Japan's Nuclear Troubles Could Derail Its Economic Plans

5 MINS READSep 9, 2013 | 11:56 GMT
Tokyo Electric Power Co. workers outside the Unit 4 reactor building at the Fukushima Dai-ichi nuclear plant on June 12.
Tokyo Electric Power Co. workers outside the Unit 4 reactor building at the Fukushima Dai-ichi nuclear plant on June 12.

On Sept. 15, the last operational nuclear reactor in Japan will be shut down for routine maintenance, which may leave Japan without nuclear power for the remainder of 2013. Meanwhile, the Nuclear Regulation Authority is becoming increasingly involved in the cleanup and containment efforts at the Fukushima Dai-ichi plant. With its nuclear plants idle, Japan will be forced to continue relying on expensive energy imports, which, combined with rising electricity prices in Japan, could threaten Japanese Prime Minister Shinzo Abe's plans for an economic revival.

The Japanese government announced Sept. 3 that it would invest $470 million in improving storage and containment measures at the Fukushima nuclear facility. While some money will be spent to improve processing and storage, the majority of the funds will be directed toward an unconventional containment technique. The plan is to freeze the earth surrounding the plant, limiting groundwater flow to prevent contamination with radioactive water at the site. This technique is traditionally used in excavations, but has also become an accepted tool for environmental containment. However, it has never been tried on a project of Fukushima's magnitude, and its effectiveness is by no means certain. 

It has become evident that plant operator Tokyo Electric Power Co., or TEPCO, needs assistance in recovery efforts, so the central government via the Nuclear Regulation Authority has become more active in managing the situation. The problems at Fukushima are ongoing, since the continuing need to cool the reactors will only increase the volume of water that needs to be stored at the plant until a permanent solution is achieved. Finding solutions both for the current leaks and future storage needs will continue to strain the resources of both TEPCO and the Nuclear Regulation Authority.

As the overseeing body for all nuclear power in Japan, the Nuclear Regulation Authority has other responsibilities, including conducting safety inspections for the 12 nuclear reactors that have applied to restart. The Nuclear Regulation Authority is reportedly already understaffed, and if resources are redirected to cope with Fukushima, this could delay the completion of safety inspections, prolonging the length of time that Japan is without nuclear power, possibly into 2014.

Japan commissioned the country's first nuclear power plant in 1966 and nuclear power has been a staple of the country's energy strategy since the 1970s. But when the last active reactor at the Ohi plant shuts down for scheduled maintenance on Sept. 15, Japan will be without nuclear power for the first time since May 2012. While a small amount of nuclear energy production resumed in July 2012, the upcoming period without nuclear power has the potential to be much longer. The two plants that are shutting down in September must go through the same safety inspections as the other 10 reactors that have applied to restart. Because it is expected that required safety inspections will take six months, it appears that Japan will likely be without nuclear power for the remainder of 2013.

Local approval is the final hurdle for the restart of these reactors, which all sit on Japan's western coast. Anti-nuclear sentiment is stronger on the eastern coast of the country, where the Fukushima disaster occurred. While continued problems at the plant certainly will not help the pro-nuclear movement in Japan, local governments in the west that have final authority to restart their specific reactors may choose to do so, despite Fukushima's status.

However, even if all 12 reactors are able to restart, it will be a gradual process under current regulations, since there are as of now only three inspection teams. These 12 reactors also only represent roughly a quarter of pre-2011 nuclear power capacity. As long as nuclear power remains off or at a fraction of its prior capacity and alternative energy like wind or solar is not capable of filling the deficit, thermal power plants will be necessary to meet Japan's electricity needs, requiring high levels of energy imports that will likely keep electricity prices elevated for most of Japan.

Economic Impact

In all likelihood, restarting nuclear power will be a long, gradual process that will have only limited, regionalized impacts at first. In the meantime, Tokyo will continue to rely heavily on more expensive thermal power, the cost of which is between $0.10 and $0.11 per kilowatt hour according to a 2012 study by the Institute of Energy Economics. The same study showed that nuclear power plants generate power that is at least 10 percent less expensive, at about $0.09 per kilowatt hour on average.

The difference has meant that several utility companies have been forced to increase rates over the past several months. The latest hikes were approved in the Hokkaido, Tohoku and Shikoku prefectures starting Sept. 1 at average rates of between roughly 8 and 9 percent, while utility company Kansai Electric Power Co. increased rates by nearly 10 percent in May 2013. This illustrates an ongoing trend of increasing electricity prices in order to compensate for increased production costs.

Rate hikes such as these will certainly impact Japanese Prime Minister Shinzo Abe's economic revitalization strategy, which includes the goal of meeting a 2 percent consumer price inflation target over the next two years in order to drive inflation expectations and spur growth.

Data released by the Bank of Japan on Aug. 30 shows a year-on-year increase in consumer price index of 0.7 percent. However, this does not necessarily confirm the success of Abe's economic plan. When the contributing factors of the index increase are examined, the dependence on expensive energy imports is evident. Removing energy from the equation shows a year-on-year change of -0.1 percent, still deflationary more than half a year after the start of the government's anti-deflation campaign.

But although high electricity prices put upward pressure on the general price level, the relatively inelastic nature of energy demand means it also has the potential to crowd out other spending. Since winning full control of the government in July, Abe has had greater political ability to press his agenda forward. His government does want inflation, but inflation of the variety that drives up spending due to expectations of further price increases. Unfortunately for Abe and the deflation-plagued Japanese government, energy price inflation is likely to be counterproductive for that goal.

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