While most people are aware of the importance of energy-conserving building practices, few appear willing to pay for them. But what if they are guaranteed to save more money than they pay on a conservation system?
Hiroshi Takahashi, engineering and administrative director of The First Energy Service Co., or FESCO, expects that a good number of building owners will give the nod to his proposal: save money by saving energy.
“The idea is to become a polyclinic doctor for a facility’s whole energy system,” he says, explaining the aims of the three-month-old firm.
“That is, we diagnose the situation of the whole energy supply system of a certain facility, calculate and guarantee how much we can save in energy costs, and get paid for our services out of what the facility owner can save in energy costs,” he says.
Take a typical 10-year-old building eight stories high and two basement levels. Electricity, gas and water costs for the building would amount to some 50 million yen annually.
But FESCO claims it can reduce the energy costs by 10 million yen. Since FESCO receives 6.5 million yen for its service, the owner of the building will save about 3.5 million yen altogether.
The formula, called a performance contract, is already popular in the United States. Takahashi expects the idea to also take off in Japan.
FESCO is a corporate venture set up by eight companies. But Takahashi, who has been interested in energy problems since his time in school, says his commitment to the business reaches beyond his official position as a representative from Yokogawa Electric Corp., one of the eight corporate investors.
“Natural resources are limited and will dry up sometime in the future. When the world faces an energy crisis, resource-scarce countries such as Japan are the first to suffer,” he says. “Probably, it will not happen during our generation, but what about our children’s generation?”
As a father of two young children, Takahashi said he feels the urge to do more toward energy conservation than is required as a corporate employee.
About 18 months ago, he learned that Yokogawa and other companies were forming a consortium to mull setting up of a business concerned with energy conservation. He persuaded management to let him join.
Along the way, many companies dropped out of the consortium. But Yokogawa and six other companies decided to go with a plan put forward by Japan Research Institute, another member of the consortium. The plan was to set up FESCO.
Capitalized at 50 billion yen by the eight firms, FESCO came into being in May, but in a very unique form. That is, the company has no permanent office or staff — eight core members plus additional staffers when needed — migrate from one parent firm to another when they need to make business decisions.
Takahashi retains his post and receives a salary from Yokogawa, but he spends 80 percent of his working hours doing FESCO business. From time to time, he also asks his Yokogawa colleagues to help with FESCO business, which is why it is difficult to calculate exactly how many people work for the venture, he says.
Things are not much different with other FESCO staffers.
“What’s good about a virtual company,” Takahashi says, “is that all the core members from the study stage can carry on as the core members in the newly established company, while retaining their posts and utilizing the knowhow of their companies of origin.
“This is the quickest and most efficient form of setting up a new business,” he says.
FESCO, as a corporate venture backed by big-name companies, has a major advantage in gaining the confidence of potential customers, he adds.
JRI, the initiator of the business, is a think tank affiliated with Sumitomo Bank, while Yokogawa is a major manufacturer for information and control systems. Another member, Ishikawajima-Harima Heavy Industries, is a major heavy machinery maker.
For the moment, Takahashi says, FESCO has several contracts under negotiation. The company hopes to win 200 million yen worth of contracts for its initial business year, an 11-month period ending in March.
FESCO aspires to obtain over 10 billion yen worth of contracts per year and to debut on the over-the-counter stock market 10 years from now.
Before achieving these goals, however, Takahashi acknowledges there remains a long way to go.
“We’re still toddling and we’ve been given three years to become independent,” he says. “That is to turn up profits to cover all the costs, including our salaries. If not, the company will be dissolved.”
Takahashi is not exactly optimistic but says the time is right for the energy conservation business, noting that both the government and general public are increasingly aware of an acute need to conserve energy.
“There are a number of buildings that are energy dissipaters,” he said. “Those built more than 10 years ago and luxurious complexes built during the bubble economy in the late 1980s are prime targets for our business.”
FESCO estimates that the potential market for energy conservation services will be some 100 billion yen by 2003, he says.
As a symbol of his personal commitment, Takahashi has his own stake — 500,000 yen worth of capital — in the 50 billion yen FESCO business.
“It’s a tiny amount of money but it makes me feel that I’m taking responsibility for this business,” he says. “And of course, if things go well, I can make big profits on that investment.”