability to lead the industry by making strides aheadof other companies still stuck in the planningphase, and, if an action proves unsuccessful, theCompany promptly takes a step back and seeks
out an alternative course. Above all, erex has continued to provide value in the industry by keeping
in mind that, when in doubt, one should choose
the more difficult path without shying from daunting challenges.
While a certain amount of volatility in the energy
industry is unavoidable, the industry is facing aperiod of rapid change as society takes major steps
toward decarbonization. However, even in thisera of great change, erex’s priorities have stayed
the same since its founding. In particular, theCompany’s business activities have the potential tohelp efficiently achieve decarbonization overseas,
especially in Southeast Asia and other regions
facing difficulties due to their high carbon emissions.
Erex aims to continue to be a company that people
and society can expect great things from.

Expanding Business through Biomass as the Core
Although biomass is a major driver of growth aterex today, at the time of its establishment, theCompany was an electricity retail business. The
decision to enter the biomass power generation
business was prompted by the introduction ofJapan’s national Feed-in Tariff (FIT) system forrenewable energy in 2012. While many companies
started solar power generation projects, erex surmised that biomass power generation, which is notaffected by weather conditions and has a highoperating rate, would contribute to a stable supplyof energy, based on its belief that energy should be
supplied stably and inexpensively. Biomass power
generation can also significantly contribute to “therealization of a decarbonized society,” which is oneof erex’s materiality.
Fuel costs and logistical efficiency need to beaddressed before biomass power generation projects can gain traction. Biomass can contribute tojob creation because it necessitates power plant
operation, maintenance, and fuel transportation. It
also has an advantage over some other renewableenergy sources in that it can provide a more stablesupply of electricity because biomass fuel can beeasily stored. However, to succeed in this age of
decarbonization while pursuing a business centered on biomass, it is essential to secure fuel,which accounts for the majority of power generation costs, and to control fuel price fluctuations.

Until recently, erex procured biomass fuels fromexternal sources, but in 2022, the Company took
on the challenge of securing its own fuels andbegan to research and develop new biomass fuelsin Vietnam. Southeast Asia is a region with highpotential for biomass resources. Vietnam has thepotential to generate 1.5 times the energy provided
by its existing coal-fired power plants, which produce approximately 20 GW, if untapped biomass
resources are taken into account. In addition tousing common biomass resources, erex will
increase the availability of cost-effective fuel bydeveloping new fuels.
Furthermore, because biomass fuel can be cofired with coal at existing coal-fired power plants,
demand for biomass fuel is expected to increase
as fuel conversion projects at coal-fired power
plants become more commonplace both domestically and overseas. Currently, coal-fired power
plants are being phased out around the world
because of their high greenhouse gas emissions,but it is not practical to immediately discontinue
their use. Erex will facilitate decarbonization in a
gradual and smooth manner by co-firing coal withbiomass fuels at coal-fired power plants, whilesteadily increasing the co-firing ratio to maintainsupply capacity and building new biomass singlefuel power plants.

Vietnam: Rising Coal Import Rates

Cambodia: Rising Electricity Import Rates(1,000 TJ)

(GWh)

Rapid
increase

2000
Coal production

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erex INTEGRATED REPORT 2023

45 %

2015
Coal imports

2020

Electricity

Rapid
increase

Coal import rate

2000
Domestic power generation

import rate

35 %

2010

2018 2020

Electricity imports

erex INTEGRATED REPORT 2023

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President’s Message

CO2 Emission Reduction Targets

CO2 emission reduction

25 million t/year

Overseas

Domestic

–2023

2025

2030

Reduced greenhouse gas emissions

Accelerating the development of decarbonizedenergy sources with a focus on biomass(year)

Domestic and International GrowthCentered on the Biomass Fuel Business
To provide a stable supply of electricity in Japaneven after the Feed-in-Tariff (FIT) and Feed-in
Premium (FIP) systems expire, erex is accelerating
the expansion of its domestic fuel business, withthe aim of securing a large quantity of inexpensive
fuels from Southeast Asia, in particular from
Vietnam and Cambodia.
Most of the renewable energy ventures in Japan,
including those undertaken by erex, are based on
the FIT/FIP systems, which are supported by therenewable energy levies paid by the public.
However, to realize a stable supply of biomassenergy over the long term, it is necessary to establish power generation methods that are not basedon these systems. Erex is currently planning theconstruction of a large-scale biomass power plantin Niigata Prefecture that is independent of the FIT/FIP systems, with the aim of commencing operations in fiscal 2029. Once this plan comes to fruition, the plant will be one of the largest biomass
power plants in the world, with an output of 300
MW. Electricity output is dependent on a power
plant’s electricity generation capacity and theamount of time that the plant’s generators operate
at a specific capacity. As bioenergy exhibits stable
operational capabilities, distinguishing it from otherrenewable energy sources, the Niigata plant’s
output will be equivalent to an output of about
1,000 MW of wind power or 1,800 MW of solar
power.

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erex INTEGRATED REPORT 2023

Overseas, erex is expanding its power generation business by taking advantage of the rich biomass resource potential in Vietnam and Cambodia.
By establishing power plants locally, we aim tocurtail expenses, including transportation costs,
and generate low-cost electricity. In Vietnam, thefirst plant is scheduled to start operation in fiscal
2024, and there are 18 biomass power plants
scheduled for construction sequentially.
Vietnam is undergoing rapid economic development, and demand for electricity continues toincrease at an annual rate of approximately 10%.
On the other hand, domestic coal mining has been
declining since the 2010s, natural gas production
has stagnated, and fossil fuel imports are increasing, making energy security an important national
issue. Consequently, leveraging biomass power
generation, for which Vietnam produces abundant
raw materials, has the potential to significantly
improve the country’s energy self-sufficiency andsecurity.
While Vietnam’s urban areas are developing
rapidly, some rural areas have yet to develop
industries on a scale that can sufficiently support
residents’ livelihoods. Erex has selected these rural
areas as sites for the development of new fuels
and power plants, as their weather conditions are
suitable for crop cultivation, and they have roomfor economic growth. In this way, erex can contribute not only to a more stable energy supply but

also to economic development through job creation to fill the various roles required in fuel production, collection and transportation, and power
generation. The Vietnamese national and provincial
governments have shown great interest in erex’s
biomass power generation ventures, not to mention in the larger social impact of the significant
potential for job creation when compared to power
generation using other renewable energy sources.
Top officials from various provinces have visited
Japan and inspected several of the Company’s
biomass power plants to better understand thepossibilities offered by its biomass business, in turnstimulating the Vietnamese government’s support
for erex’s project.
In Cambodia, electricity supply is unstable, withthe country relying on electricity imports fromneighboring countries for about 30% of its total
electricity demand, making relatively high electricity
prices a national issue. As in Vietnam, erex is
expanding its power generation business inCambodia by leveraging the country’s abundantbiomass resources. Construction of a hydroelectric
power plant is already underway in Pursat Province,with operations scheduled to commence in fiscal
2025. Furthermore, erex plans to start operation ofa smaller hydroelectric power plant downstream of
the aforementioned plant as well as of five newly
constructed biomass power plants by fiscal 2030.
To ensure sustainable biomass power, it isessential to consider the cost of fuel logistics.
Countries such as Vietnam and Cambodia offer
numerous advantages, including abundant biomass resources that can be used as fuel, and erex
believes that they could become model nations
that develop economically while utilizing decarbonized energy, and erex would like to help shape that
future. The Company is currently developing its
renewable energy business by establishing biomass fuel value chains not only in Vietnam andCambodia but also in other Southeast Asian countries. Erex plans to steadily increase the significance of its overseas business.

Driving a Competitive Edge in the Energy BusinessOne of the reasons I have taken the time to explain
the Company’s vision to expand its power generation business by focusing on the fuel business is toemphasize that the ability to mitigate the volatilityof fuel prices will have a significant impact onerex’s capacity to offer competitive electricity

prices to its customers. Despite fuel price volatility
being a serious risk factor that affects the profitability of electricity retail businesses, not many
companies have opted to commercialize fuel procurement both domestically and internationally.

erex INTEGRATED REPORT 2023

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President’s Message

However, looking back at its own growth trajectory
to date, erex is convinced that building value chainsthat span upstream and downstream operations is
the key to remaining competitive now that electricity has been deregulated in Japan.
Based on my 25 years of experience atTonenGeneral Sekiyu K.K. (currently, ENEOS
Corporation) and my position as a founding
member of erex, I firmly believe that in order toremain competitive globally, the Company needs
to implement a business model that integrates
upstream operations.
I have been in the energy industry since 1973,
when I joined TonenGeneral Sekiyu K.K. At thattime, Japan was facing an oil crisis and energy
prices skyrocketed. I learned that while a stableenergy supply is essential to social infrastructure,
Japan’s energy industry is volatile, especiallybecause it imports most of its fuel, thereby exposing itself to the risk of sudden price fluctuations
that can be manipulated by external factors. As aresult, I have come to view risk management as
one of the most important facets of the industry.
Until the Electricity Business Act was revised in
1995 to allow new entrants into the market,
Japan’s energy industry was a regulated regionalmonopoly, protected by national law. The external
environment underwent major changes which had
an impact on international energy resources, withresource nationalism resulting in price hikes andthe entry of powerful foreign companies into the
Asian market, which led me to believe that it would
be difficult to survive international competition after
deregulation and liberalization if we were to remainpart of an energy value chain protected by monopoly regulations.
With this in mind, erex was established to build acompany that would provide integrated services
from fuel procurement and power generation tosales, in other words, business operations ranging
from upstream to downstream, regardless of its
size at the time. At the same time, following theprecedent set by deregulated energy markets
overseas, erex anticipated that Japan would establish its own electric power exchange platform. Erex
has succeeded as a new entrant to the Japaneseenergy market because it sought a competitive
advantage by offering energy trading capabilities
while positioning its fuel business as an important
aspect of upstream operations and conducting risk
management throughout its value chain.

Decarbonization as a Global Issue
The operating life of a biomass power plant boiler
is said to be about 30 years. In the energy business, where the business cycle is relatively long, it
is important to align the Company’s interests withthose of society. When it comes to global issues
such as decarbonization, it is doubly important todevise and promote business activities that alignwith social interests. This perspective is also connected to the Sustainable Development Goals(SDGs) and environmental, social, and governance(ESG) factors. Erex will continue to move forwardwith its business, operating under the belief that
the Company exists to provide the value that society demands.
Erex has plans for biomass power generation
projects in Vietnam and Cambodia. The GDP per
capita for both countries is still low at US$4,163
and US$1,759, respectively, but they are struggling

12

erex INTEGRATED REPORT 2023

consider what role it should play in achieving
global decarbonization.
Even internationally, there are currently nomajor players in the field of biomass fuels. I am
confident that erex can make its mark in the biomass fuel industry through its fuel conversion
projects and the expansion of its biomass power
generation business.
The entire world, including countries with developing economies and growing electricity demands,
must push forward with an energy conversion
toward decarbonization. On this basis, efforts todevelop biomass fuels in countries with developing
economies will likely increase the prevalence ofinternational carbon credit trading, which is set toplay an important role in achieving global decarbonization. Erex will take an active role in carbon credit
trading as it has the potential to contribute to society and lead to significant revenue opportunities.
In this era of environmental awareness, erex isdetermined to continue to take on the challenge of
becoming a pioneer in the field of decarbonization
by centering its business activities around biomass
and using mobility and speed to gain a competitiveedge. We thank you for your continued support of
our Company.

Hitoshi Honna
Representative Director and President

to meet their electricity needs domestically as theireconomies continue to grow. When consideredalong with the current global trend toward decarbonization, the development of renewable energy
must be critical to the economic development ofboth countries. Erex trusts that its biomass business will contribute to job creation and local economic development, as well as to the green energy
growth strategies of both countries.
To realize a decarbonized society, it is essential
to share energy-saving technologies across borders and build cross-national relationships to facilitate optimal global distribution of energy resources.
From this perspective, the current situation of aworld divided by war and other conflicts will only
reduce the likelihood of achieving decarbonization.
Moreover, I believe that Japan, which is not aresource-rich country, needs to strategicallyerex INTEGRATED REPORT 2023

13

Our Company

DNA and Strengths
Strong Partnerships

Our
Strengths

Our Strengths

Our Strengths

Strongpartnerships

Trading
capabilities

To create value beyond its financial assets, erex has built alliances with a wide variety of partner companies. For example,
erex established a sales structure with intermediaries, strengthening its sales capability by introducing its sales partner
system in 2008, an unprecedented move in the energy industry at a time when most electric power companies solddirectly to customers. Despite having less than 10 sales staff at the time, erex competently leveraged its sales partners to
expand its sales network across Japan, acquiring more than 10,000 customers.** This number reflects the total number of contracts in 2008 and differs from the current number of contracts.

Establishment of Evergreen Marketing
In March 2019, erex established Evergreen Marketing Co., Ltd. as a joint venture with TEPCO Energy Partner, Inc. We
are constantly working to expand our business activities, strengthening our sales capabilities in response to the changing times by concluding outsourcing contracts with partner companies in a wide variety of industries that use different
sales methods, including liquefied petroleum gas companies, newspaper distributors, and companies that excel atface-to-face sales, as well as those that are expanding their digital reach through online sales and other methods.

Our Company DNA

VenturemindsetNumber of Sales Partners(Partners)

Our Strengths

Our Strengths

Vertical valuechain

Achievementsin the biomass
field

900
600
300
0

An Entrepreneurial Mindset Is in Our Company DNA
Guided by an entrepreneurial spirit, erex has created new value by boldly taking on pioneering ventures.
When erex launched its power generation business, it became the first company in Japan to successfully
use palm kernel shells (PKS) as fuel, developing what has since become a standard biofuel in the biomass energy industry. The Company’s use of biomass fuel necessitated the conversion of coal-fired
powerplants to biomass powerplants, driving its current conversion initiatives.
In this era of decarbonization, erex is one of the few energy companies to commercialize fuel procurement aimed at expanding the supply capacity of renewable energy sources, especially biomass fuels. As apioneer in the biomass field, erex will continue to take on the challenge of realizing a low carbon society.

Our
Strengths

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

(FY)

Trading Capabilities

Electric power cannot be stored, so it is necessary to match the amount of electricity being generated with the amountbeing used. When erex first entered the energy market, it was a new energy supplier that did not have its own power
plants and, unlike major power companies, it did not have a history of supplying a specific geographical area. The Japan
Electric Power Exchange (JEPX) became one of erex’s main suppliers of electricity. As a result, the Company was one of
the first power companies in Japan to participate in market trading, accumulating trading expertise along the way. Today,
based on extensive expertise and experience, erex optimizes its power supply mix and reduces costs by adjusting the
procurement ratio across three different sources; namely, erex-owned power plants, electricity purchased from other companies through direct negotiations, and electricity purchased from JEPX.

Early Achievements
Importance of Risk Management in Trading• Converted coal-fired power plant to biomass power plant (first conversion completed in 2013)• Increased customer base through introduction of the sales partner system, a first among electricretailers• Developed in-house procurement of biomass fuels, including PKS

14erex INTEGRATED REPORT 2023

Erex achieved record sales in fiscal 2022 by leveraging its trading activities to successfully implement cost control.
However, in the first half of fiscal 2023 the Company posted significant losses, mainly due to negative spreads
between procurement and selling. To learn from this experience and ensure that it does not reoccur in the future,organizational reforms were implemented in December 2023 to further strengthen risk management. These reforms
included the creation of the SCR Office and the Supply and Demand Strategy Office.

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15

Our Company DNA and Strengths

Our
Strengths

Vertical Value Chain

Erex started out as an electricity retailer, but it soon acknowledged the need to generate electricity in-house to secure astable supply and reduce costs, leading to the launch of the Company’s biomass power generation business in 2013. Withan aim of further reducing production costs, erex started procuring its own fuel. Additionally, erex trades electricity, allowing it to ensure a stable and inexpensive supply through centralized risk control management and cost reduction throughout the value chain.

A Value Chain That Supports Stable Supply Capacity

Fuel• In-house procurement ensuring high-quality, low-costbiomass fuelOur
Strengths

Power
generation• Power plant construction
and operation• In-house power generation
securing energy supply andstabilizing revenue

Advantages of Biomass Power Generation
Compared to other renewable energy sources such as solar and wind energy, the efficiency of which isaffected by weather conditions, biomass is a reliable and highly efficient power source. Furthermore, crops
being cultivated for biomass fuel absorb CO2 from the atmosphere during photosynthesis, resulting in net-zerocarbon emissions and contributing greatly to the realization of a carbon neutral society.
At the COP26 UN Climate Change Conference in 2021, countries reaffirmed the need to phase out coalfired power plants. As Japan currently relies on coal for approximately 25% of its energy supply, biomass
power generation will undoubtedly become more important as an alternative power source in the near future.

Wind Power

Small andMediumHydroelectricPower• Does not
require fuel• Can be installed inexisting, underutilized spaces, e.g.,roofs• Does not
require fuel• Can only be
implemented inlocations withsuitable windconditions• Does not
require fuel•C an only be implemented at points
where energy canbe captured, e.g.,rivers, agricultural
irrigation systems,
and water andsewage systems

Output stability

Can be used as abase power sourcewith stable 24-hour
operation

Unstable due toreliance on weather
conditions anddaylight hours

Unstable due toreliance on windconditions, clear
surroundings, etc.

Highly stable if water
sources can be
securedCapacity
utilization rate*

Approximately 80%

Approximately 18%

Approximately 20%
to 30%

Approximately 60%

OutputcapacityThousands to hundreds of thousandsof kilowatts

One to several
One to several thouhundred thousand
sand kilowatts
kilowatts

Several hundred toseveral tens of thousands of kilowatts

Installation
costs

Biomass power canbe implemented at
low cost if existing
infrastructure canbe used, for example, if coal-fired
power plants areconverted to biomass power plants

High installation
costs, including
assessment costs
such as environmental impact
evaluations

High installation
costs, especiallywhen done on alarge scale, including
assessment costs
such as environmental impact evaluations

Trading

RetailBiomass• Electricity procurement andwholesale, etc.
• Decision-making informed bymore than 20 years of expertise, minimizing the impact ofmarket fluctuations• Varied customer service plans,
including a CO2-free plan
• Nationwide network

Features• Requires fuel input• Leads to effective
use of waste anduntapped
resources• Contributes to thegradual disuse ofcoal-fired power

Achievements in the Biomass Field

Many businesses rely on trading companies and other importers to procure fuel for power generation. However, as one ofJapan’s leading biomass fuel consumers, erex established a subsidiary in Singapore in 2017 as a centralized fuel management base to strengthen the Company’s fuel procurement capabilities and improve fuel quality. The Company also started todevelop its own fuels and is currently developing new sources of biomass fuel, such as sorghum in Vietnam, in addition toutilizing existing untapped biomass resources. In the future, the fuel produced in Vietnam will be used in the Company’s
Vietnam biomass power plants, achieving a local production for local consumption business model, while excess fuel will be
exported for use in large non-FIT biomass power plants and in coal-fired power plant conversions in Japan.

Top Expertise in the Biomass Field• Pioneering Biomass Energy
Erex is a large-scale biomass energy provider in Japan with seven biomass power plants that provide 644 MW(including planned output) nationwide.

• Securing Biomass Fuel Procurement and Profitability
Erex utilizes various sources of biomass fuel and leverages its procurement know-how to procure fuel for in-house
consumption and sell it to external parties.

• Developing and Growing New Biomass Fuels

Solar Power

Decreasing costs assolar technology
becomes morewidespread* Ratio of actual output over the maximum possible output* Cost data on power generation by the Agency for Natural Resources and Energy (Japanese only)
https://www.enecho.meti.go.jp/committee/council/basic_policy_subcommittee/2021/048/048_004.pdf

Erex is developing new fuel sources for power generation, including fast-growing and low-cost sorghum.

16

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17

Special Feature

Strengthening Biomass Power
Generation by Expanding
into the Fuel Business

Cost Data on Power Generation by Power Source in 2020

Development of new fuelsleading to lower fuel costs which
accounts for a large portion of
power generation costs(yen/kWh)35

Natural variable
power source

30
25
20
15
10

Developing the Biomass Business by Reinforcing Upstream Functions Japan, with its limited land area and high fuel costs, procures most of its biomass fuel from North America andSoutheast Asia. To generate stable and low-cost biomass
power, it is essential to reduce the cost of fuel, which
accounts for a large portion of power generation costs,
and to secure a stable supply.
Erex has strengthened its own fuel procurement, starting with the establishment of a fuel management base,erex Singapore, in 2017. The Company also launched aplan to build one of the world’s largest non-FIT large-scalebiomass power plants (300 MW output) in 2018 andbegan procuring and developing fuel to ensure stable
operation of a large-scale plant.
It became increasingly clear that in order to achieve an
economically viable power plant, it would be necessary tocultivate and develop stable and inexpensive biomass
fuels. To this end, in 2021 erex began to cultivate a

nascent fuel called new sorghum in Vietnam. Additionally,
the Company has launched various initiatives in its biomass fuel business, including the securing of untappedbiomass resources, and construction of a wood pellet
plant to convert the acquired biomass resources into
pellets to be used as fuel for power generation is wellunderway.
Fuel developed and acquired in Vietnam will not only be
used domestically, but also exported to Japan and othercountries outside of Vietnam. The fuel will be used in new
biomass power plants scheduled to be built in Vietnam, in
our fuel conversion projects converting coal-fired plants tobiomass plants, and in the above-mentioned non-FIT
biomass power plant currently under construction in
Japan, with the aim of reducing power generation costs.
Finally, by selling excess fuel externally, erex will solidify
its position in the biomass fuel industry.

The Significance of the Fuel Business Compared to fuels used in other power generation methods, biomass fuels account for a much higher percentageof the overall cost of biomass power generation. To
reduce fuel costs, erex is developing low-cost biomass
fuels in Southeast Asia, which has abundant untappedbiomass resources. In particular, Vietnam has a thriving
agriculture and forestry industry and is rich in diverse
biomass resources.
Biomass fuel is a renewable energy source made fromthe earth’s natural resources. By using alternative fuelsources such as biomass, finite resources can be used
more efficiently, and we can do our part to form a circularsociety in which resources are circulated sustainably.
Moreover, we believe that making effective use ofunder-utilized resources will help revitalize local communities. By effectively using these biomass resources, erex
will promote reduced fuel costs for biomass power plants,
along with stable fuel procurement and increased energy
self-sufficiency.

50Coal-fired

LNG-fired

Nuclear power

Oil-fired

Onshore wind

Solar
(commercial)

Policy costs

Social costs

Fuel costs

Operation and maintenance costs

Medium-scale
hydroBiomass(single fuel)Capital costs

Source: Ministry of Economy, Trade and Industry, “Power Generation Cost Verification”
https://www.enecho.meti.go.jp/committee/council/basic_policy_subcommittee/2021/048/048_004.pdf

Developing New Fuel in Vietnam 
Even by global standards, Vietnam is a country with athriving agriculture and forestry industry, and numerous
biomass resources are generated in Vietnam as by-products of these industries, including rice straw, rice husks,
fuelwood, timber from forest thinning, forest residue, andmanufacturing residue. We have capitalized on the abundance of untapped biomass resources and the capability
to cultivate and develop emerging biomass fuels due tothe country’s mild climate throughout the year.
These resources will be effectively utilized as fuel in a
new biomass power plant in line with Vietnam’s EightPower Development Plan (PDP8), scheduled to be constructed in the near future. By developing biomass fuel for
local consumption, we will be able to reduce transportation costs for fuel, leading to higher earning potential andjob creation opportunities for farmers, thereby contributing
to the revitalization of the local economy.
In July 2023, the groundbreaking ceremony was held
for the erex Sakura Yen Bai Biomass factory, a woodpellet manufacturing plant.
This factory, along with a factory scheduled to be constructed in Tuyên Quang, will form a wood pellet manufacturing plant with an annual production capacity of 300,000
tons by the end of fiscal 2024.
We are considering the use of wood pellets not only fora new power plant planned for construction in Yen Bai,but also for coal-fired fuel conversion projects.
Going forward, we will build more wood pellet manufacturing plants as necessary, in conjunction with plans for
new biomass power plants.
Acacia, Eucalyptus, and otherwoody residues

Raw timber

Manufacturing residue

Hanoi

Twigs

Bark

North

Rice Husks

South Central

New fuel development

Rice husks, rice straw,
and other agriculturalresiduesSouth
Ho Chi Minh City18

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19

Special Feature

Coal-Fired Power Conversion Project

Conversion to Coal Co-firing
Coal-fired power generation is an important base load
power source that can stably and consistently supply
electricity at low cost. Because multiple countries
produce coal, it has a low geopolitical risk and a stablesupply. In addition, it has a low unit cost per calorificvalue and economic efficiency. On the other hand,coal is problematic because it generates high greenhouse gas emissions such as carbon dioxide.
To reduce the burden on the environment, we
believe it is necessary to shift to cleaner, more efficient,next-generation coal-fired power and to work towardphasing out inefficient coal-fired power to achievecarbon neutrality by 2050.
Erex will promote decarbonization while ensuring astable supply of electricity, bringing existing inefficientcoal-fired power plants up to date by effectively utilizing coal-fired power plant facilities through the co-firing
or single-firing burning of new, low-cost fuels developed in-house.
2019

1.03 billion tons

We are not only promoting the conversion of coalfired plants to biomass power plants in Japan, butalso in Vietnam. The Vietnamese government has
stated that it aims to achieve virtually zero greenhousegas emissions by 2050, making it necessary toincrease supply capacity to mitigate electricity shortages associated with economic growth while also
decarbonizing the country.
Vietnam’s electricity mix is dominated by fossil fuelssuch as coal, despite the country having abundantunder-utilized biomass resources. By using locally
produced biomass fuel in our Vietnamese power
plants, we will promote biomass power generation
projects that take advantage of the country’s untapped
potential while reducing fuel transportation costs.

FY 20302050( –46% GHG emissions

Emissions + Absorption = 0 tons

­compared to 2013)( –100%)Non-electric Power

280 million tons

CivilianHydrogen(Hydrogen-reduced
iron, FCVs, etc.)

Industrial

Methanation,
synthetic fuels

Transportation

200 million tons

Electric PowerElectric Power

Industrial

Biomass
Transportation

440 million tons
Electric Power

DecarbonizedPower Sources

Areas that cannot be

Renewable Energy

decarbonized throughNuclear Energy

electrification and hydro-

Thermal + CCUS/
Carbon Recycling

genation, etc., will maxi-

Hydrogen/Ammonia

mize the use of CCUS/
Carbon Recycling

CarbonRemovalThe Itoigawa Power Plant Corporation was originally a joint venture
between Power Development Co., (J-Power) and Taiheiyo Cement
Corporation. In August 2022, erex concluded a business transfer
agreement with J-Power, acquiring the latter’s shares. As our first
non-FIT power generation project, the plant will be operated as a
co-firing biomass power plant, with plans to convert it to a singlefiring biomass power plant in the future.
Erex currently operates five biomass power plants across Japan.
However, it did not begin with a newly built biomass power plant,
but rather with the acquisition and conversion of a small-scale,privately-owned coal-fired power plant that became Japan’s first
FIT biomass power plant to burn PKS exclusively.
The switch from biomass co-firing to single-fuel firing after thestart of commercial operation was a pioneer in biomass single-fuelfiring, as well as a forerunner of biomass co-firing in coal-fired
power plants, leading to the knowledge of current power generation technology.

New Biomass Power Plant Planned for Vietnam

Civilian

110 million tons

Acquisition of Itoigawa Power Plant, Plans to Convert from Coal-fired to
Biomass Power Plant

Afforestation,
DACCS, etc.
Note: Figures are for energy-related CO2 emissions

Since its establishment, erex has been developing its
power generation business with a focus on domestic
operations, but around 2019 it set itself a new challenge of expanding its power generation and fuel businesses overseas, mainly in Southeast Asia countries.
Among these businesses being developed inSoutheast Asian countries, we are putting significant
effort into our power generation business in Vietnam.
Currently, we are working on biomass conversion
projects for six coal-fired power plants in Vietnam.
There are also plans for new biomass power plants. At
present, we are planning to construct 18 new biomass
power plants with a total output of 1,100 MW in addition to Hau Giang biomass power plant (20MW). Threeof these power plants are currently undergoing feasibility studies, and we are making steady progress
toward the realization of our goals.
Vietnam and other Southeast Asian countries areexperiencing remarkable economic growth; however,they are also experiencing increasingly severe power
shortages. Erex’s efforts in Southeast Asia will help theregion to realize both a stable supply of electricity anddecarbonization, which is a global concern. Erexbelieves that its power generation business will contribute significantly to the creation of local employment
and the development of local economies.

PDP8 Proposed Sites for New Biomass
Power Plants

Source: Policy Concerning Thermal Energy
https://www.meti.go.jp/shingikai/enecho/denryoku_gas/denryoku_gas/pdf/052_05_01.pdf

20

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21

Toward New Growth: Outlook to 2030
Outline Overview and Outlook of Overseas Business 

By stabilizing our domestic earnings base and promoting the biomass business in Vietnam and Cambodia as the main
drivers of growth, we aim to achieve sales of ¥535.8 billion and ordinary income of ¥60.2 billion by 2030.

Sales Forecast
The erex Group plans to expand business significantly in the future by taking advantage of know-how andexperience accumulated through business developments in Southeast Asian countries, centering on Vietnam
and Cambodia.
Cambodia Business39.2 billion

Business Development in Southeast Asia
Southeast Asian economies are slated for continued
growth, and energy consumption is expected to risesteadily along with this growth. At the same time, thetrend toward decarbonization is expected to expand andaccelerate, and governments are under pressure to maintain economic growth while also contributing to decarbonization efforts.

Countries in Southeast Asia are rich in biomass
resources due to their climate. The biomass business is
one possible solution to the problems facing Southeast
Asia. Erex plans to leverage the expertise it has accumulated through the development of domestic biomass
power plants and in-house procurement of biomass fuel togreatly expand its business in Southeast Asian countries.

2030 Roadmap for Overseas Operations
In its overseas business, erex will engage in biomass
business operations mainly in Vietnam and Cambodia,
aiming for net sales of ¥231.3 billion and ordinary incomeof ¥45.3 billion by 2030.

Specifically, we plan to focus on the biomass business
in Vietnam and the biomass and hydroelectric power
generation business in Cambodia.

¥

Vietnam Business

Net Sales

535.8 billion

192.1 billion¥296.3 billion

Domestic
Business¥304.5 billion

Net Sales¥¥

FY2022

2023

2027

2030

Biomass Power
Generation

Biomass Power
Generation

FY2030Ordinary Income

Net Sales¥

535.8 billion ¥ 60.2 billion

Ordinary Income Forecast
Aiming for ordinary income of ¥60.2 billion in 2030, with overseas business as adriver of growth

Progress inVietnam and Cambodia businesses,+ *• Construction of 20 MW plant (PDP7 project)
has started in Hau Giang Province
Scheduled to start operations in
December 2024
Vietnam*U pside from fuel conversion
projects in Vietnam and fuelbusiness in other countries

Ordinary Income

60.2 billion¥¥13.7 billion

Cambodia

which are drivers of growth¥31.6 billion

Steady expansion with­challenge and speed against
the backdrop of expandedliberalization and FIT• Investment decision has been made forbiomass pellet factories in Yen Bai andTuyen Quang Provinces

5–6 units
Pellet Factory

Up to

18 units

Pellet Factory

20 units• Investment decision for biomass power generation projects in Yen Bai and Tuyen Quang
provinces is scheduled to be made by the endof the fiscal year

8–9 units

Up to• Construction of 80 MW hydroelectric power
plant has started in Pursat Province, with
­operation scheduled for fiscal 2025

Hydroelectric Power
Generation

Hydroelectric Power
Generation• Feasibility study approval has been obtained
from the local government, and it is underprocess
Proposals received for potential power
plant sites

80 MW

Up to

100 MW

Biomass Power
Generation

Biomass Power
Generation

1– 2 units

Up to

5 units¥14.9 billion

Loss due to delay in responseto changes in businessenvironments
Cambodia Business

22

Vietnam Businesserex INTEGRATED REPORT 2023

2023

Recovery due toresolution ofproblems

2030

(FY)

Domestic Businesserex INTEGRATED REPORT 2023

23

Toward New Growth: Outlook to 2030

Erex’s Approach to Carbon Credits
As the global trend toward decarbonization is expected to expand and accelerate, erex predicts that the carbon credits*
generated from decarbonization initiatives will contribute to Company earnings.
* Credits predicted in conformance with Article 6.2 of the Paris Agreement

Overview and Outlook of the Domestic Business 
Our aim is to achieve sales of ¥304.5 billion and ordinary profit of ¥14.9 billion by 2030. To raise funds that can beallocated to investment in growth, including in our overseas business, we will work to stabilize the earnings base ofour domestic business and aim for steady growth.

Assumed Carbon Dioxide Emission Reductions for the Entire Project
Potential Profit Contribution

Vietnam: Existing Coal
Co-firing Conversion
1,580 MW (6 plants)

4.36 million t-C0

Cambodia: Newly
Constructed Biomass
Plants 50 MW x 5 units

0.91 million t-C0

Vietnam: Newly
Constructed Biomass
Plants 50 MW x 19 units

2

4.36

million t-CO2/year

13.0

¥

billionStabilizing Measures

Growth Measures

Responding to Energy Market Price Fluctuations

Responding to Customer Needs with a Focus on
Decarbonization• Low-voltage (residential) business has shifted tomarket-linked energy plans

Retail and Trading• High-voltage business is focusing on selling energyplans that combine market-linked and futurescontract options• Fully conversion to carbon-free plan for low-voltage
business• Implementing various means to meet customer
needs for both competitive prices and decarbonization in the high-voltage business by considering
non-FIT power purchase agreements (PPAs) andcredit substitutions.

2

3.11 million t-C0

2

4.02

million t-CO2/year

12.0

¥

billionPower Generation
and Fuel

Assumptions: Emission reductions are calculated at 0.5 kgCO2/kWh and a value of 3,000 yen/t conservatively.

Other New
Businesses
Cambodia Business Update

Leveraging Economies of Scale

Fuel Conversion/Non-FIT Large-Scale Biomass• Securing relatively sought-after fuels by leveraging
one of the largest-scale transactions in Japan• Planned fuel conversion project at Itoigawa, a
coal-fired power plant• Further improving efficiency by capitalizing on
accumulated expertise in biomass power
generation• Promoting non-FIT large-scale biomass power
generation project planned in Niigata

Demand Response

Storage Batteries/Non-FIT Solar• Maximizing the use of cutting-edge demand
response systems to ease the burden on thecapacity market and pass on the benefits tocustomers• Planned storage battery initiatives to further contribute to the introduction of renewable energies• Progress in non-FIT solar energy initiatives to meetcustomers’ demands for renewable energy

Erex Concludes a Memorandum of Understanding on Biomass Business with
the Cambodian Ministry of Mines and Energy
Erex and SPHP (Cambodia) Co., Ltd. (Chairman: MYUNG IL KIM) have signed a Memorandum ofUnderstanding (MOU) with the Ministry of Mines and Energy of Cambodia to confirm their roles and cooperation in the development of biomass fuels, biomass power generation, and other energy sources in Cambodia.
On December 18, 2023, Prime Minister Kishida held a summit meeting with Cambodia’s prime minister,
Hun Manet, at the Prime Minister’s office, followed by the exchange of bilateral cooperation documents
including the above-mentioned MOU between erex, SPHP, and the Cambodian Ministry of Mines and Energy
in the presence of the two leaders.

Review of Business Promotion Structure 
In order for business performance to recover in fiscal 2024 and beyond, we have determined that business policies as wellas organizational reforms are necessary.
Under a new organizational structure, we will work to strengthen collaboration among divisions to expand our businessdomain, including our overseas businesses, and to cope with the rapidly changing business environment in Japan.

Creation of SCR Office• This office will strengthen the risk management system by identifying the risks faced by divisions
and promptly implementing countermeasures with the participation of the people responsible foreach division, including business divisions, such as power generation, fuel, trading, and retail, as
well as administrative divisions, such as corporate planning, finance, and accounting.
• SCR Office is also responsible for confirming trading positions, developing risk management
methods, and managing overseas business risks.

Creation of Supply &Demand Strategy Office

The MOU document exchange ceremony held in the presence of Prime Minister
Kishida and Prime Minister Hun Manet (December 18, 2023)

24

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MOU Ceremony at the ASEAN-Japan Economic Co-Creation Forum(December 16, 2023)

Creation of Overseas
Business Management
Department• Coordination between retail and market trading divisions will be strengthened to prevent recurrence of wide gaps between power procurement and sales prices and power procurement andsales volumes. In addition, the development of new rate energy plans will be integrated with procurement strategies. Specifically, we will integrate an “aggressive sales” function into our management strategy and strengthen power source procurement.
• We will centralize the management of overseas business promotion in line with plans for significant
expansion.
• Specialized and cross-functional groups such as a new Finance Group will be established within
the Overseas Business Management Department to promote projects in various countries.

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25

Financial Management
We will invest in growth toward decarbonization throughfinancial management practices that focus on
both the short term and the long term.
Q. What were the highlights of theCompany’s performance in fiscal
2022 and what is the current stateof performance in fiscal 2023?

Takanobu Yasunaga
Managing Director

26

erex INTEGRATED REPORT 2023

While many electric power companies suffered
operating losses due to the global energy supply
chain disruption that has resulted from the crisisin Ukraine and the effects of soaring fuel prices,in fiscal 2022 the Company posted net sales of¥296.3 billion, operating income of ¥14.8 billion,
and ordinary income of ¥15.2 billion, achieving its
highest results on record for net sales and ordinary income.
Our power sources consist of electricity generated in-house and electricity procured from theJapan Electric Power Exchange (JEPX) mainly
through bilateral trading based on trading arrangements with other electric power companies. Since
its founding, the Company has stressed the importance of power trading in realizing a competitive
power market and it has participated in this market
since its inception. We have always operated ourbusiness with the assumption that energy prices
can increase unexpectedly, having experienced theimpact of fluctuations in electricity market prices,which stemmed from soaring energy prices suchas the record price of crude oil in 2008. While themajority of electric power companies that are generally known as “new power providers” entered themarket after the liberalization of electric power
retailing in 2016, I believe that erex’s establishmentof a procurement policy that reflects this earlier
experience contributed to its record-breaking
operating results in fiscal 2022.
Meanwhile, the market price of electricity has
been declining rapidly since the start of 2023, andit remained low even in the summer, when we
experienced record heat waves in Japan. Becauseof this, we have had to sell electricity procured athigh market prices in the previous year during aperiod of low market prices, which has led to significant deterioration in our current earnings. Our
performance has also been impacted by the factthat the sales volume of our in-house generated
electricity has failed to reach expected levels.
Overall, while we had made every effort to prepare

for increases in the market price of electricity, I
would say that we have encountered issues interms of our preparedness for declining market
prices and our outlook on the procurement andsales of in-house generated electricity. We will takeall possible measures to restore our business performance and ensure that we do not repeat thesame mistakes again. These measures will include
a review of our internal risk management system.

Performance Trends • Achieved highest results on record for net sales and ordinary income in fiscal 2022
Net Sale(millions of yen)

296,312300,000

Achieved a 23-fold increaseover the 10-year period from 2012

200,000

100,000

0

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022(FY)

Ordinary Income(millions of yen)

15,29515,000

Achieved a 13-fold increaseover the 10-year period from 2012

10,000

5,000

0

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022(FY)erex INTEGRATED REPORT 2023

27

Financial Management

Q. Please share your views on the
Company’s financial strategies.
Along with the steady accumulation of profits since
fiscal 2017, the exercise of stock acquisition rights
to third parties in fiscal 2020 has stabilized ourfinancial base. Against this backdrop, we havebeen investing in future growth, including throughplans to construct biomass power plants in Japanand overseas and develop biomass fuel production
and power plants outside of Japan. While remaining committed to our policy of investing in future
growth, we will not only continue to assess ourinvestment decisions thoroughly but also take aneven more cautious approach to maintaining financial discipline in light of the difficult earnings situation we currently face.

Q. Please tell us about the Company’s
procurement strategy that draws
on its power trading capabilities.
In our power trading business, we do not aim togenerate profits through speculative transactions.
Rather, the business is based on the key premisethat we meet the demands of the retail market. That
is to say, we procure the amount of electricity necessary to ensure adequate supply to our contracted
electricity customers and meet their actual demands.
Through this basic policy, we are able to minimize the impact in the case when market prices
increase rapidly by raising the proportion of energy
sourced in-house and through direct contracts
with suppliers, and reducing the amount of energy
procured from the wholesale market. Conversely,
we can benefit from decreases in the market priceof energy by increasing the amount of energy procured from the wholesale market and reducing the
proportion of energy sourced through directcontracts.
In fiscal 2022, our profits increased due partly
to our proactive efforts to conduct power trading
based on this policy as well as to our ability tosource energy internally and procure energy
through direct contracts with suppliers in a balanced manner and utilize the wholesale market
effectively. Meanwhile, in fiscal 2023 we have faced
an extremely difficult profit situation when we

28

erex INTEGRATED REPORT 2023

encountered a variety of issues in addressing theimpact of declining market prices. While we haverefrained from engaging in speculative transactions, we will carefully reexamine our preparedness
for the risk of fluctuations in price and demand andrebuild a framework for securing steady profits.

Q. What are your thoughts on growthinvestments going forward?
Recognizing the importance of a stable financialbase to investing in our future growth, we will carryout investments that enable investors to reap the
benefits of our growth by managing risks appropriately. We believe that the movement toward decarbonization is an irreversible trend, that the demand
for renewable energy will continue to rise, and,as we have seen in the non-fossil value trading
market, that an era in which environmental value
will become a major source of revenue in theenergy business will arrive in the not-too distantfuture. In light of these perspectives, we will steadily
proceed with investments in decarbonization on a
global scale.
The key to advancing our business in both
Japan and overseas with a focus on decarbonization is our in-house development and cultivation of
biomass fuel. Initially, our biomass fuel was procured from external sources. However, with theincreasing need for biomass fuel around the world,
we have been procuring it directly from countries
in Southeast Asia, allowing us to secure a stablesupply at lower prices. Moreover, in Vietnam weare proceeding even further with such efforts
through the development of our own biomass andits conversion to fuel by securing the necessary
land and cultivating plants. In particular, we havebeen conducting experimental cultivations of a
new biomass fuel called new sorghum, which we
aim to transport from Vietnam from fiscal 2024.
Given the potential of Vietnam as a fuel-rich country, we aim to produce approximately five million
tons of biomass fuel per year by around 2030, andwe expect to generate earnings through externalsales in the future.
Furthermore, the economy in Southeast Asia is
growing remarkably, fueling expectations of anincrease in demand for electricity. There is also anabundance of unused biomass resources in theregion, which we intend to actively utilize in ourinvestments. Currently, our plan is to construct 18
biomass power plants in Vietnam. The first of these
to be established is the Hau Giang Biomass Power
Plant, which has been selected for Financing
Programme for Joint Crediting Mechanism (JCM)
Model Projects* in FY2023 and we will proceedwith capital investments accordingly, while receiving government support. Preparations are also
under way for the construction of our other biomass power plants. We do not believe that we will
necessarily need to raise substantial amounts of
new capital for the construction of many of theseplants. In light of our current earnings situation,
we will carefully select and steadily proceed withthe most appropriate investments for our future
growth. Based on this idea, we will reinvest theearnings from our initial projects, conduct joint
investments with other companies, and even consider diversifying our financing methods.
In Japan, we are forging ahead with a plan toestablish new large-scale biomass power plants
in Niigata Prefecture that are independent of thecountry’s Feed-in Tariff (FIT) system. Although it
has taken some time for the environmental assessment procedure to be completed and the start ofoperations has been delayed, we will steadily moveahead with this project as we believe it will play an
extremely significant role in ensuring stable supplies of electricity in this age of decarbonization.
We are also converting existing coal-fired power
plants to biomass power plants. In fiscal 2022,
although the unexpected increase in coal prices
weakened profitability and hindered the consideration of transfers of coal-fired power plants, we willcontinue to further the conversion away from coalfired power not only in Japan but also in Vietnam,
while carefully monitoring the price of coal.
In the energy business, while it is important tominimize the risks of short-term volatility, we mustalso ensure a stable plan for the long term andhigh returns on investments. I believe that it is my
mission to manage our business based on boththe short term and the long term by taking thesefactors into account.

Q. What differentiates the Company
in the electric power market?
We are securing business opportunities ahead of
our competitors by leveraging our venture spirit
and underscoring the importance of making timely
decisions. Our sales of electricity based on cocreation with sales partners throughout the country
and our pioneering efforts in biomass power generation to date are the product of such commitment. However, energy must be supplied in a
low-cost and stable manner. In order to fulfill thismission, we believe that we must secure a certain
level of profit and achieve the sustainable operationof our business, which will ultimately contribute to
the betterment of society.
Prior to becoming a part of the management
team at erex, I was involved in energy administration. Based on this experience and looking at theCompany objectively, I believe that, through new
ideas and actions, we have stimulated the development of the electric power market, a previously
tightly regulated sector, enhanced efficiency
through competition, and promoted new alliances.
There is often a perception that new market players come into conflict with existing electric powercompanies, but in the case of erex, as demonstrated by the establishment of Evergreen
Marketing Co., Ltd., a joint venture with TEPCOEnergy Partner, Inc., we have been advancing aseries of new initiatives, without being bound byindustry conventions.
When communicating with our investors andother stakeholders, I find that it is sometimes difficult to communicate our business structure dueto the relatively small number of similar peer companies in this industry. In light of these challenges,
we intend to continue to demonstrate our commitment as a leader in realizing a carbon-free society
by providing information even more proactively.

* The Ministry of the Environment, Japan has been implementing the “JCM
Model Projects,” which provides financial supports covering up to half of theinitial investment costs.
The purpose of this model projects is to financially support the implementationof projects which reduce GHG emissions by utilizing leading decarbonizing
technologies in developing countries, and in return, to acquire JCM credits forachievement of Japan’s GHG emission reduction and the partner countries'
emission reduction target.

erex INTEGRATED REPORT 2023

29

Strategies by Business

Fuel Business

Power Generation Business

Erex steadily procures high-quality biomass fuel through its supply chain, with a focus on Southeast Asia. In addition

Erex constructs and operates biomass power plants in Japan and overseas. The Company also plans to build

to supplying fuel to its in-house power plants, erex also acts as a trading company and sells fuel to third parties.

large-scale non-FIT power plants and convert coal-fired power plants to biomass power plants.

Strengths

Business Environment• In-house procurement of• Mandatory certification in

high-quality fuel directly fromfuel procurement within thethe country of origin

supply chain• Operational expertise in procuring• Increased transportation costs

fuel, including chartering anddue to soaring energy prices

assigning vessels

Measures for
Promoting Growth• Developing new fuel sources• Utilizing untapped biomass resourcesin Southeast Asia
• Construction of a wood pellet plantin Vietnam• Green Gold Label (GGL) certification

Strengths

Business Environment• Proven track record of converting the• Government policy to reduce green-

Tosa Power Plant from a coal-fired to ahouse gas emissions by 46% by 2030

biomass power plant(compared to fiscal 2013)• Power plant utilization factor oflaunching the biomass power genera-

achieve 43% power generation effi-

various Southeast Asian countries

tion businessciency under the Act on the Rational•S table and inexpensive power plant
operations achieved through in-house

Use of Energy• Frequent directives to control thenational output of renewable energy

mercial operations

30

Message from Management

Message from Management

Erex is one of Japan’s leading biomass power companies, importing
approximately one million tons of biomass fuel annually principally tosupply biomass fuel to its in-house power plants.
With the recent surge in global efforts to realize a decarbonized society,
we believe that carbon trading and carbon tax will be introduced, andbiomass fuels are expected to become increasingly valuable within the
power industry. In light of these changes, erex believes that it is important
to develop its own biomass fuels, and it is reviewing the structure andstaffing of its fuel business to facilitate the development of biomass fuelsin Vietnam and other Southeast Asian countries. The biomass fuel developed in-house in Southeast Asian countries will be made into pellets andexported to countries such as Japan, Korea, and China. Additionally, as
part of a local production for local consumption business model, the fuelwill be used to produce carbon-free electricity in countries facing electricity shortages.
The erex Group aims to become the leader in biomass fuel development in Asia and contribute to the realization of a decarbonized society.

Erex’s power generation business is responsible for the planning and construction of power plants as well as the management and technical supportof subsidiaries that operate and maintain power plants. It also serves animportant role on-site, persistently building win-win co-creation relationships
with stakeholders, including local government bodies and partner companies.
The most important role of a power plant is to stably manage its power
facilities through precise handling and regular maintenance. This requires
reliable operation and management. Furthermore, it is necessary to set
ever greater goals, using imagination and ideas based on power generation technology to analyze more efficient methods of operation and introduce innovative maintenance methods.
Erex is taking on new challenges to achieve decarbonization, including
expanding overseas, encouraging the technological innovation of biomass
fuels, converting inefficient coal power plants to coal and biomass co-firing
power plants, planning highly efficient large-scale power plants, and developing technologies for alternative power sources such as hydrogen. With
biomass power generation technology at the center of its activities, thepower generation business aims to contribute to the growth of the Company
as quickly as possible by investing in imaginative and curious employees
who are willing to embrace new technologies in power generation andnascent fields.

erex INTEGRATED REPORT 2023

new fuels•D eveloping biomass power plants in

power plants since the start of com-

Managing Director,
Fuel BusinessTechnical involvement in pioneering

thermal power plants that are failing to• Zero occupational accidents at all

Tomonori Kakuta•D eveloping new biomass fuelsapproximately 90% maintained since

procurementof all domestic power plants• Phasing out of inefficient coal-fired

Measures for
Promoting Growth•C onstructing large-scale non-FIT
biomass power plants•C onverting inefficient coal-fired powerplans to biomass power plants• Improving the operating rate of existing
power plants in Japan

Toyohiko Ishimaru
Executive Officer
Head of Power
Generation Department

erex INTEGRATED REPORT 2023

31

Strategies by BusinessTrading Business

Retail Business

Erex’s trading business intersects with its retail and power generation businesses, both of which are regulated byCentering around Evergreen Marketing Co., Ltd., a joint venture between erex and TEPCO Energy Partner, erex’s

Japan’s energy sector, optimizing its position to balance energy supply and consumption.

retail business supplies electricity to meet the needs of its various customers.

Strengths

Business Environment• Experience in electricity trading since• Ensuring a secure energy supply andthe establishment of the Japaneserealizing a decarbonized society areenergy market

presented as mutually exclusive ideals• Multiple trading methods based on
many years of experience• Burgeoning societal need to regulate
the supply and demand of electricity as

Measures for
Promoting Growth• Product development based on
expertise in electricity futures trading

Strengths

Business Environment• Nationwide customer base through a• Rapidly rising energy prices causing

sales partner system

Measures for
Promoting Growth

retail electricity providers to down-•E lectricity plans that combine environ-scale or close their businesses

mental value and economic efficiency• Increasing importance of a stable• Developing various supply channels
and service plans to expand market
demandpower supply• Leveraging market transactions to•Implementing sales strategies thatprioritize fair pricing and profitability

drive business expansion

Japan moves toward renewable energy• Providing services to realize adecarbonized society

Message from Management

Message from Management

Since its establishment, erex has traded electricity on the energy market.
Significantly, the Company was able to successfully leverage this experience fiscal 2022, practicing flexible trading to support stable power procurement and increase earnings in the face of volatile electricity prices.
In the future, the Company will continue to steadily develop the businessthrough market trading activities. By proposing market-based electricity
rates to electric power companies and other consumers, erex intends tomeet the needs of consumers who wish to control their costs. Since theunit price of electricity differs depending on the time of day, the tradingbusiness monitors the changing supply and demand of electricity before
implementing arrangements such as peak-load shifting.
With global efforts to realize a decarbonized society, renewable energy is
expected to grow in popularity. To this end, trading will likely become indispensable as it becomes more necessary than ever to maintain the balanceof energy supply and demand. The energy market depends on the participation of many players, and we intend to do our part in maintaining atransparent and fair market.

Erex has been developing its retail business as a power producer andsupplier since Japan’s energy sector was partially deregulated in 2000.
Currently, it supplies electricity to corporate and individual customers
throughout the country, from Hokkaido to Okinawa, via its five sales
subsidiaries.
In its business activities, erex has leveraged the strengths of eachsubsidiary to sustain growth and expansion, fostering diverse sales channels and methods based on the core value of co-creation through collaboration with alliance partners and community-based sales partners
nationwide and creating various price plans, such as CO2 free plans.
When ranking electric power companies in Japan by sales, the erexGroup ranks ninth* out of 700 power companies, and first among independent power providers.
However, the energy industry is changing dramatically due to therecent surge in energy resource prices and increasing demands to realize
a decarbonized society. In this business environment, erex will further
temper the strengths of each sales subsidiary, expanding area-specificsales strategies and service plans tailored to meet the needs of customers, promoting efficient management by integrating the back-office operations and systems of its five sales subsidiaries, and formulating optimal
sales strategies that balance growth and profit.

Ren Kawamura
Executive Officer
Head of Energy Market
Department

Toshimichi Tanaka
Director* As of September 2023

32

erex INTEGRATED REPORT 2023

erex INTEGRATED REPORT 2023

33

Working Toward

Sustainability

Sustainability Promotion
Structure

Board of Directors
Instruction

Energy is indispensable for human life. As a company that handles energy, erex is committed to supporting secure

Committee
Members

ReportExecutive Meeting

lifestyles in which access to electricity is commonplace, and to achieving sustainability through the realization of alow-carbon society so that future generations can continue to live in a world where access to electricity can be taken

Consultation

for granted.
Erex offers new innovations to help realize decarbonized societies globally. Through fuel development and theReport• Chairperson (Director in chargeof corporate planning)• Managing director
(1)• Director
(2)• Executive officer
(1)• General manager
(2)• Secretariat
(3)

As of January 2024

Sustainability Committee

Board of Directors

Social Subcommittee

Governance
Subcommittee

Secretariat (3)­creation of environmental added value, erex aims to achieve both decarbonization and energy security.
Furthermore, erex seeks to fulfil its corporate responsibility by taking a broad perspective, supporting the individuals who make up wider society, the communities where its power plants are located and its fuels are produced, andits employees, s­ takeholders, and supply chain partners.

Environmental
Subcommittee
Instruction

ReportInstruction

ReportInstruction

ReportEach Division and Affiliated Company

Basic Sustainability Policy Erex aims to become a decarbonized company that continues to evolve for the betterment of people’s lives as society works to address climate change with determination and speed.
Erex’s mission is to provide safe and stable energy that isboth environmentally friendly and economically rational,
and to realize sustainable, decarbonized societies globally.
By leveraging its experience in biomass power generation projects, erex will work on various projects not only inJapan but also in countries all over the world to solve theproblems of energy self-sufficiency, poverty, and inequality.
We also aim to build a global decarbonization chain by
returning value, including environmental value, to Japan.
Erex endeavors to support people’s lives and co-create
a better future and will continue to evolve while prioritizing
determination and speed.

Identifying Materiality 
Under the instruction of the director in charge of corporate planning, the secretariat takes the lead in collecting and organizing information on materiality, which is then reported to and discussed by the Sustainability Committee before beingreferred to the Board of Directors to make a final decision.

Environment• Realize a decarbonized society• Reduce erex’s greenhouse gas(GHG) emissions

Structures for Promoting Sustainability Initiatives 
In fiscal 2022, erex established a Sustainability Committee
to build a governance structure for sustainability. Chairedby the director in charge of corporate planning, its members include erex’s managing director and three full-time
employees who work in the secretariat established within
the Corporate Planning Department.
The committee aims to help realize a sustainable society by promoting and overseeing activities across the erexGroup, such as climate change countermeasures andinitiatives focused on human capital. Through the establishment of this committee, erex strives to conduct operations that lead not only to short-term enhancement but
also to medium- and long-term corporate valueenhancement.

34

erex INTEGRATED REPORT 2023

In addition, the committee meets at least twice a year
to report and deliberate on matters discussed by theEnvironmental, Social, and Governance subcommittees,
which comprise members selected from each erex division and affiliate company and are supervised by thesecretariat. After receiving reports on matters discussed
and decided by the Sustainability Committee, theExecutive Committee considers any proposed actions asimportant management and business strategies and consults with the Sustainability Committee as necessary when
making management decisions.
The Board of Directors supervises implementationplans, for example, those for initiatives related to climatechange issues.

Society• Contribute to the resolution ofsocial issues such as poverty• Contribute to and communicate
with the local communities affectedby business operations

Governance• Promote thorough compliance• Ensure appropriate information
disclosure and communication

Environment

While erex’s power generation business is centered on biomass, the company aims to realize adecarbonized society by expanding the use of renewable energies, including through solar andhydroelectric power generation, and considering new energy sources such as hydrogen. Erex began
calculating its GHG emissions in fiscal 2021 and is committed to decreasing its emissions while also
increasing its contribution to GHG reductions (for reference, please see page 36).

SocietyThrough biomass fuel development, power generation, and electricity retailing, erex fulfills its corporate social responsibility by creating local employment opportunities and providing a stable supply ofelectricity. Profits earned through business operations are used to revitalize local economies throughinvestment and other means. The Company also actively invests in human capital in local communities, such as by supporting a foreign exchange program for students from Vietnam.

GovernanceTo clarify management responsibility and accountability to shareholders, customers, employees,
and other stakeholders and provide benefits by maximizing corporate value, erex’s basic policy is toensure transparency and soundness in management and business execution, and to promote thorough compliance along with efficient management. In pursuing these initiatives, erex strives to further enhance corporate governance.

erex INTEGRATED REPORT 2023

35

Working Toward Sustainability

Environment

Validating proof of concept at Fujiyoshida Hydrogen Power Plant

Erex’s mission is to provide a safe and stable energy supply that is both environmentally friendly and economicallyrational, and we aim to realize sustainable, low-carbon societies globally.
To date, the Company has promoted the decarbonization of society by promoting the use of electricity derived fromrenewable energy sources, including ­biomass. Erex will leverage the knowledge and experience it has gained throughits domestic biomass power ­generation business to work on various projects not only in Japan but also overseas,
particularly in Southeast Asia, to help realize decarbonized societies through its business activities. The Company
aims to foster the decarbonization of value chains globally by returning the environmental value created through these
initiatives to both domestic and overseas markets.

Environmental Initiatives

Constructing power plants that consider the characteristics of local communities
The erex Group’s biomass power plants prioritize environmental measures, thoroughly treating wastewater,
exhaust, dust, and other emissions from the plants inan effort to protect the local environment.
One such example is the Nakagusuku Biomass Power
Plant in Uruma City, Okinawa, which uses industrial waterinstead of seawater to cool water used in the power generation process. Normally, seawater is used and subsequently
discharged into the ocean, but erex sends the industrial
water to a sewage treatment plant via a wastewater treatment facility to protect the ecosystem of the surrounding
sea area and the beauty of Okinawa’s ocean.
In addition, combustion ash from the power plant isgranulated and solidified by an industrial waste contractor,
then reused as roadbed material and soil conditioner tomake effective use of waste. Finally, biomass fuel is transported from the port to the power plant in a custom-built,
covered truck with an airtight structure to prevent dust
dispersion during transportation.

Hydrogen has been attracting increasing attention inrecent years as an energy source that does not generate
CO2 in the power generation process. The Basic Strategy
for Hydrogen*1 formulated by the Agency for Natural
Resources and Energy has set national targets to expand
hydrogen consumption to around three million tons per
year in 2030 and 20 million tons per year in 2050, while
the Agency’s Sixth Basic Energy Plan*2 envisions thathydrogen and ammonia will account for about 1% of thenational power supply in 2030. In April 2022, erex commenced operations at the Fujiyoshida Hydrogen Power
Plant as a proof of concept, with the plant being the firstcommercial hydrogen-fired power plant in Japan. Throughthis demonstration operation project, the Company has
validated the continuity, stability, and economic rationalityof the plant, and is conducting R&D for its commercialization in the future.

Fujiyoshida Hydrogen Power Plant*1 The national strategy for hydrogen was formulated in 2017 and revised in 2023 inconsideration of domestic and international circumstances.
*2 The government formulated this strategy based on the Basic Act on Energy Policy toclarify the general direction of Japanese energy policy, which was approved by the
Cabinet in 2021.
*3 The process is a proprietary technology of Hydrogen Technology Inc., which
supplies hydrogen at this power plant.

Erex’s Hydrogen Power Generation Mechanism

Wastewater treatment facility at Nakagusuku Biomass
Power Plant

Hydrogen Generation RoomHydrogen is extracted from a propriety catalyst after
causing a reaction between water and the catalyst, using
almost no heat or electric power.

Hydrogen Storage Tank
Generated hydrogen is stored in a tank.

Inside the Power Plant
Reaction
tank
Water

Coolingtank
Cleaningtank

Reactiontank
Catalyst
Reactiontank

Outside the Power Plant

CoolingtankExternal storage tank

Trucks with a covered cargo bed control dust dispersion
during transportation

Hydrogen Supply

Selling carbon-free electricity
Supported by the erex Group’s abundant supply of
renewable energy, the Company’s retail subsidiary
Evergreen Marketing Co. Ltd., offers carbon-free plansand other services to help create a sustainable, low-carbon
society based on its management philosophy of “making
renewable energy more accessible and creating a society
where green in the norm.”
By providing these services, the Group is working toincrease the use of environmentally friendly, low-impact
energy and to realize a low-carbon society. In addition, thecarbon-free plans offered by the erex Group can be beneficial to customers who wish to report to international36

erex INTEGRATED REPORT 2023

Container

initiatives such as RE100, CDP, and the Science Based
Targets initiative (SBTi), as well as to environmental
assessment organizations. As environmental awarenessdeepens, the need for socially significant services is
expanding.

ExhaustHeat utilization
Hydrogen gas engine

Generator

Gas Engine and Generator
Hydrogen gas is utilized at 270 normal cubic meters per hour. Hydrogen is combusted in the engine by a combustor developed specifically for hydrogen, whichrotates the engine and converts the kinetic energy to electrical energy, thereby generating electric power. Since hydrogen fuel contains no carbon, hydrogen power generation is a clean energy source that does not emit CO2 during the power generation
stage. NOx emissions from exhaust gases are also below standard values, and heatcan be recovered as hot water from the waste heat produced by exhaust gases.

High voltage power­distribution panel

Each facility

erex INTEGRATED REPORT 2023

37

Working Toward Sustainability

Environment

TCFD Initiatives

Main Risks Related to Climate Change and Response Measures
Classification

Impact on the Company

Severity

Response to Climate Change (TCFD Response)
In March 2023, erex expressed its support for the recommendations made by the Task Force on Climate-related Financial
Disclosures (TCFD).
Following on from this endorsement, erex will reconfirm the environmental impact of its business activities and work to
improve its information disclosure. In addition, the Sustainability Committee will play a central role in the Company’s efforts
to become carbon neutral and its aim to achieve a sustainable society together with its stakeholders.
Items included in erex’s information disclosure arebased on the framework developed by the TCFD andwill be reviewed and improved upon annually throughdiscussion by the Sustainability Committee.

1

Governance

Governance related to climate change has been integrated into general sustainability governance (see“Structures Promoting Sustainability Initiatives” on page
34 for details).

Policy and Law(Orders andregulations forexisting products
and services)

Conversion Technology(Replacing
Risks

existing products
and services with
low-emission
alternatives)

In fiscal 2023, the Sustainability Committee identified
and assessed climate-related risks in line with TCFD
­recommendations and organized and reviewed measures
to address them.

Markets(Increased costof raw materials)

2

Strategy

To improve business resilience in the face of a distant andhighly uncertain future, erex has assessed the impact of
global average temperature increases on the Company,
focusing on the power generation business, which is theCompany’s mainstay business, by referring to the 1.5°C
scenario (for example, the benchmark set by IEA’s net
zero emissions NZE scenario to achieve decarbonization)and the 4°C scenario (for example, the IEA’s stated policies scenario, which predicts the future impact of prevailing emissions) to project potential outcomes for 2050,
considering both risks and opportunities.
As a result, we assume that the demand for fuel will
increase and have identified the growing demand for renewable energy and biomass as a transition risk. Furthermore,
we assume the possibility that the supply of fuels thatmeet renewable energy standards will not keep pace withdemand, and that the resulting increase in cost prices will
have a significant impact on our business activities.
On the other hand, by promoting the development ofvarious biomass fuels, such as through our new sorghum

38

erex INTEGRATED REPORT 2023

Reputation

development project, and by strengthening in-house procurement of fuels that meet renewable energy standards,
we expect that we will be able to procure raw materials at
stable prices over the long term, and thus have an opportunity to expand sales by lowering our sales prices.
Since it is difficult to quantitatively evaluate the impact
of climate change on our financial condition, we havequalitatively evaluated impact on three levels: major, moderate, and minor. We will continue to analyze climatechange scenarios to improve the accuracy of our predictions regarding the degree of impact on our financial condition while strengthening our ability to respond to therisks and opportunities associated with climate change tomake our business more sustainable.
Finally, we assume that risks and opportunities will
emerge within three years for short-term predictions,beyond three years to 2030 for medium-term predictions,and after 2030 for long-term predictions.

(Increased stakeholder concerns
or negative
stakeholder
feedback)

Projected
time frame

If there are changes to the regulations onfuels used for biomass power generation,
erex may have to conversion to other fuelsthat maintain their status as renewableenergy sources. In this case, theCompany may incur costs associated withconversion to fuels that meet revised
regulations, or the Company’s fuel costs
may increase if it converts to higher cost
fuels that meet the revised regulations.

MediumShort
term

Increased reputational risk and costs
associated with addressing unmet emission targets and inadequate disclosure
information (including information on
mixing fuels that have not received thirdparty certification and discrepancies incertified biomass ratios).

Medium

Short
term

Small

Mediumto longterm

To lay the groundwork for achieving carbon
neutrality in 2050, erex will promote andmonetize its hydrogen power generation
demonstration project, invest in renewableenergies other than biomass, and optimize
sales price and volume.

Short
term

Erex will promote the development ofvarious biomass fuels by strengthening its
in-house procurement of fuels that meetrenewable energy standards and throughits projects to develop fuels such as new
sorghum.

MediumShortterm

In its management plan, the Company has
set a target to reduce carbon emissions by
25 million tons in 2030. It also aims to
reduce in-house greenhouse gas (GHG)
emissions and promote avoided emissions
through its biomass business.

MediumMediumto longterm

To mitigate the risk of power plants becoming inoperable due to supply chain disruptions, erex procures fuel from multiple
countries and sales channels.

As environmental awareness continues togrow, the supply of renewable energy islikely to increase. This could lead to anincrease in the number of days that
renewable energy output is curtailed,thereby leading to lower sales.
While demand for fuels is likely to increase
in response to a growing demand forrenewable energy and biomass power
generation, the supply of fuels that meetrenewable energy standards may notkeep pace with demand, resulting in an
increase in the cost of fuel.
An inadequate response to climate-related
issues or information disclosure requirements may cause a decline in share prices
or a loss of investors, leading to increased
financing costs, or a decrease in company
value.
Increasingly severe windstorms and floods
may cause damage to biomass fuelproduction plants or cause disruptions inthe supply chain, thereby impeding fuelprocurement and power plant operations,
resulting in a decrease in sales.

Large

Acute risk

Physical
Risks(Increased severity and frequencyof extreme
weather events
such as cyclones
and floods)

Countermeasures

Increasingly severe windstorms and floods
may damage power generation facilities,
thereby causing them to cease operations
and resulting in a decrease in sales.

MediumMediumto longterm

To ensure a stable supply of PKS, erex
takes the initiative to procure biomass fuelssuch as palm kernel shells (PKS) and woodpellets from overseas. In addition, theCompany is working to obtain certifications
that cover various aspects of supply chain
management in relation to the protection of
the natural environment and the sustainable use of biomass fuels, such as obtaining Green Gold Label (GGL)* certification
for PKS in 2020.
* Green Gold Label is an international certification
program for sustainable biomass.

It has been confirmed that the inundation
depth during storm surge and flood in thearea where the power plant is located will
not change significantly from the current
inundation depth predictions of 1.5ºC and
4ºC in 2050.
In addition, in preparation for emergency
situations, erex will conduct thorough risk
management for its personnel, such as
securing evacuation routes, and it will
incorporate business continuity planningmeasures into its contingency plan asnecessary.
* Source: The Aqueduct Global Flood Analyzer,
World Resources Institute.

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39

Working Toward Sustainability

Environment

Opportunities Related to Climate Change and Response Measures
Classification

Technology(Replacing
existing
products andservices with
low-emission
alternatives)

Impact on the Company

The introduction of policies promoting ashift to power grids that capitalize on thepotential of renewable energy will likely leadto fewer days of output control andincrease revenues.
Earnings will increase through the development and practical application of a business that improves the efficiency of energy
management systems that utilize storage
batteries.

Cost of sales will likely decrease as newtechnologies develop biomass fuels withhigher power generation efficiency thatlower the cost per unit of electricity
generated.

An increased need for bioenergy withcarbon capture and storage (BECCS) will
likely increase the demand for biomass
power generation, resulting in higher sales.

Opportunities

Markets(Increased
cost of raw
materials)

Reputation(Changes incustomer
behavior)

Projected
Severity
time
frame

MediumMedium

Small

Large

The growing demand for renewable energy
by companies and others working toaddress climate change will likely increase
the need for electricity generated fromrenewable energy sources, including
biomass energy, resulting in higher sales.

Large

Small

Erex has established biomass R&D centers
in Japan and Vietnam to promote thein-house development of various biomass
fuels, for example, new sorghum.*

Middle to
long
term

To lay the groundwork for achieving carbon
neutrality in 2050, erex will promote demonstration and monetization of its hydrogen
power generation project, investment inrenewable energies other than biomass,and optimization of sales price and volume.

Short
term

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erex INTEGRATED REPORT 2023

By proactively addressing and disclosing
the status of ESG issues and attracting
ESG investment, the company’s value will
likely increase as a result of higher stock
prices.

The Sustainability Committee secretariat takes the lead incollecting and organizing information on the identification
and assessment of risks and general response policies forrisks and opportunities deemed significant. The Sustainability
Committee uses this information to discuss and decide on
matters before reporting to the Board of Directors.

In addition, the Company is currently considering theestablishment of a risk management system that would
aid in the refining and progressing of response measures
to significant risks and opportunities related to climatechange.

Goals and Indicators

Based on the GHG Protocol, the erex Group began calculating GHG emissions as an indicator for achieving carbon
neutrality in fiscal 2021. The Company identified and organized its calculation methods for each relevant businessactivity and emission source and calculated its Scope 1,
Scope 2, and Scope 3 emissions. Erex will continue tocalculate its emissions and monitor the environmental
impact of the Group’s operations.

Actual GHG emissions (Unit: t-CO2)
Scope 1*1

Scope 2

Scope 3*2

Total

FY2021

4,975

3,990

3,008,877

3,017,842

FY2022

483,134

1,391

1,980,456

2,464,981

The Company will promote the development of various biomass fuels, for example,
new sorghum.*

Erex will undertake the challenge of nonFIT biomass power generation, while
Evergreen Marketing Co., Ltd., an erexGroup company, will sell carbon-free plans
to RE100 member companies and othercompanies.

Short
term

In using GHG emissions as an indicator from now, it isimportant to recognize that GHG emissions could temporarily increase due to business growth, aggressive global
expansion, and the Company’s project to gradually convert coal-fired power plants to biomass power plants.*3
Erex is working to reduce in-house GHG emissions
through various initiatives while simultaneously working toincrease emission reductions known as “avoided emissions” in the future. The erex Group defines avoided emissions as global carbon emissions that it can reduce
through its business activities, for example, by offering
carbon-free plans to its customers, and it estimates thatavoided carbon emissions for the entire Group will be 25
million tons in 2030.

*1 In August 2022, erex acquired the Itoigawa Power Plant (a coal-fired power plant) as part of its coal-fired power conversion plan. As a result, Scope 1 emissions increased from fiscal
2021 to fiscal 2022.
*2 Scope 3 emissions decreased in fiscal 2022 due to a decrease in the amount of electricity sold.
*3 Under erex’s coal-fired power plant conversion plan, the Group’s Scope 1 emissions will increase in the short term due to the purchase of coal-fired power plants. However, bypartially converting coal-fired power plants to biomass power plants and increasing the ratio of biomass to fossil fuels used, erex can mitigate its increased Scope 1 emissions andcontribute to the reduction of global GHG emissions (that is, through avoided emissions achieved by minimizing coal use).
The forward-looking statements in this integrated report are based on certain assumptions that were considered reasonable at the date of submitting the Annual Securities Report.
Actual results may differ significantly due to various factors.

Reputation(Increased
stakeholder
concerns or
negativestakeholder
feedback)

To lay the groundwork for achieving carbon
neutrality in 2050, erex will promote andmonetize its hydrogen power generation
demonstration project, invest in renewableenergies other than biomass, and optimize
sales price and volume.

Middle to
long
term

Short
term

Risk Management

Countermeasures

4

Erex will be able to procure raw materials
at stable prices over the long term bystrengthening its own procurement of fuelthat meets FIT standards, resulting in lower
fuel costs.

Sales will likely increase as the country
expands electrification as part of its
response to climate change and demand
for renewable electricity increases.

Middle to
long
term

3

MediumShortterm

In its management plan, the Company has
set a target to reduce carbon emissions by
25 million tons in 2030. It also aims to
reduce in-house GHG emissions andpromote avoided emissions through its
biomass business.

erex INTEGRATED REPORT 2023

41

Working Toward Sustainability

Society
With the development of its power generation business in Asia, erex has added contributing to the resolution of social
issues, such as poverty, to its material issues. Promoting decarbonization through the introduction of renewableenergy while ensuring that people can lead prosperous lives is indispensable to achieving the aim of leaving no one
behind, which is the principle of the United Nations Sustainable Development Goals. We provide support to people
and communities to realize a future in which all people have access to reliable and safe sources of energy that are
sustainable and economically efficient.
Through a support program we operate in Vietnam, we have established a scholarship scheme and provided housing for community members with our local business partner. Biomass fuel development and biomass power genera-

Promotion of Diversity
Diversity is an indispensable element in developing businesses globally.
We will create a diverse organization and establish aworking environment that allows women and non-Japaneseemployees to play an active role by recruiting humanresources from a variety of backgrounds.
In expanding overseas, we will also contribute to communities by proactively recruiting local staff and deepening
our understanding of local characteristics and social issues.

Fair Evaluation and Treatment
Erex rewards its employees for producing results.
Applying a fair personnel evaluation system, we will provide the best possible treatment to human resources who
are full of motivation and a sense of responsibility, andwho constantly challenge management issues.
At the same time, we seek to improve employee benefits. In particular, we are developing a system for employees seconded overseas that takes into account local
characteristics and also considers employees’ families.

tion require significant ongoing local recruitment, driving decarbonization and invigorating local economies.
Human capital is essential to the promotion of such activities. Mindful of this, we will develop and nurture theabilities of all our employees, create a comfortable working environment for them—irrespective of their gender or
nationality—by advancing diversity, and promote their well-being.

Providing Support for Human Resources from Vietnam to Study in Japan

Basic Approach Tuition Fee Assistance for Young Central, Regional or Female Government Officials

We have built an organization based on the concept ofconducting business activities through a compact team ofhighly capable people and created an environment thatallows all employees to demonstrate their capabilities tothe full so that we can achieve our management visionand develop decarbonization businesses globally.

As a result, net sales per employee exceeded¥1.1 billion in fiscal 2022. We will continue to create aworking environment that provides employees with opportunities to enjoy job satisfaction and achieve growth.

Net Sales per Employee(Millions of yen)

(Millions of yen)
1,400

350,000
1,127

300,000

1,000

200,000

800

666
474

296,312487
230,502

100,000
50,0000
Net sales (Left)

141,885
65,827

88,639

2018

2019

2020

600

Earning Recognition for Outstanding Health and Productivity Management

400

On March 8, 2023, erex was recognized under the 2023
Certified Health & Productivity Management Outstanding
Organizations Program (small and medium-sized enterprise category). Companies recognized under the program are selected jointly by the Ministry of Economy,
Trade and Industry and the Nippon Kenko Kaigi.*
The program honors large and small and medium-sizedenterprises that practice particularly outstanding healthand productivity management based on initiatives alignedwith local health issues and health promotion initiatives
advanced by the Nippon Kenko Kaigi.
Having long viewed the maintenance and improvementof employee well-being as an important managementtask, erex has endeavored to create a working environment that allows all employees to demonstrate their capabilities to the full in good health. We will continue engaging
in activities to maintain and promote employee well-being

200
2021

2022

(FY)

0

Net sales per employee (Right)

Specific Strategies 
Recruitment and Development of Human Resources
Along with recruiting human resources who identify withour corporate philosophy and relish being tasked withresponsible work as new graduate employees, erex also
strives to create an organization that is best suited to acompact team of highly capable people and facilitatebusiness expansion by recruiting experienced humanresources with a diverse array of knowledge.
In addition to creating opportunities for all employees toregularly review their progress through quarterly meetings
with their supervisors, we are also expanding training

42

erex INTEGRATED REPORT 2023

In Vietnam, we have launched a human resources development program scholarship. The program develops
human resources who will contribute to future growth byproviding tuition fee assistance for young government
officials from Vietnam when studying at universities inJapan. Such officials must be either regional, or female tobe eligible for the assistance. The program is expected to
improve the lives of a diverse range of people in Vietnam
by developing government officials who can engage ingovernance with broad outlooks.

1,200

1,077

250,000

150,000

Examples of Initiatives

programs according to rank. In particular, new graduate
employees acquire the basic knowledge required of businesspeople from a variety of perspectives by taking morethan 10 internal training programs in their first three years
with the Company.
We also proactively implement job rotations, developing
human resources with broad outlooks encompassing
upstream to downstream areas who can promote ourenergy businesses.

so that we remain a company that is healthy and rewarding for employees and their families.
* The Nippon Kenko Kaigi is an organization that encourages workplaces and communities to achieve specific measures to overcome health-related challenges throughcollaboration with private organizations including economic associations, medicalcare associations, and insurers, and municipalities.

erex INTEGRATED REPORT 2023

43

Working Toward Sustainability

Corporate Governance
Basic Concept 
The Company seeks to provide benefits to its stakeholders, including shareholders, customers and employees, by
maximizing its corporate value. To this end, the Company
will ensure transparency in management and the execution of business as well as rigorous compliance. At thesame time, the Company aims to promote efficient management. While advancing these initiatives, the Company
will strive to further enhance its corporate governance.

Corporate Governance System Stance on the Diversity, Size, and Balance of Knowledge, Experience, and Abilities of
the Board of Directors 
The Board of Directors currently has eight members,
which erex believes is an appropriate number for promoting rapid decision-making as the Company expands
its lines of business. Furthermore, erex believes that its
Board of Directors is well-balanced and composed ofdiverse members with different professional

backgrounds, experience, and expertise. Directors havea deep understanding of each of the Group’s businesses, while outside directors, provide supervisionfrom an objective and independent point of view. All
outside directors have management experience at othercompanies.

Skills Matrix Erex is a Company with an Audit and Supervisory Board.
The outline of this system is as follows.
Directors and Audit & Supervisory Board members are
directly appointed by shareholders. Entrusted with management, they are responsible for fulfilling their respectiveroles satisfactorily and are accountable to all stakeholders,
including shareholders, for the state of management.
As the erex Group is involved in the energy businessfrom upstream to downstream and has recently expanded
its business overseas, it is necessary to use expertise andbusiness experience in the energy industry to evaluate awide variety of risks when pursuing management resolutions, making decisions, or supervising management.
Erex has therefore chosen the current system to ensuretransparent and fair supervision and decision-making by
having the executive directors—who are familiar with theGroup’s business activities—make management-related
decisions from diverse perspectives, while the outside
Audit & Supervisory Board members provide advice andguidance, and the outside directors, who have complete
independence from the Board of Directors, oversee theexecution of duties by directors.

The following skills matrix sets out each director’s business experience and expertise.
Corporate
Management& Business
Strategy

EnergyIndustry

International
BusinessEngineering

Sales &
Marketing

New Business& Innovation

Finance &Accounting

Compliance

IT

Representative Director
and President
Hitoshi Honna
Managing Director
Takanobu Yasunaga

Managing Director
Tomoki Kakuta

Corporate Governance and Internal Control System

Director

General Meeting of Shareholders
Appointment/
Dismissal

Accounting Auditor

Accounting
audit

Appointment/
Dismissal

Board of Directors

Selection/Dismissal

Accounting audit

Yasushi Saito

Appointment/
Dismissal
Audit

Audit & Supervisory Board

Director
Toshimichi Tanaka

Outside Director
Makoto Tamura

Audit
Outside Director

Cooperation
ReportRepresentative Director

Cooperation

ReportDirection

Internal Audit Department
Audit

Audit

Guidance and supervision

Departments

Group Companies
Report44

erex INTEGRATED REPORT 2023

Outside Director
Shigeru Kimura

Direction

Management Meeting

Michiaki Morita

Process and Policy for Appointing Directors 
The president and representative director selects directors
who have high ethical standards and can suitably fulfill the
responsibilities of the position, based on past performance,

character, insight, and other factors. Candidates arechosen after sufficient deliberation at Board of Directors’
meetings attended by outside directors.

erex INTEGRATED REPORT 2023

45

Working Toward Sustainability

Corporate GovernanceCriteria for Selecting Outside Directors 
The appointment of outside directors is made on thecondition that they meet the requirements for independence as stipulated by the Tokyo Stock Exchange, have
Name

MakotoTamuraExecutive Compensation 
expertise and experience in a range of fields, and can be
expected to provide objective and neutral advice andsupervision of management.

Reason for Election
Makoto Tamura has a high level of insight based on his many years of experience in the finance andsecurities industries as well as a broad range of knowledge in all aspects of management. He has been
appointed as an outside director because it was determined that he can play a role in ensuring theadequacy and appropriateness of the Board’s decision-making by providing useful independent advice
on the Group’s management strategies and other matters.

Attendance atBoard of Directors’Meetings (FY 2022)

MichiakiMorita14/14 times

Shigeru
KimuraShigeru Kimura has a high level of insight based on his many years of experience in the energy industry
as well as a broad range of knowledge in all aspects of management. He has been appointed as an
outside director and independent member because it was determined that he can play a role in ensuring
the adequacy and appropriateness of the Board’s decision-making by providing useful advice on theGroup’s management strategies and other matters.

14/14 times

Governance System 
To improve the effectiveness of the Board of Directors, the Company conducts an evaluation of the Board at a fixed timeeach year to identify and share issues that need to be addressed.
Below is a summary of the evaluation results for fiscal 2022.

(2) At the Board of Directors meeting held in April 2023,
board members shared their views on the analysis ofquestionnaire results. To ensure objective evaluation,
the question design and tabulation and analysis ofresults were outsourced to an external organization.

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erex INTEGRATED REPORT 2023

Compensation
by typeBasiccompensation(Monetarycompensation)

Overview

Position

14/14 times

Michiaki Morita has a high level of insight based on his many years of experience in the finance andsecurities industries as well as a broad range of knowledge in all aspects of management. He has been
appointed as an outside director and independent member because it was determined that he can playa role in ensuring the adequacy and appropriateness of the Board’s decision-making by providing usefuladvice on the Group’s management strategies and other matters.

1. Evaluation Method(1) In March 2023, all directors completed a five-stepscale self-evaluation questionnaire. In addition to­questions verifying the effectiveness of the Board of
Directors on an ongoing basis, the evaluation included
questions to verify how the Board was responding to
the changing external environment and other factors
affecting corporate governance.

1. Basic Policy
To create a compensation system that adequately incentivizes directors to continuously strive to improve corporate value, the Company’s basic policy sets compensation

2. Main Items in the Evaluation Questionnaire• Composition and processes of the Board of Directors• Management and business strategies• Business ethics and risk management• Performance monitoring and management evaluationand compensation• Dialogue with shareholders
3. Evaluation Results
The results of the self-evaluation questionnaire show thatthe responsibilities of independent outside directors andshared value created with stakeholders are suitable, andthat the content, amount, and prior explanation of documents used in meetings are appropriate. On the other
hand, the results revealed several issues that should be
addressed, including the formulation and implementationof a training and succession plan for CEO candidates andthe insufficient understanding of the digital transformation
promotion policies. With this in mind, we will work to further improve the effectiveness of the Board.

at a level appropriate to each director’s responsibilities.
The compensation system for directors comprises thefollowing three components.
Performance-based compensation

Performance-based compensation bonus(Monetary compensation)

Restricted stock(Non-monetary compensation)

Fixed compensation paid monthly

Short-term incentive encouraging directors tosteadily achieve performance goals for the
fiscal year

Medium- to long-term incentive promoting management that increases corporate and shareholder
value over the medium- to long-term

Executive Director
Outside Director

Executive Director
Outside Director

Executive Director

2. Policy to Determine Basic Compensation for Each Director(Including Timing and Other Conditions for Granting Compensation)
Basic compensation for directors is determined by taking
or outside director, and reflects individual performance forvarious factors into consideration, including the Company’s
the previous fiscal year as determined through discusbusiness performance and the compensation levels at
sions between the president and representative director
other companies in the industry. A base amount is set
and the director in charge of human resources.
according to each position as well as status as a director
3. Policy to Determine Amount, Calculation Method, and Other Details for Performance-Based Compensation(Including Timing and Other Conditions for Granting Remuneration)
Performance-based compensation comprises bonuses
restricted shares at a fixed time. The amount shall be
and restricted stock. Bonuses are paid at a fixed time
determined by the Board of Directors each fiscal year.
each fiscal year, with the amount subject to consolidated
Limits on the number of restricted shares to be delivered
ordinary income as well as individual performance targets
shall be determined according to internal rules set at a
set for the previous fiscal year.
Board of Directors’ meeting attended by outside directors.
Regarding restricted stock, shares issued to directors
More specifically, the number of shares is determined
as compensation cannot be transferred or disposed ofeach fiscal year on an incremental scale between 80%
during a certain period, usually three years or more, as
and 130% according to the degree of accomplishment ofdetermined by the compensation framework agreed upon
consolidated ordinary performance targets set for theat the General Meeting of Shareholders. Monetary comprevious fiscal year.
pensation shall be paid to eligible directors for delivery of
4. Policy to Determine the Ratio of Basic Compensation and Performance-Based Compensation for Each Director
Based on benchmarks set by companies of the samerank. As performance-based compensation fluctuates
size and in related industries and businesses, erex has
according to company performance and other factors,
adopted a compensation framework in which the ratio ofguidelines for the ratios of compensation types differ
performance-based compensation increases according toaccording to the category of director as summarized below.
Category

Basic compensation(Monetary compensation)

Bonus(Monetary compensation)

Restricted stock(Non-monetary compensation)

Director

40–100%

0–40%

0–20%

Outside director

70–100%0–30%—

erex INTEGRATED REPORT 2023

47

Working Toward Sustainability

Corporate GovernanceCompliance

Respect for Human Rights

The erex Group has established its compliance regulations, which stipulate basic compliance-related matters within

Based on the belief that a company’s social responsibility compels it to respect human rights, the erex Groupthe Group and set out 15 principles to be observed by directors and employees of the Company and its subsidiaries.

has newly established the Erex Group Human Rights Policy as an action guideline, using the Group’s sustain-

The Company has appointed a director in charge of compliance, who conducts compliance training within theability policy as a starting point. The Group is committed to engaging in sincere and honest business activities

Group, maintains an internal reporting system, and works to address any violations of laws, company bylaws, andin each country and region where it operates.

other internal regulations. In the unlikely event that a violation of a law, bylaw, or other internal regulation is discovered, the matter is reported to the Board of Directors in accordance with compliance regulations, and action is taken
in cooperation with outside specialists, such as legal advisors.

erex Group Human Rights Policy (excerpt)

In addition, a quarterly meeting of compliance officers is held to discuss any incidents within the Group and todevelop Groupe-wide response measures, while compliance training is conducted within the erex Group to raisecompliance awareness.

1

Not only does the training outline compliance guidelines and encourage behavior in line with common sense, but it
also addresses specific topics to promote understanding of these issues, including insider trading regulations, managing confidential information, protecting personal information, and preventing harassment.

Compliance with Human Rights Laws and Regulations• Comply with the laws and regulations applicable in each country or region where we conduct businessactivities• Respect international standards when the above laws and regulations differ from international standards
2

Scope of the Policy• Applies to all persons working for erex Group, including directors, officers, and employees

Code of Conduct Through the process of realizing the vision, mission, andfive “attitudes” laid out in the Company’s management
philosophy, erex directors and employees (including fixedterm employees) become mindful of the Company’s corporate social responsibility and comply with the law.

3

Based on various experiences accumulated over theyears, erex’s grounding principle is to contribute to society
through its business activities.

4

The erex Group has established “internal reporting regulations” to help prevent illegal or illicit conduct as well as
early detection of such behavior. These regulations ensure
the anonymity of whistleblowers, the confidentiality of
information received, and prescribe the appropriate pointof contact. Recorded cases of compliance violations arereported to the Board of Directors on a quarterly basis.

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erex INTEGRATED REPORT 2023

Human Rights Due Diligence• Work to identify, prevent, and mitigate any apparent or potential negative human rights impacts that may
occur in our business activities
5

Internal Reporting System 

Respect for Human Rights in Business Activities• Promote initiatives that prioritize respect for human rights to stakeholders

Remediation and Correction• In the event that a business activity causes, or is found to have indirectly caused, a negative impact on humanrights, take remedial and corrective action through appropriate procedures and work to prevent a recurrence
6

Dialogue with Stakeholders• Proactively engage in dialogue and negotiation with stakeholders on how to respond to apparent or potential
human rights risks
7

Information Disclosure• Disclose information appropriately through websites and other platforms

erex INTEGRATED REPORT 2023

49

Roundtable Discussion with Outside Directors
Ensuring the Steady Implementation of Plans
Tamura Erex has put a support system in place tofacilitate outside directors’ participation in discussions,sharing relevant documents and materials with us inadvance. A few years ago, meeting agendas were only
shared with us right before board meetings, but now
we are given plenty of time to prepare. Depending on
the matter at hand, information is shared promptly andthe gap in the quality and quantity of information
shared with directors and outside directors seems to
be closing.

Outside Director
Shigeru Kimura

Outside Director
Michiaki Morita

Outside Director
Makoto Tamura

With the aim of securing long-term growth, three outside directors discuss their perspectives required for management, their evaluation of existing governance practices, and potential areas for enhancement aimed at fortifying thecompany.

Leveraging Our Experience in Our Duties as Outside Directors
Kimura I built my expertise in the energy industry
through roles at Tokyo Electric Power Company(TEPCO). While erex and TEPCO share a commonbase of knowledge of the energy industry and work
under similar regulations, the two companies havecompletely different corporate stances.
As an infrastructure company, TEPCO is responsible
for providing a last resort service. Erex’s priority, on theother hand, is to achieve its mission of providing astable supply of electricity by pioneering a new energy
business that meets the needs of a changing society.
Their organizational structures are also very different,with erex leveraging its flexibility as a venture company
to distinguish itself with its rapid decision-making andbusiness development.
I recognize that erex differs from a major energy
company in terms of stance and approach and I try to
fulfill my duties as an outside director accordingly.

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erex INTEGRATED REPORT 2023

Morita With extensive experience in markets andfinance, including my time at the Bank of Japan, I apply
my knowledge and experience to monitoring erex’sorganizational and general business management,with a particular focus on risk management.
Tamura I started my career at a brokerage firm, working primarily in the investment banking department,
and I now manage an investment fund. Informed bythis experience, I make a conscious effort to advisefrom a shareholder’s perspective, not only on businessstrategy but also on monitoring risks related to financing and M&As. As erex’s longest-standing outside
director, I would say that its governance has progressed steadily with the growth of the Company.

Kimura Upon request, erex creates opportunities for
us to learn about its work and to conduct inspections
as needed. Most recently, we visited a hydrogen
power plant in Yamanashi Prefecture and toured theCompany’s business sites in Vietnam. Vietnam willserve as a base for the development of the Company’sfuel business and overseas businesses, and we visiteda sorghum farm there to learn more about what goes
into cultivating the raw materials for biomass fuels,
including local climate conditions.
Morita As stated in erex’s Outlook to 2030, theCompany aims to achieve its vision of pioneering a
new era of electric power that prioritizes renewableenergy by developing an overseas fuel business andconstructing biomass power plants. Although theCompany is likely to face difficulties as it executes thisplan, it has the advantage of flexible decision-making
and can promptly adapt its policies if it finds that its
original plan is unfeasible. As a prerequisite for overseas business development, it is of course necessary
to ensure the stability and profitability of domestic businesses while moving forward, constantly remaining
alert to risks to business expansion and conferring withexecutive officers.

Kimura The Southeast Asian region is politically unstable. Large companies do not necessarily have an
advantage doing business in such territories, nor canthey necessarily build good relationships there. Rather,companies like erex, which emphasize alliances withlocal partners, can more readily build amicable business partnerships through mutually beneficial arrangements. In fact, during our visit to Vietnam, a local
company saw the growth potential in erex’s biomass
power generation business and agreed to become apartner company.
Tamura There are risks to expanding business activities overseas that any company would encounter, nomatter what its size, but I am of the opinion that erex’s
executive officers have carefully discussed the various
risks inherent in overseas business development, andthat there is a high probability that the vision outlined in
the Company’s Outlook to 2030 can be achieved. As
outside directors, we will continue to encourage andsupervise strategic risk-taking as well as offering advice
on mitigating any negative impacts if necessary.

erex INTEGRATED REPORT 2023

51

Board of Directors

Roundtable Discussion with Outside Directors

Strengthening Governance to Create a Foundation for Erex’s Growthat Board level, including diverse genders and backgrounds. From this perspective, when it comes toselecting outside directors, there should not be any
bias toward a particular professional background orage. This is true for many companies, but the first stepfor erex is to clarify which skills it requires of an executive officer. It is also important to avoid preconceived
notions about age when nominating outside directors.
The Board can benefit from someone who speaks theirmind confidently, even if they are young.

Kimura Erex has achieved success under the leadership of President Honna, although I would not describe
his management style as a so-called one-man show. It
is evident that management decisions on importantmatters are made after extensive internal discussion.
This deliberative approach is one of the Company’s
best qualities, and I would like to play a part in fostering a culture in which employees continue to feel theycan express their opinions without hesitation.
Morita Related to what Kimura-san just said, as acompany and its organizational structure grow, different departments often become siloed, with people
becoming hesitant to comment on matters outside
their roles. That being said, I think that erex has donea good job of maintaining an open culture where
employees express their opinions from a holistic,
Companywide perspective, even on matters outside
their area of responsibility. To further enhance the effectiveness of its governance, erex must consider thediversity of its Board members. For example, as theCompany begins to expand overseas in earnest, it
could consider appointing someone with global business experience.
Tamura In terms of governance, I believe that all companies are looking for ways to improve their corporate
governance systems. Erex recognizes that it needs toaddress the issue of maintaining diverse representation

Kimura As an outside director, I would like to deepen
discussions to enhance the effectiveness of erex’s
governance. Last, but not least, the Company’s biomass power generation business in Southeast Asia
plays a very important role in promoting decarbonizedenergy, and we will continue to monitor it closely both
domestically and overseas, and steadily move forward
while preserving the soundness of the business.
I am convinced that erex will grow into a uniqueenergy company in the coming era of a low carbon
society centered on biomass power generation. We
recognize that short-term business performance isimportant, but we hope that stakeholders will take along-term perspective and look toward the future aserex strives to be a pioneer in decarbonized energy.
1 Representative Director & President

2 Managing Director

3 Managing Director

4 Director

Hitoshi Honna

Takanobu Yasunaga

Tomoki Kakuta

Yasushi Saito

As of June 2016

As of June 2019

As of June 2023

As of July 2022

6 Outside Director

7 Outside Director

8 Outside Director

5 Director

Toshimichi Tanaka

Makoto Tamura

Michiaki Morita

Shigeru Kimura

As of June 2019

As of January 2014

As of June 2018

As of June 2019

9 Full-time Auditor

10 Outside Auditor

11 Outside Auditor

Takeshi Kusano

Eriko Ishii

Makoto Kojo

As of June 2023

As of June 2023

As of June 2020

5
11

6

8

52

erex INTEGRATED REPORT 2023

4

2

10

1

9
3

7

erex INTEGRATED REPORT 2023

53

Investor Relations Activities / Company Information /Stock Information (as of March 31, 2023)
The Basic Policy of IR Activities and Their Purpose 

Stock Status

The erex Group has established its basic IR policy with an
aim to increase long-term corporate value by building fairand favorable relationships and promoting dialogue withshareholders, investors, and other stakeholders, while
disclosing information appropriately.
We explain our business conditions and operating policies as accurately and promptly as possible to our shareholders and investors, and endeavor to reflect theiropinions and requests in our business management decisions, thereby enhancing our corporate value.

Total number of shares authorized to be issued

163,572,000

Total number of shares

59,382,058 shares (including treasury stock 2,228)

Number of shareholders

17,149Throughout the year, we hold general shareholders’meetings, biannual financial results briefings, quarterly
individual briefings for institutional investors, as well as anumber of individual investor briefings and business presentations. In addition, we communicate with our various
stakeholders through the planning and operation of theerex IR webpages and the publication of IR-related booklets such as integrated reports and shareholder
newsletters.

FY 2021S
 mall Meeting for Institutional Investors(Number of People)

FY 2022

Financial results briefings

2

2

Briefing for institutional
investors

8

4

Briefing for individual investors

1

2

Conferences sponsored by
securities companies

43

Overseas roadshow

0

1

Domestic/Overseas

FY 2021

FY 2022355

383

Domestic

111

Overseas

96

AffiliatedCompanies

Company nameerex Co., Ltd.

Headquarters

14F Kyobashi Edogrand, 2-2-1 Kyobashi,
Chuo-ku, Tokyo 104-0031, Japan+81-3-3243-1185

Established

December 8th,1999

Capital¥11,313,929,171(As of February 28, 2023)

Number of
employees

263 (Consolidated)
162 (Non-Consolidated)

Erex New Energy K.K.
Erex New Energy Saeki K.K.
Buzen New Energy Co., Ltd.
Okinawa Uruma New Energy K.K.
Itoigawa Power Generation Company
Hau Giang Bioenergy Joint Stock Company
Evergreen Retailing Co., Ltd.
Evergreen Marketing Co., Ltd.
Okinawa Gas New Power Co., Ltd.
T’dash LLC
e-sell Co., Ltd.
erex Singapore Pte. Ltd.
Straits Green Energy Sdn. Bhd.
Straits Green Energy Pte. Ltd.
erex Biomass Management Co., Ltd
erex Vietnam Co., Ltd.
Saiki Biomass Center Co., Ltd.
erex HT G.K.
EREX (CAMBODIA) CO., LTD.

Rating Information (as of October 22, 2022)

54

Rating Agency

Type of Rating

RatingOutlook

JCR

Long-term Issuer Rating

A—

Stableerex INTEGRATED REPORT 2023

Shareholding Ratio (%)

UH Partners 2, Inc.

5,032,900

8.47

The Master Trust Bank of Japan, Ltd. (Trust Account)

4,942,900

8.32

Hikari Tsushin, Inc.

4,403,700

7.41

KISCO Ltd.

4,158,976

7.00

Ueda Yagi Tanshi Co., Ltd.

3,435,000

5.78

Hanwa Co., Ltd.

3,249,000

5.47

Custody Bank of Japan, Ltd. (Trust Account)

2,922,400

4.92

CBC Co., Ltd

2,922,278

4.92

Sumitomo Realty & Development, Ltd.

2,488,000

4.18

Taiheiyo Cement Corporation

2,190,000

3.68

Number of Shareholders by Investor Type

Company Profile

Contact

Number of Shares Owned(shares)Name of Shareholder

Main IR Activities (Number of Times)
Activities

Major Shareholders (Top 10)

Financial Institutions

9,891,286 shares

16.7%

Financial Instruments Business Operator

1,362,336 shares

2.3%

Other Corporations

30,528,660 shares

51.4%

Foreign Corporations

9,463,563 shares

15.9%

Individuals and Other

8,133,985 shares

13.7%

WebsiteVarious IR materials, including recent news and information on financial results, are posted on the Investor
Relations section of the erex website. For more information, please refer to the Company website.

https://www.erex.co.jp/en/ir/

erex INTEGRATED REPORT 2023

55