In its Long-Term Management Vision 2030, released in 2017, Osaka Gas set a goal to nearly triple its consolidated ordinary profit by fiscal year 2030 from that of 2017. Key in achieving this goal is the significant expansion of the overseas energy business, especially the acquisition of power generation facilities where a total capacity of at least 3.5 million kilowatts is targeted by fiscal 2030. The most important target for this expansion is the IPP (independent power producer) sector in North America.
Over the past four years, Osaka Gas has rapidly increased its presence in the North American IPP sector. Osaka Gas started acquiring ownership interests in U.S. power plants—first with St. Charles Energy Center in Maryland in April 2015, followed by Woodbridge Energy Center (i.e., Shore Power Plant) in New Jersey and the under-construction Fairview Energy Center in Pennsylvania in March 2017. In 2018, three additional investments were made in power plants in Michigan and Connecticut.
Osaka Gas' investments in U.S. power generation dates back to 2004. During this period, IPP projects were supported by PPAs (power purchase agreements), long-term power purchase contracts with local electric utilities and power companies that resulted in predictable revenue streams. As power markets in the U.S. matured, new gas-fired project development shifted to a merchant IPP business model. Merchant IPP projects now sell directly in the power markets and our exposed to price fluctuation risk. The evolution of the IPP sector to accept and manage market risk has prompted Osaka Gas to adopt in order to facilitate the desired growth.
To do so, in 2014 Osaka Gas welcomed John Drake into Osaka Gas USA Corporation (OGUSA), an expert with significant experience across the IPP sector.
“When I joined OGUSA,” John recalls, “Osaka Gas was challenged in making new acquisitions and was not considered an active participant in the IPP business. The first step was to improve the image of OGUSA in the marketplace and signal that we're ready to invest. At the same time, we needed to persuade the executives of Osaka Gas in Japan that we can successfully grow OGUSA's merchant IPP business in the U.S. On that basis, we developed plans to grow and began investing."
In 2015, Osaka Gas acquired a 25% stake in the St. Charles Energy Center, which was under construction in Maryland. The acquisition of the stake in St. Charles was a transformational transaction for Osaka Gas, marking the beginning of a new era.