erex Co.,Ltd.

As the Group conducts business based on the Electricity Business Act, discussions on detailed institutional design and review of the power system are ongoing, and depending on their content, competitive conditions and other factors could be affected. In addition, revisions to the Strategic Energy Plan may result in significant changes to the power source mix. These regulatory changes could affect the Group's financial position, business results, and cash flows.

The Group's power plants have received facility certification under the FIT scheme (Feed-in Tariff scheme for renewable energy). While the current system does not permit changes to the purchase price during the procurement period, reviews and amendments to the scheme could affect earnings. Changes in energy policy and other related laws and regulations could likewise affect the Group's financial position, business results, and cash flows. The Group continuously monitors regulatory trends.

The Group uses trading of electricity through the Japan Electric Power Exchange (JEPX) as a primary business method, and transaction prices fluctuate due to a variety of factors, including resource prices such as crude oil and natural gas, trends in electricity demand, and the operating status of solar and nuclear power. If prices fluctuate significantly, this could have a material impact on the Group's financial position, business results, and cash flows. The Company seeks to mitigate fluctuation risk through hedging transactions, but complete avoidance is difficult.

Biomass fuels such as PKS and wood pellets used at the Group's power plants may rise in price due to industrial structural reform, technological progress, changes in laws and taxation in producing countries, force majeure, increased demand, and other factors. Since fuel costs are a major cost item, price increases directly affect the Group's financial position, business results, and cash flows through increased raw material costs. The Group seeks to mitigate this risk by entering into long-term procurement contracts at fixed prices denominated in foreign currency for some fuels.

With the import of biomass fuel from overseas and the expansion of power generation and fuel businesses in Southeast Asia, sharp fluctuations in exchange rates could affect procurement costs and overseas business earnings. In particular, during periods of yen depreciation, increased import fuel costs could adversely affect the Group's financial position, business results, and cash flows. The Company hedges some foreign currency-denominated trade payables through forward foreign exchange contracts.

Biomass fuels such as PKS and wood pellets are mainly produced overseas, and there is a risk that exports could become impossible due to legal changes, political instability, export bans, natural disasters, and other factors in the producing countries. If fuel procurement is disrupted, this could impede the operation of power plants and have a material impact on the Group's financial position, business results, and cash flows. The Group seeks to diversify this risk by securing multiple procurement sources and production areas.

The power plants operated by the Group are expected to suspend operations for several weeks during periodic inspections, and if unexpected equipment failures occur, operations may not proceed as planned. Suspension of operations affects the Group's financial position, business results, and cash flows through a decrease in power generation volume and electricity sales revenue. Maintenance and safety work is carried out in consultation with power generation equipment manufacturers and maintenance companies, with efforts made to ensure stable operations.

The Group is actively investing in capital expenditure for biomass power plants, and continues to promote and plan the construction of renewable energy power plants both domestically and overseas. Since it is difficult to forecast economic and market trends, if demand does not expand as expected, facility retirements or impairment losses may occur. Decisions on capital expenditure are made carefully, taking into comprehensive account market trends, competitive conditions, profitability, and other factors.

New overseas businesses, such as the biomass fuel and power generation business in Southeast Asia centered on Vietnam and the hydroelectric power generation business in Cambodia, involve uncertainties including changes in underlying assumptions, changes in market conditions, changes in laws and regulations, and deterioration in the financing environment, and there is a possibility that the initially anticipated earnings may not be secured. If business plans are revised, discontinued, or postponed, related expenses and additional financial burdens may arise. Furthermore, country risk arising from changes in the political and economic conditions of each country and risks of fluctuation in raw material procurement also exist.

The Group holds a large amount of customer information and other important business information, and if information leakage occurs due to a cyber incident or other cause, this could result in a decline in social trust and impact business operations. The Group strives to strictly manage information through the development of internal regulations and employee training, but given the increasing sophistication of cyberattacks, complete defense is difficult. Information leakage could affect the Group's financial position and business results through customer attrition and disciplinary action by regulatory authorities, among other consequences.