Sumitomo Mitsui Financial Group and enechain establish joint venture

Sumitomo Mitsui Financial Group and enechain have established a new joint venture company, named “eXstend”, with JPY 1bn in capital and a 50/50 ownership structure. The purpose of establishing eXstend is to provide fuel price volatility hedging opportunities to power companies and support their stable business operations. The company name “eXstend” represents the combination of enechain and SMBC Group, embodying the meaning of expanding the scope of transactions for market participants.

Background

While the Japanese government aims to achieve a 36–38% renewable energy ratio by 2030 and is implementing various measures, currently, fossil fuel-based power generation accounts for over 70% of Japan’s power supply, with Japan heavily dependent on imports. Under these circumstances, many power companies are exposed to fuel price volatility risks, and hedging these risks has become a crucial issue for stable business management.

While enechain has been providing fuel price volatility hedging opportunities through its intermediary functions, only some hedgers could utilize these opportunities due to operational burdens in international fuel market trading and required funding. To address these challenges, SMBC Group and enechain jointly examined solutions, leading to the establishment of this new joint venture.

About eXstend’s Establishment

eXstend will provide hedgers with market access and trading opportunities with new counterparties to manage fuel price volatility risks. eXstend’s role is not to take positions and bear fuel price volatility risks itself, but to facilitate smooth transactions between hedgers and optimal counterparties participating in enechain’s market by organizing commercial flows and providing trading opportunities. Through this mechanism, hedgers can hedge fuel price volatility risks efficiently and effectively. It will also provide traders and fuel producers, who will be the main counterparties, with new trading opportunities with hedgers.

About SMBC Group’s Role

In its medium-term management plan “Plan for Fulfilled Growth,” SMBC Group has set the creation of social value as one of its basic policies and is promoting initiatives toward realizing a sustainable society. The group has also identified power-related issues as a key theme and has established a specialized team to advance initiatives. Through this endeavor, they will contribute to providing solutions for fuel price volatility risks, which has been one of Japan’s power industry challenges.

About enechain’s Role

With the mission “Building Energy Markets, Coloring Our Society,” enechain provides trading opportunities for wholesale electricity, fuel, and environmental value. They will further strengthen their existing fuel trading intermediary functions through eXstend’s capabilities and provide new trading opportunities for more businesses to hedge fuel price volatility risks.

Future Prospects

eXstend will provide solutions to minimize fuel price volatility risks faced by power companies and support business stabilization in an increasingly complex energy market. They also aim to provide new value in domestic and international energy markets.

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