USA | Japan Has ‘Slim’ Chance of Splitting Power Utilities as Blackouts Loom

Posted on July 31, 2011

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USA | BLOOMBERG | 31 July 2011

Prime Minister Naoto Kan’s proposal to split electricity monopolies into generation and distribution companies as part of his plan to weanJapan from nuclear energy may be opposed by utilities as the nation faces power shortages.

Kan’s government last week announced its plan to diversify away from nuclear power after a public backlash following the Fukushima disaster, and shift to alternate sources gradually to avoid shortages and higher prices. The strategy will consider separating generation and distribution and encourage “various operators” to enter the electricity market, Kan said July 29.

“Breaking up the electricity grid is a great idea in theory, but the power companies are against it and the chances of it actually happening are slim,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo. “The debate will end at the discussion stage instead of translating into policy unless the government is willing to take on the utilities. The reaction in the market will be limited.”

Japan’s Topix Electric Power & Gas Index slumped to a six- week low July 29. Kansai Electric Power Co. and Kyushu Electric Power Co. are among utilities that have avoided issuing full- year profit forecasts or revised them after three meltdowns at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant in March raised questions about nuclear safety and prevented idled units from restarting.

Three Stages

Reliance on atomic power will be reduced in three stages, the first being the next three years, then by 2020 and then through 2050, the government said in a July 29 statement.

“In the medium to long term, we’ll reduce dependence on nuclear power and strengthen and accelerate green innovation,” National Strategy Minister Koichiro Gemba told reporters in Tokyo the same day. “We’ll consider how to realize the best mixture of new energy.”

Opposition to nuclear power surged after the March 11 earthquake and tsunami crippled Fukushima Dai-Ichi, triggering the worst atomic disaster since Chernobyl 25 years ago. More than 70 percent of respondents in a Kyodo News survey published July 25 said they support phasing out the energy source.

Public support for nuclear power may erode further after disclosures that utilities sought to manipulate public opinion at government-held symposiums on nuclear power.

Agency Independence

The Nuclear and Industrial Safety Agency should be made independent of the Ministry of Economy, Trade and Industry, Trade Minister Banri Kaieda said July 30, adding that personnel exchanges between the agency and ministry were a factor in such attempts, according to a report by state-run broadcaster NHK.

The Kyodo poll also showed Kan’s approval rating fell to 17.1 percent, from 23.2 percent in June, and 66.9 percent said he should resign by the end of August. The poll of 1,014 people conducted July 23-24 didn’t provide a margin of error.

“People are getting tired of all these grand plans by the Democratic Party that go nowhere and this plan will be seen as just that,” Hirano of Tachibana Securities said.

Of Japan’s 54 reactors, 38 are idled or inactive as local officials block restarts of units closed for maintenance and safety checks since the earthquake and tsunami wrecked the Fukushima Dai-Ichi station, causing radiation leaks.

Japan’s Rise

The rise of Japan’s manufacturing after World War II to dominate the global auto and electronics industries came in lockstep with promotion of nuclear power to reduce the country’s dependence on imported oil. Japan passed laws on nuclear subsidies to develop the industry in 1974, a year after the global oil shock sent its economy into a recession.

A Japan without nuclear generation and reliant on Kan’s goal to get 20 percent of its power from renewable energy would add 1.66 trillion yen ($2.1 billion) a year to the power bill for Japan Iron and Steel Federation members, the association said July 19.

Abandoning nuclear power risks hollowing out Japan’s industry as companies like Komatsu Ltd., the world’s No. 2 maker of construction machinery, say they can move abroad “whenever we want,” taking jobs and taxable revenue with them, Chairman Masahiro Sakane said. Prime Minister Kan’s nuclear-free vision doesn’t consider all the issues, he said.

Gross domestic product will fall by 3.6 percent and 200,000 jobs may be eliminated if all of Japan’s reactors close by next spring as scheduled maintenance takes them offline, the Tokyo- based Institute of Energy Economics said a report last week.

To contact the reporters on this story: Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net; Sachiko Sakamaki in Tokyo at ssakamaki1@bloomberg.net; Akiko Ikeda in Tokyo atiakiko@bloomberg.net

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