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Going nuclear, maybe

Well documented problems in Japan's nuclear industry, including cover-ups and safety scares, could undermine the government's attempts to build greater energy security as well as threaten key environmental targets. Martin Clark reports

THE CLOSURE of Japan's nuclear power plants, which raised the spectre of blackouts in Tokyo last summer, has left a scar. Although many facilities have since been re-opened, the nuclear meltdown painfully exposed the country's near total dependence on imported fuel. It may also have left a void in the country's energy strategy.

Japan has one of the lowest energy self-sufficiency rates in the industrialised world, a paltry 4%, excluding nuclear power. It remains heavily dependent on imported oil from the Middle East, which supplies about half the country's primary energy needs, alongside foreign coal (19%) and natural gas (13%). Nuclear generation is attractive to the government because it improves control over national energy security and gives the country some chance of meeting its obligations to reduce emissions under the Kyoto Protocol, ratified in 2002. With few natural resources of its own, nuclear power adds a precious 13 percentage points to the country's primary energy supply, still modest by most international standards.

Tarnished reputation

The crisis facing the nuclear industry has not gone away, however. Restoring public confidence after a series of major setbacks and scandals will take time. Tokyo Electric Power (Tepco), the world's largest privately owned power company, was forced to close its 17 nuclear reactors last year after it was caught falsifying records in 2002 to hide cracks at some of its plants, further tarnishing the industry's reputation. It was saved the embarrassment of blackouts last year because the summer was much cooler than average.

Public support had been gradually eroded through a series of accidents (although none of them occurred in mainstream civil nuclear fuel cycle facilities), including one in 1999, which claimed two lives.

By the end of 2003, only seven of Tepco's reactors had been restarted, costing the company and its customers dearly. These nuclear reactors normally supply half the electricity requirements of the Tokyo region. Replacement power cost on average 50% more than the ¥5.9 ($0.055) per kilowatt hour nuclear generation cost. The company is just about back on its feet. Tepco hopes to have all its reactors back on line by the end of 2004, but expects the fiasco to end up costing it about ¥200bn.

Table 1: Japan - primary energy supply

million toe

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Total supply

471.9

483.39

493.5

502.43

487.13

493.83

503.77

494.83

481.2

487.2

Imports

396.77

400.08

408.09

411.67

393.67

404.47

414.54

409.05

398.43

419.63

Domestic

75.31

83.31

85.41

90.76

93.46

89.36

89.23

85.78

82.76

67.56

Electricity

68.8

77.23

79.22

85.7

88.75

84.6

84.71

81.29

79.85

64.32

Hydro-electric

15.34

17.85

17.84

19.22

21.27

18.6

17.99

17.03

17.05

18.54

Geothermal

0

0

0

0

0

0.33

0.66

0.62

0.63

0.65

Nuclear

53.46

59.38

61.38

66.48

67.48

65.67

66.06

63.63

62.16

45.13

Coal

78.19

81.83

84.03

84.62

83.72

86.27

92.82

93.67

96.83

101.87

Domestic

3.7

3.34

3.46

2.28

1.96

2.08

1.68

1.59

0

0

Imports

74.49

78.49

80.57

82.33

81.76

84.18

91.14

92.08

96.83

101.87

Oil

272.59

271.19

272.73

275.82

255.8

259.27

259.95

250.68

241.93

254.4

Domestic

0.74

0.73

0.71

0.72

0.67

0.63

0.63

0.64

0.61

0.69

Imported crude

230.49

227.07

223.73

231.19

216.86

213.11

213.24

207.72

197.84

208.64

Imported products

41.36

43.39

47.82

43.92

38.27

45.53

46.07

42.74

43.48

45.08

Natural gas

2.08

2

2.02

2.06

2.08

2.06

2.21

2.27

2.31

2.56

LNG

50.43

51.14

55.51

54.23

56.78

61.64

64.08

66.51

60.29

64.09

                     

Source: Institute of Energy Economics, Japan

             

 

Rebuilding trust

The problem facing Japan is that nuclear power underpins the country's entire future energy strategy. Today, in terms of capacity, there are 54 reactors capable of producing some 34% of the country's electricity. There are plans for more. The government's long-term energy supply outlook projects a 30% rise in nuclear power generation by 2010, building more than a dozen new generating plants along the way. However, this could be difficult to achieve, given the safety-related incidents and plant outages of recent times.

The first challenge, accepted by all in the industry, is to rebuild trust. The government has spent vast amounts of money to try and reassure people that nuclear power is safe. Indeed, safety standards are very tight—much higher than in many other countries. But confidence in the operating companies themselves also needs to be re-established. Tepco's management plan for this year includes an all-out commitment to regain trust and a resolve to 'never again allow a recurrence of dishonest practices'.

According to James Eastcott, of the Institute of Energy Economics in Japan, the situation is very much in the balance. 'The government wants to pursue the nuclear programme because of the commitments to the Kyoto Protocol. Yet non-governmental organisations and environmentalists have been kicking up quite a fuss. Whether or not they will be able to go ahead with this programme is uncertain.'

Kyoto in crisis

Critics agree that it will take more than a door-to-door sales pitch to rebuild confidence in the industry and pave the way for additional nuclear facilities to be built. Soothing people's fears takes time, something Tokyo does not necessarily have a lot of.

Environmental pressures are starting to weigh heavily on the government, yet the troubles facing the nuclear power sector could conceivably derail the country's Kyoto commitments. Japan has pledged to reduce its total average greenhouse-gas (GHG) emissions by 6% against 1990 levels between 2008 and 2012, and to control its CO2 emissions to 1990 levels in 2010. The impact of slower-than-planned development of nuclear generation could present a serious threat to these objectives.

Moreover, Japan's energy-related CO2 emissions rose by 11.2% between 1990 and 2001. Although its CO2 emissions per capita and per unit of GDP are still lower than the average, rising GHG emissions are one of the most important energy challenges facing the country.

Tokyo has developed an impressive range of policies to halt accelerating CO2 emissions, introducing efficiency standards for household products and industrial equipment, new building codes, encouraging support for renewable energy and creating extensive conservation policies, as well as subsidies to boost fuel switching.

If the latest batch of nuclear plants does not receive the green light, however, Japan will surely find it impossible to make any serious dent in its emissions levels. If industrial output recovers, there is a further problem. 'They will then be in a situation where they have to retain their reliance on oil,' says Eastcott. 'Maybe it will precipitate using more gas or liquefied natural gas (LNG).'

Either way, the ability to reach the Kyoto target is in jeopardy. Even if Japan is only able to build half the nuclear power plants planned, other measures would have to be taken to fill the gap, experts say. There is only so much that switching off the lights and other energy-conservation measures can realistically achieve.

The picture is further complicated by the government's determination to liberalise internal energy markets. The aim is to help bring down prices and improve international competitiveness for the beleaguered economy. Japan's electricity and gas prices are among the highest in the developed world. In addition to structural factors unique to Japan, such as geographical conditions and import dependency, high wages and land prices, the system of regional monopolies to deliver electricity and gas supply has worked to suppress the development of competition in the market.

In March 2000, the government opened 30% of the electricity sector to competition and established regulated third-party access (TPA) to the networks. Some prices have fallen, but this seems to be mainly because of utilities passing onto customers cost savings arising from low interest rates on capital expenditure. Given the slow entry rate of new players, greater competition between the established regional power companies is essential.

According to the International Energy Agency (IEA), if competition fails to emerge, stronger measures, such as establishing an independent national transmission system operator, should not be precluded. 'The only way really to improve things is to get some competition going between the incumbents,' says Lea Gynther of the IEA.

Physical barriers also exist. For historical reasons inter-connectivity is a problem with electricity and gas networks, which are typically isolated and serve one geographical area. The weak interconnection between most supply regions needs to be strengthened to facilitate competition.

Gas market liberalisation started in 1995 and 40% of the market is open. But, again, little competition has emerged, prompting the government to announce new measures, such as regulated TPA to the pipelines and promotion of negotiated third-party access to LNG terminals. The IEA says expansion of the domestic gas network is essential to achieve wider use of natural gas.

Security of supply

Nuclear generation has supplied a substantial portion of Japan's electricity since the 1960s and the industry's advancement has formed a key part of government plans to bolster energy security and lessen dependence on foreign oil.

Under the government's 10-year energy plan, submitted in 2001, an increase in nuclear power generation capacity by about 13 gigawatts (GW), a jump of 30%, is required in the coming decade, with the expectation that utilities would have nine to 12 new nuclear plants operating by 2011. At present, Japan's reactors can provide 45.52 GW when fully on line. A further three facilities are under construction, with the potential capacity of 3.3 GW, and another 12 are planned, which would add 14.4 GW.

Aside from the safety fears and the lack of public trust—which has stopped the nuclear development programme in its tracks—there are other serious issues facing the sector, including the question of reprocessing. Until now, spent fuel has been largely reprocessed by BNFL in the UK and France's Cogema, although shipments to these countries stopped in 1998.

Spent fuel has since been accumulating at Japan Nuclear Fuel's new ¥2.1 trillion Rokkaso reprocessing plant. Although full operations are due to commence in 2006, after several delays, the facility remains largely untested. Furthermore, plans to utilise mixed-oxide (MOX) fuel at a number of reactors by the end of the decade have been hit by local opposition and safety concerns. The controversy surrounding MOX relates to its plutonium content.

Oil is king

Oil dependency has subsided from the highs of the 1970s energy crisis, when it made up 77% of the nation's energy requirements. But oil remains the dominant source of energy for Japan, despite attempts to shift the balance in favour of nuclear power and other fuels. In recent years, consumption has dropped slightly because of stagnant economic growth and amounts to about 5.3m barrels a day. However, over the long term, demand is expected to pick up, putting more pressure on the country's oil companies to deliver new supplies. The restructuring of the state-owned oil company, Japan National Oil Corporation, is expected to facilitate more investment in upstream projects overseas.

One of the chief priorities is to diversify supply away from the Middle East. Japan is heavily dependent on the Mideast Gulf for its oil, which accounts for about 90% of all crude imports. Of this, Saudi Arabia and the United Arab Emirates make up nearly half. Iran, Qatar and Kuwait are also very important.

Tokyo is keen to find other oil producers to enable it to diminish this dependency. The development of oil and gas reserves in the far east of Russia is especially important—Japanese companies have a strategic stake in the Sakhalin project, for example. Tokyo is also courting Moscow over the possibility of a direct oil pipeline, a major coup should it come off. The former Soviet republics have also taken on an important role. Japanese firms have taken equity in several key projects in Azerbaijan and Kazakhstan.

Turning to gas

Increasingly, natural gas is being cited as a viable and environmentally friendly alternative fuel to oil. As with oil, indigenous gas resources are minimal, but the supply of natural gas, typically in the form of LNG, has enabled it to incorporate other producers in its portfolio, notably Indonesia and Malaysia.

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