Nuclear freeze chills Japan’s cash-strapped utilities

September 13, 2013 11:29 am

Nuclear freeze chills Japan’s cash-strapped utilities

By Ben McLannahan in Tokyo

Japan’s cash-strapped utilities are facing increased pressure to bring down the cost of replacement fossil fuels as the country shuts its last operating nuclear reactor. Kansai Electric’s 1,180-megawatt No 4 reactor at the Ohi plant in Osaka will be idled from Sunday for safety inspections. Before the Fukushima crisis of March 2011, nuclear power accounted for about 30 per cent of Japan’s electricity generation.The nuclear freeze will last until January at the earliest, exceeding a two-month hiatus last year, and will force utilities to rely more on expensive imports of liquefied natural gas, crude oil and coal through the winter months.

The staggered shutdown of Japan’s 50 reactors has caused utilities to plunge into the red, even as the government has allowed them to pass on some of the extra cost by raising prices. Cumulative losses for the nine utilities with nuclear plants came to Y171bn ($1.7bn) in the three months to June, according to Bloomberg data, on top of losses totalling Y2.4tn in the two years before.

Since the March 2011 earthquake and tsunami shares in Japan’s listed electric power and gas sector have sunk by 28 per cent, against a 35 per cent gain for the broad Topix index.

Addressing an LNG industry conference this week in Tokyo, Toshimitsu Motegi, minister for economy, trade and industry, said spiralling energy costs were placing a “heavy burden” on the economy and that “securing stable supplies of more reasonably priced LNG [is a] priority issue”.

In the short term the government fears that higher charges for heat and light could hurt household consumption and industrial production, thwarting the multifaceted effort to pull the country out of years of economic stagnation. Last month the cost of electricity in Tokyo rose by 15 per cent from a year earlier.

Over the longer term, many policy makers fear that shutting down nuclear will lead to a permanent loss of competitiveness for the world’s third-largest economy.

The cabinet is deliberating over a new energy policy, in which nuclear is expected to account for a smaller but still significant share. But broad public opposition to the restarting of reactors – intensified by recent reports of leaks of radioactive water at the crippled Fukushima site – is casting doubt over how soon nuclear capacity could be restored.

In the meantime, Japanese utilities and trading companies have been aggressively courting new suppliers for better terms.

This week the US Department of Energy said it had authorised a second LNG project – Cove Point in Maryland – to export to Japanese buyers, following the licence granted to Freeport LNG of Texas in May. But such projects do not begin production for another three or four years, leaving Japan dependent on its long-term suppliers and spot markets.

Asian importers are paying about five times the price of natural gas in the US, which has been cheapened by the shale glut. Even excluding the cost of transport and liquefaction, the premium is 30 or 40 per cent, according to the Institute of Energy Economics Japan, a government-linked think-tank.

Japan’s nuclear regulator began accepting utilities’ applications in early July for the six months of safety checks that must be completed before restarts can occur.