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Japan’s tough nuclear question after Fukushima

A year after the Fukushima nuclear disaster, Japan’s atomic future remains in the balance

High electricity bills for a manufacturing-export economy mean Japan must consider restarting nuclear reactors, or permanently damage its prized industrial base. At the end of January, only three of the country’s 54 reactors were operating.

Seventeen units were shut down as a direct result of the deadly earthquake and tsunami on 11 March last year and related government requests, while the remaining 34 have shut following routine maintenance, but have not been granted permission to restart operations. The remaining three are to shut by April, removing around 20% of Japan’s electricity-generating capacity if none is restarted.

The global gas industry is convinced that Japan must restart its nuclear reactors, but such logic may not prevail. Gas buyers and liquefied natural gas (LNG) traders and exporters are watching for any sign of nuclear restarts – Japanese LNG imports have soared as utilities replace nuclear generation with gas-fired turbines.

"If I had to guess, I would say we are going to go down to somewhere in the high 30s or low 40s from around 50 operating reactors before Fukushima. So the Japanese are going to lose some of their nuclear capacity, but three quarters will reopen," said Jonathan Stern, chairman of the Natural Gas Programme at the Oxford Institute for Energy Studies (OIES). "The number of restarts is based on objective assessments – reactor age and location – and, therefore, the probability of suffering a similar Fukushima type accident. But, as we know with nuclear, many things are not based on objective assessment, but on emotional assessment, so one must not be too complacent."

The race for LNG …

After the quake, Japanese utilities raced into the LNG market to secure gas to replace lost nuclear power capacity. This caused spot LNG prices to nearly double to $18/million British thermal units (Btu) last summer, triggering spikes in UK and European gas prices, which increasingly rely on imported LNG.

Japanese reactors shut every 13 months for periodic maintenance, but have been unable to restart since the government introduced new stress tests since the Fukushima meltdown. Local governments have also been given the power to veto any nuclear restart, even if the reactor passes the new safety inspections.

"Nuclear power will be unlocked and utilised; it’s a question of timing," said Noel Tomnay, head of global gas and power research at consultancy Wood Mackenzie. "From that perspective, the long-term outlook hasn’t changed significantly since Fukushima." He added that global LNG supply was always expected to tighten from 2014 and that the Japanese earthquake had simply accelerated the trend.

Tomnay estimated that the result of the meltdown at Fukushima and Taiwan’s indecision over the future of its four nuclear plants (three existing, one under construction) might add only around 20 million tonnes a year of LNG demand to the market. This would be around four standard liquefaction trains, he added. "In that context, Fukushima has not disrupted the Pacific market and the pendulum should swing back to suppliers," Tomnay said.

For the first six months after the quake, Japanese power generators’ LNG imports jumped by 21.3%, to 26.16 million tonnes, compared with the same period a year earlier, according to Japan’s Federation of Electric Power Companies (FEPC). Crude oil purchases were up by 67.7% over the same period, while coal imports were up by 6.36%.

… a cash drain

Consequently, Japanese electricity companies are losing billions of dollars by keeping reactors shut and burning expensive imported fossil fuels instead. Japan’s second-largest utility, Kansai Electric, reported a ¥118 billion ($1.47 billion) loss for the last three quarters of 2011, compared with a ¥108 billion profit the year before; while Japan’s third-largest utility, Chubu Electric, recorded a ¥71 billion loss.

The country’s largest utility, Tokyo Electric Power (Tepco), has forecast a whopping ¥695 billion loss for the year up to 31 March 2012, including some of the cost of cleaning up its destroyed Fukushima-Daiichi nuclear plant. Tepco is also looking for a ¥689.4 billion government bailout and may seek as much as ¥2 trillion as it fights off bankruptcy.

As a result of nuclear reactor outage and high LNG costs, electricity prices are soaring, as power companies try to recoup losses. Tepco said it would increase rates to corporate customers by up to 18% from April, calculating that it would add up to ¥50 million to the electricity bills of some large factories, office buildings and department stores.

The company also wants to raise household electricity charges from July, the first full-scale hike in 32 years, since the 1980 oil crisis, but has to secure approval from the Japanese government – which is, naturally, wary of increasing bills and the effect such a move would have. The utility wants to begin restarting its nuclear reactors from April 2013.

High power prices are also squeezing industry, itself in a tight position as it battles a strong Yen and the need to rebuild manufacturing supply chains disrupted by the Japanese quake and floods in Thailand late last year. Japan is the world leader in manufacturing a range of products, including chemicals, consumer electronics, semiconductors, automobiles, aeroplane engines and ships. In its latest financial results, carmaker Toyota said it was impossible to export cars while exchange rates are so high. Electronics manufacturer Sony, meanwhile, has more than doubled its annual-loss forecast to ¥220 billion.

Japan’s GDP shrank by 2.3% in the last quarter of 2011, contracting by a full percentage point more than forecast. For the whole of 2011, Japanese GDP shrank by 0.9% compared with 2010. According to BP, the country consumed 1,145.3 terawatt hours of electricity in 2010, the third-highest country in the world behind the US and China, and around the same as France and Germany combined.

But although it makes economic sense, restarting nuclear reactors will not be easy. Public confidence was shattered during the unfolding disaster at Fukushima, with uncommunicative government and Tepco officials frustrating worried citizens. Subsequent accusations of cover-ups have compounded the problem.

Activists in Tokyo, Osaka and Shizuoka have organised local petitions to try to force regional referendums on nuclear power. If local governments approve, residents could vote on whether to scrap nuclear power plants in their area. In February, a petition submitted by activists in Osaka totalled 55,430 signatures, or about 2% of the city’s population – above the threshold needed to approve a referendum.

"Whether you are for or against nuclear power generation, I hope [the envisioned referendum] will give each person an opportunity to deeply consider the pluses and minuses," film director Shotaro Kobayashi told activists in Tokyo.

Also pushing an anti-nuclear message is former Japanese prime minister Naoto Kan. In several media interviews he claimed it was his mission to wean not only Japan, but also the world off nuclear and push for renewables. "We should aim for a society that can function without nuclear energy," said Kan, who led Japan during the Fukushima disaster. It was a message he offered before stepping down as prime minister in September: it garnered popular support, but riled powerful utilities.

Chance for renewables

As well as more gas, Fukushima has strengthened the case for developing more renewable-energy sources to balance the power mix. Yet despite its support for the Kyoto Protocol to cut greenhouse-gas emissions, Japan has surprisingly little wind- or solar-power capacity. In 2009, Japanese non-hydroelectric renewable electricity accounted for around 0.2% of generating capacity, according to Japan’s FEPC; compared with 4.6% for US non-hydroelectric renewables in the same year, says the Energy Information Administration.

"The natural replacement for nuclear power is for Japan to take renewables seriously. It should open the doors for renewables, which should be part of the [energy-supply] answer," said OIES’ Stern.

"After the 11 March disaster [renewable power has] become an indispensible energy," said Tokuya Wada, Japan’s climate-change policy councillor. He added that onshore wind power could add 24-140 gigawatts (GW) of generating capacity to the grid (equivalent to 22-127 nuclear reactors).

Japan also has solar-power potential, with southern areas of the country receiving over 2,000 hours of sunlight a year, according to the national weather agency. This compares with Germany, which has twice as much solar capacity at 5.340 terawatts in 2009, but receives only 1,800 hours in some regions.

But the usual problems with renewables – intermittency during low-wind or cloudy days and high costs – means a swift uptake is unlikely for now. "The big issue is that renewables are still very expensive and don’t produce the stable power supply required for a modern economy. There are a few turns of the handle required to achieve that," said Richard Lobley, nuclear newbuild and operation director at consultancy PricewaterhouseCoopers (PwC).

And as other countries, such as China and South Korea, push ahead with their own nuclear programmes, Japan may be under pressure to keep up with local competitors. "As a region, Japan might be slightly worried about being left behind," Lobley added.

But despite the global radiation scares from the Fukushima meltdown, the world has not turned its back on nuclear energy. In the immediate aftermath, some countries – such as Germany and Switzerland – said they would phase out nuclear power. But the anti-nuclear rhetoric has begun to soften, as, beyond Japan, memories of Fukushima fade. In early February, the US approved the country’s first new nuclear power plant for 30 years, while the UK and France have agreed to co-operate to develop nuclear energy.

Pro-nuclear arguments still stand

The arguments for building new nuclear capacity to cut carbon emissions from the power sector while meeting rising global electricity demand still stand. "In the Middle East and Asia, a younger population is increasing power consumption. In more mature economies, with an older demographic, you still have increasing power consumption combined with older plants that need replacing," said PwC’s Lobley.

China has 27 reactors under construction and India has nine, according to the World Nuclear Association. Globally, a total of 61 nuclear reactors are under development. In the Middle East, meanwhile, the United Arab Emirates is expected to be the first country in the region to use nuclear power, while Saudi Arabia is expected to build 16 reactors by 2030, as it looks to stop burning precious crude oil for electricity generation.

But while new build programmes go ahead regardless, the culture of nuclear safety has changed. The World Association of Nuclear Operators (Wano) was set up after the meltdown at Chernobyl in 1984 to stop nuclear accidents, but since Fukushima, Wano is also looking at how to mitigate problems after an accident, on the assumption that an unpredictable event could trigger another catastrophe.

"After Fukushima, most plants found things they need to address in the way of procedures, staff training, availability of on-hand equipment if the plant were to be isolated or cut off, or if power were lost," said Wano managing director George Felgate. "Looking to the future, Japanese utilities will be given the OK to restart, whether two months from now, or a year from now," he added.

Before Fukushima, Japan wanted to roughly double nuclear capacity to meet 50% of its power mix. Traumatised by the events of 11 March 2011, when the disasters killed 19,000 people and displaced tens of thousands more, the government must now make a difficult decision over the future of its existing nuclear reactors, let alone new ones.

But Japan must avoid making its economic situation worse. This may mean restarting some reactors, even if only to buy valuable decision-making time. The rest of the world may be convinced that fission is a solution to the thorniest energy questions. But Japan has the difficult task of persuading its own citizens and, perhaps itself, that nuclear power generation can, and should, be part of its future.

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