Five years after Fukushima, Japan’s nuclear sector still frozen

Five years after Fukushima, Japan’s nuclear sector still frozen

Half a decade and billions of dollars after the Fukushima disaster, Japan’s nuclear sector remains frozen. Is there hope for a successful restart?

Before 2011, nuclear power accounted for roughly a quarter of Japan’s energy production. Japan’s 48 reactors were seen as a low carbon, efficient, and space-saving energy option, especially since Japan is a geologically young country, having arisen as the Pacific tectonic plate submerged under the Eurasian one. Consequently, the country lacks any coal, oil, or gas deposits.

The current state of Japan’s nuclear sector

Prior to 2011, Japan was planning on nuclear energy providing 40% of the country’s power by 2030. These plans have been put on hold, with nuclear estimated to comprise 7% of national generation by 2020, and 20% by 2030.

Of Japan’s original 48 reactors, six will be decommissioned. The Hamaoka plant run by Chubu Electric Power, was shut down in 2011 due to its proximity to tectonic plates. On February 18th Kansai Electric Power and Japan Atomic Power submitted their plans to decommission the Mihama 1 & 2, and Tsuruga 1 reactors in Fukui prefecture. Similarly Kansai Electric has announced it will decommission two reactors supplying Osaka. The company is currently facing legal challenges against four of its eleven reactors.

Furthermore, another four reactors lie within the six mile no-go zone around the Fukushima Daiichi plant, rendering them effectively inoperable.

Another important element affecting the industry is that over the next five years a further 12 reactors will reach their 40 year operating benchmarks; the operating age limit set by Japanese regulatory standards. Lastly, Japan has also created the Nuclear Regulation Authority (NRA), a new body to oversee the industry that will play a leading role in any future restart plans.

Post-Fukushima fuel imports destroy trade balance

Following the Fukushima disaster, and the revelations of safety failures, Japan shut down all reactors. To compensate, Japan has had to drastically increase its fossil fuel imports, with the country becoming the world’s largest LNG, second largest coal, and third largest oil importer.

The costs of these imports have destroyed Japan’s trade balance; between 2011 and 2013 Tokyo’s trade deficit increased by ¥1.8 trillion ($168 billion). Forced to pay for fuel imports with a weak yen, fully 55% or $88.2 billion of the aforementioned deficit is due to increased imports to compensate for the nuclear shutdown. Similar costs have also been incurred for the 2013 – 2015 period. These costs are on top of the estimated $250-500 billion in economic losses related to the tsunami and Fukushima meltdown.

To add to Japan’s woes, the 2015 summer was one of the hottest on record, leading to utility usage rates of between 80 and 95% and necessitating even greater fuel imports. This has stressed nuclear dependent Japanese energy operators, such as Kyushu Electric Power Co. which has seen a doubling in operating costs as it seeks to provide alternative generation capacity.

Abe leads effort to restart reactors

Japan’s mounting fuel import costs are a powerful incentive for Tokyo to restart its reactors. The timing of this process is crucial, as Japan cannot afford to wait. Alongside traditional concerns about energy security and economic stability, the government has taken note of international energy market trends.

2015 has given Japan’s bottom line a reprieve as oil prices plummeted. This has allowed Tokyo to save money on imports; capitalizing on global overproduction, and weaker demand, especially from China. These circumstances could tempt the government to forgo an aggressive restart program, but Tokyo knows that it cannot rely on this state of affairs to continue. Current low fuel prices will give the government more leeway to implement restart plans, and help cover the costs of reactor upgrades, estimated at $12 billion.

Prime Minister Abe is leading the way to restart the nuclear sector, despite significant public opposition; including protests from Naoto Kan, Japan’s leader during the 2011 Fukushima disaster.

This process began in August 2015 when Japan restarted its first reactor, Sendai 1, following a $100 million inspection. This event was heralded as the beginning of the industry’s recovery, yet five cracked tubes in the cooling system were soon discovered, necessitating new mitigation measures. The Sendai plant is also facing a legal battle over the government’s restart plans.

Specifically, the Sendai plant lies just 50 km from Mt. Sakurajima, one of Japan’s most active volcanos, and just 5 km from the outer edges of sedimentary lava flows from previous eruptions. Opponents argue that the risks associated with restarting Sendai are too great given its location. Utility operators insist that the risk of an eruption is low, and note that the Sendai reactors are M-type pressurized water models. These are 15 years younger than the boiling water models used at Fukushima.

Outlook for 2016

From January 11th to 22nd, IAEA inspectors conducted a peer review mission in Japan, and on February 4th, the Takahama reactor became the third one to restart. Furthermore, as of March 7th, 25 of Japan’s reactors have applied to be restarted, and of these 20 are currently at various stages in the restart process.

Despite these encouraging numbers, the slow pace of restart efforts (projected to take over a decade), legal battles, negative public opinion, as well as a hyper cautious NRA means that Japan’s nuclear sector remains effectively frozen.

Independent energy consultant Mycle Schneider sums up the situation, by noting that: “[Five] years after the events unfolding at Fukushima Daiichi, the Japanese government, the nuclear utilities, and the NRA have not succeeded in overcoming complete planning insecurity for investors. The outlook for restarts is as cloudy as ever.”

That being said, there is one potential growth opportunity. The scale of the 2011 disaster demonstrated that the nine Japanese utilities which control generation, distribution, and sales were not flexible enough. Granted, few, if any, firms could easily weather such events, yet the government is looking to alter the energy sector nonetheless. In April 2016, Japan will deregulate its domestic energy market, allowing outside players access to the grid.

This effort aligns well with other Abenomics reforms, and is also seen as a chance to both lower costs from consumers as well as jump start renewable energy generation in Japan. Deregulation could also spur innovation in the energy sector and job creation as more players enter the field. Furthermore, the move could also be a means to improve public opinion of Tokyo’s energy policies, as Japanese consumers have seen a 28% increase in energy prices in the past five years (the U.S has only seen 8.1%).

Five years on and the shadow of Fukushima still looms large.

About Author

Jeremy Luedi

Jeremy is a widely referenced political risk expert and weekly columnist for Global Risk Insights (GRI). Jeremy’s writing has been featured in Business Insider, Huffington Post, Nasdaq.com, The Japan Times, MSN Money, and Yahoo Finance. His work also has been quoted and recommended by Time Magazine, Politico, Transparency International, and Greenpeace, among others.