Analysis-Economic risk too great for full Japan nuclear shutdown

TOKYO Thu Jun 9, 2011 1:41pm BST

Demonstrators take part in an anti-nuclear protest in the rain in Tokyo May 29, 2011. REUTERS/Yuriko Nakao

Demonstrators take part in an anti-nuclear protest in the rain in Tokyo May 29, 2011.

Credit: Reuters/Yuriko Nakao

TOKYO (Reuters) - Economic risks are too high for Japan to pull the plug on its 54 nuclear plants next year despite intense public pressure on Tokyo to cut reliance on atomic power in favour of other clean energy sources.

Unless Tokyo overrides resistance from local officials, orders reactor restarts and faces down public disapproval, by April next year Japan's last plant would shut for maintenance and leave the country with no nuclear power.

A massive earthquake in March crippled reactors, sparked the world's worst nuclear disaster in 25 years and left Japan struggling to supply homes and industry with power as nuclear capacity utilisation fell to 36 percent.

Three months later, the shortage is worsening as reactors are switched off one by one. Mindful of the growing public concern about safety standards, regional bureaucrats are delaying the restart of reactors after scheduled maintenance until tighter safety measures are implemented.

Analysts doubt the government would allow the situation to develop into a full shutdown, but a partial shutdown would hurt.

"The government probably feels the stakes are too big, and that's why I don't believe all plants will be shut down by next year," said Masamichi Adachi, senior economist at JPMorgan in Tokyo.

"Some plants could be shut down. It is likely manufacturing would take a hit and we would have to pay higher costs as power companies switch to thermal power."

Industry would face more power rationing and the need for energy imports levy a high price on the world's third-largest economy, as Japan lacks the electricity generation capacity to substitute for the nuclear fleet.

"I am concerned," Katsuya Okada, the No. 2 of the ruling Democratic Party, said at a news conference.

"It is clear that electricity supply will not be sufficient... if (all reactors) are completely halted. It is necessary to resume operations of reactors that have finished their regular inspections."

A total shutdown could spread beyond Japan and hurt the global economy, said Neil Beveridge, an analyst with Bernstein Research in Hong Kong.

"It would really stall the recovery next year, which would be a major impact in Japan, a major impact globally," he said.

Industry would leave Japan rather than face long-term power shortages, analysts warn.

"There would be a 'hollowing out' of industries," said Taisuke Abiru, a research fellow for energy policy at think tank Tokyo Foundation.

"Companies will put up with (power shortages) this summer, but if this goes on next year and beyond, they won't be able to come up with business plans. That's the worst-case scenario that needs to be avoided and the trade ministry understands this."

Tokyo may be able to overcome the problem by sending a clear signal that plans to address safety concerns are in place. This may still be insufficient to overcome public distrust as problems at the crippled plant continue, and after embattled Prime Minister Naoto Kan ordered the surprise shutdown of the Hamaoka nuclear plant in May.

Without nuclear power, Japan would be almost totally dependent on imported fuel to meet energy needs. Japan already faces imported fuel costs equivalent to about 3 percent of its annual GDP and dependency on international supplies at about 80 percent.

The cost in additional fuel imports for the loss of energy generated by nuclear power is estimated at as much as 3 trillion yen (22.9 billion pounds), according to trade ministry officials.

THERMAL SPARE CAPACITY

Japan lacks capacity to supply demand without nuclear reactors.

Even if power plants raised utilisation rates to about 70 percent at thermal plants, above current levels, they could only compensate for about 60 percent of a complete nuclear shutdown in 2011, the Japan Centre for Economic Research said in a report in June.

Renewable energy sources account for a marginal proportion of Japan's power supply, so the quickest and cleanest way to fill the nuclear gap is to install as many gas turbines as possible, analysts say.

To feed them, and higher utilisation at existing plants, Japan would have to import even more liquefied natural gas (LNG). It is already the world's largest LNG importer, buying 70 million tonnes in 2010, and has already agreed to buy millions of tonnes more this year as it ramps up gas-fired plants.

It would take years to build the plants needed to compensate for the nuclear outages and to prepare the infrastructure to feed them.

"I doubt that the country will be able to meet peak demand in the summer and the winter with all the nuclear off-line," said Andy Flower, a UK-based LNG analyst. It was unclear if terminals could import the number of cargoes needed to compensate for a nuclear shutdown, he said.

Barclays Capital analysts say that if Japan were to use gas alone to compensate for a full nuclear shutdown, it would consume 3.5 billion cubic feet per day more. That's an increase of over 37 percent from 2010 demand, according to Reuters' calculations based on annual data from BP.

ENERGY POLICY IN DISARRAY

Officials from Kan down have faced criticism for their handling of the disaster, which has prompted a complete rethink on energy policy in the quake-prone country.

Japan on Tuesday pledged to overhaul regulation of nuclear power, saying that lax oversight and standards had contributed to the worst nuclear accident since Chernobyl in 1986.

Local government officials have been waiting for new safety standards to be implemented before approving a restart of the remaining reactors.

Economic concerns could encourage bureaucrats to approve restarts if they see some progress on safety, Abiru said.

"Local governments are not going to insist that nuclear power plants be shut down indefinitely because that would affect tax revenues, he said.

"There are jobs to consider and the local economy is on the line, so if at all possible, they want to restart. But as politicians, they won't be able to restart unless safety measures or plans to address safety concerns are in place."

($1 = 79.945 Japanese yen)

(Additional reporting by Stanley White, Chisa Fujioka and Yoko Kubota in Tokyo, Edward McAllister in New York, Rebekah Kebede in Sydney; Editing by Simon Webb)

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