Market News

 December 06, 2013
Japan Finds Scrapping Nuclear Boosts Pollution, Fuel Cost

 Japan gave its strongest signal yet that it wishes to keep nuclear power following the meltdown in Fukushima almost three years ago, shifting away from the previous government's intention to phase out the technology.

"Nuclear is an important base load power source we will continue to use with conditions that we will secure safety from the view points of stable supply, reduction of cost, and global warming measures," the Ministry of Economy, Trade and Industry said in draft policies posted on its website in Tokyo today.

Japan last month backtracked on an ambitious goal to cut greenhouse gases, saying its new target assumes nuclear capacity will remain shut. It will review that goal after making final decisions on its energy policy, including the mix of generation technologies that will supply Japan's electricity. That requires Prime Minister Shinzo Abe to balance voter opposition to nuclear power with efforts to cut pollution and energy costs.

Nuclear reactors provided more than a quarter of Japan's electricity before the earthquake and tsunami caused the accident in 2011. Japan's 50 atomic plants have been shut since then, and Abe has said he'd like to reduce the country's dependence on the technology.

The previous government run by the Democratic Party of Japan set a target of phasing out nuclear by the end of the 2030s in an energy policy set in Sept. 2012. The new draft policy from Abe's coalition government said that Japan will reduce its nuclear dependency "as much as possible."

Coal Surges

The alternatives to nuclear power either pollute more or come with a higher fuel cost, limiting Abe's scope to reshape the energy industry and boost economic growth. Coal use rose 26 percent from a year ago in October. While solar power is taking off, the added capacity is nowhere near replacing what traditional plants supply.

"You can't fill the void left by nuclear with renewable energy," Takayuki Yoshioka, an economist at the Institute of Energy Economics, Japan, and one of eight authors of a report predicting emissions will soar without widespread use of nuclear, said before today's decision. "The economy is picking up and energy demand is on an upward trend. Nuclear is being replaced with fossil fuel."

The trade ministry's basic energy plan will comprise a series of policies to replace a 2010 strategy envisioning nuclear supplying 53 percent of the country's power by 2030.

Energy Mix

The country will present a viable energy mix "promptly" while taking into account how many reactors are restarted and how much clean energy is introduced, according to the draft. Trade minister Toshimitsu Motegi has said new targets may not be set for three years.

"An increasing dependency on fossil fuels has not only brought on cost issues but also difficulties in dealing with global warming," the draft said.

The debate about cost versus pollution pits utilities including Tokyo Electric Power Co., which owns the Fukushima plant, against renewable energy developers such as Watami Ecology Co. and suppliers including Kyocera Corp. and Solar Frontier K.K.

Scrapping nuclear plants "may lead to a temporary increase in carbon dioxide emissions," said Kohei Koide, an official in charge of wind and solar projects for a unit of Watami Co. Ltd., the Japanese restaurant chain. By switching to clean energy, "emissions will continue to drop," he said.

Power Costs

Energy costs also are a concern for the government. Power prices in Japan are more than twice those in the U.S. Electricity for industry use costs an average 17.9 cents per kilowatt-hour in Japan compared with 7 cents per kilowatt-hour in the U.S., 12.7 cents per kilowatt-hour in the U.K., and 12.2 cents per kilowatt-hour in France, according to an energy ministry research paper citing 2011 figures.

Switching off the nuclear plants already has driven up Japan's fuel bill by increasing imports of coal and natural gas. The combined fuel costs for Japan's nine regional power companies will almost double to 7.5 trillion yen ($74 billion) this fiscal year from the year before the Fukushima accident three years earlier, the trade ministry predicted in October.

Keeping the nuclear plants isn't the answer, either, the Japan Renewable Energy Foundation said. Nuclear power would cost 17.4 yen per kilowatt-hour after additional safety measures and decommissioning cost are factored in, the foundation said.

That's almost double the 8.9 yen per kilowatt-hour estimated for nuclear power by a government panel in 2011. It put the cost of coal-fired power at 9.5 yen a kilowatt-hour and for liquefied natural gas at 10.7 yen.

Nuclear Costs

"At 17.4 yen, nuclear is not economically competitive and it does not make any sense to continue nuclear power generation," said Teruyuki Ohno, executive director of the Tokyo-based foundation that was set up by SoftBank Corp. President Masayoshi Son after the Fukushima disaster.

Renewable energy is even more expensive. Solar power is currently earning 37.8 yen a kilowatt-hour and wind 23.1 yen under an incentive program started in July 2012.

The high clean energy rates have led to a boom in installations, with Japan on track to rival China as the world's biggest solar market for new installations over the next three years, according to Bloomberg New Energy Finance.

Keidanren, Japan's largest business lobby, is pushing to bring back nuclear power because it's cheaper than renewables and produces no greenhouse gases.

"Nuclear power is an extremely important energy source in terms of energy security and economic efficiency for a country like Japan with limited natural resources," Keidanren said in a proposal on Oct. 15. "Using nuclear energy will not only contribute to the advancement of domestic global warming countermeasures but also to the resolution of global energy and climate change issues."