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SoftBank's Son embarks on power grid project spanning Northeast Asia

SoftBank Group CEO Masayoshi Son, left, appears before the press after signing a memorandum of understanding on March 30 in Beijing with officials from Chinese, South Korean and Russian power companies.

TOKYO -- SoftBank Group Chairman and CEO Masayoshi Son is known for coming up with grand projects that can seem far-fetched at times.

     His latest endeavor is to build a large wind power farm in Mongolia and transmit electricity generated there -- enough to supply roughly 6.25 million households -- to Japan and other countries in Northeast Asia through an interconnected power grid that will include undersea power cables.

     "I want to establish a power grid spanning Northeast Asia by 2020," Son said. But as great as his vision may sound, he still needs to lay out realistic business plans, including how to charge fees and estimates of sales from the proposed project, in order to realize yet another of his grand dreams.

     Japanese telecommunications giant SoftBank plans to start building this year a large wind power farm in a vast barren land of about 2,240 sq. km in the Gobi Desert in Mongolia. The project will cost as much as 50 billion yen ($458 million), and will serve as the power source to drive Son's grand energy project.

     "While Northeast Asia is the engine of the global economy, the region also emits large amounts of carbon dioxide. If the situation is left unaddressed, humanity as a whole will regret it," he said, stressing the social significance of his new project.

     He envisions a power grid spanning Japan, China, South Korea, Russia and Mongolia -- what he calls the "Golden Ring." The project involves installing a total of about 600km of undersea power cables to connect China with South Korea, Japan with South Korea, and Japan with Russia.

     When complete, the ring of connected power grids will be used to supply the electricity generated by the wind power farm in the Gobi Desert and other power stations elsewhere to these countries. This may seem like a far-fetched dream, but Son is dead serious.

Multinational cooperation

At the end of March, he attended an international energy conference hosted by the Chinese state-owned State Grid Corporation of China (SGCC). Korea Electric Power Corp. (Kepco) and Russian energy grid operator PJSC Rosseti were also among the participating companies.

     SoftBank signed a joint memorandum of understanding with these power companies to create a framework for building an interconnected power grid spanning the region and conducting feasibility studies.

     Enormous costs for installing these undersea cables will likely be the biggest stumbling block. It is estimated to cost hundreds of billions of yen to install 600km of undersea cables that will be able to transmit 2 million kW of electricity, equivalent to the output of two nuclear reactors.

     For Son, this is not the first time he has formulated such a mammoth power grid project. In September 2011, he proposed what he called an "Asia Super Grid" project aimed at spanning countries, including Japan, Russia and Mongolia, in the wake of the devastating earthquake, tsunami and nuclear accidents that hit northeastern Japan in March of that year.

     He even carried out an on-the-ground survey, but was unable to win much support at the time. "Many people laughed and told me it was a crazy idea," he said.

     But the winds of change started blowing in Son's favor in January this year. SGCC Chairman Liu Zhenya learned of Son's vision and approached him about it. This is because SGCC was also studying a plan to build a power grid network worldwide, an ambitious goal that fall in line with Beijing's pump-priming efforts. In late January, the two men dined together and reportedly hit it off as they discussed the project.

Uncertainty over finances

Still, some observers remain skeptical about Son's humongous project. "It involves sharing grid data with China and South Korea, but I wonder if that will be safe in terms of security," an official of one Japanese power company said. Such concern is widely shared in the industry.

     This is because power grid is an integral part of social infrastructure. A leak of power grid data to other countries could raise specters of terrorist attacks or deliberate power cuts.

     Another concern is whether SoftBank can actually recoup such a huge investment into power grids just by generating and supplying renewable energy. Unless the company can offer electricity rates lower than the current level even after the investment amount is added, other businesses will find it difficult to show support.

     As of the end of September last year, SoftBank was saddled with interest-bearing debts of about 11.9 trillion yen on a consolidated basis. Its capital-to-asset ratio -- a measurement of a company's financial health -- stood at a mere 14% or so. In 2013, SoftBank spent approximately $23 billion to acquire U.S. mobile phone company Sprint, and this acquisition is still taking a financial toll on the Japanese company.

     Meanwhile, Sprint has been losing market share to its rivals, putting a further drag on SoftBank's group earnings. This puts into question the company's ability to make another huge investment.

     However, Son argues that spending on undersea cables will not weigh on the company's bottom line as such cable lines can remain in use for 40-50 years. "If we divide that cost [by the number of years we use them], it won't amount too much," he said. What's more, the companies supporting the Golden Ring project, such as SGCC, Kepco and Rosseti, are expected to shoulder the installation costs.

Leveraging strengths

Son remains optimistic, as he believes SoftBank's strengths in communications technology can be fully utilized for the planned project.

     Adjusting the supply-demand balance is critical for renewable energy. The volume of power output and actual electricity use need to match at all times. An imbalance could disrupt electricity transmission, raising the possibility of blackouts. Therefore, wind and solar power operators are required to have technologies that can change power output levels and supply routes according to the amount of sunlight and wind velocity.

     This is where SoftBank will capitalize on its communications technology and flexibly control transmission routes based on the amount of power available.

     Its technology can also accommodate changes in the power grid system. In the existing centralized model, power stations transmit electricity to households. But under the new system, households will receive power from a number of small power stations. There is a growing need for a technology that can control power distribution from multiple power facilities. SoftBank believes it can use its experience in the information and communications sector to tackle this challenge.

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