Questioning Japan's Energy Policy: TEPCO should sell power-generating facilities

Faculty Fellow, RIETI

Two major developments relating to Japan's energy problems took place in December 2013. First, the Fundamental Issues Subcommittee of the Advisory Committee for Natural Resources and Energy compiled a statement of opinion (officially titled "Opinion on Basic Energy Plan") providing the main points of a new "Basic Energy Plan." Second, Tokyo Electric Power Company, Incorporated (TEPCO) established its New Comprehensive Special Business Plan and informally appointed Fumio Sudo (advisor to JFE Holdings Inc.) as chairman.

The Ministry of Economy, Trade and Industry has already approved TEPCO's New Comprehensive Special Business Plan. Moreover, a Cabinet decision is expected soon on the new Basic Energy Plan as based on the statement of opinion. However, these two developments have not given any clear direction on nuclear power policy or TEPCO's problems. In fact, they have done no more than push the issues down the road.

♦  ♦  ♦

The draft of the new Basic Energy Plan avoided something that many citizens had been expecting: a clear statement on Japan's mix of energy sources, including its dependence level on nuclear power, in 2030. Overall, the mass media and others gave the plan low marks. Nonetheless, we need to pay close attention to the fact that the new plan did include several points relating to various issues under debate. For example, it discussed expanding storage capacity for spent nuclear fuel.

It is said that if the fuel pool in Unit 4 (which was shut down at the time) at TEPCO's Fukushima Daiichi Nuclear Power Plant had been destroyed in the accident, the scale of the damage would have been much greater. All nuclear power plants in Japan are shut down at present, but spent fuel is still being stored in fuel pools at nuclear power plants around the nation. We still run the risk of a major accident if a large tsunami, such as the one that followed the Great East Japan Earthquake, were to hit one of these sites.

Dealing with this "clear and present danger" has necessitated, apart from fuel pools that need additional energy to keep fuel from getting hot, the rapid deployment of dry cooling facilities (dry casks). In these systems, spent fuel is placed and stored in specially built metal containers which then are cooled by the natural convection of air.

As Governor Issei Nishikawa of Fukui prefecture quite logically asserted, dry casks for spent fuel should be located in those regions where the power is consumed. However, placing these facilities in a consuming region takes a great deal of time. Therefore, as we are dealing with a clear and present danger, it is more realistic that we plan to locate these systems on the grounds of nuclear power plants or on high ground nearby. In that case, it follows that a reasonable "storage fee" should be paid.

In any case, citizens and local governments of consuming regions have a choice to make: either accept dry storage of spent fuel in their own areas, or pay a reasonable storage fee to have fuel stored in the regions where nuclear power plants are located.

Former Prime Minister Junichiro Koizumi has made statements that had some impact on the draft of the new Basic Energy Plan. It was widely reported that a policy has been set wherein the national government will take the lead in the issue of final disposal of spent fuel. However, even if the national government takes the lead, it is unimaginable that this will quickly solve the final disposal problem. What is notable about the draft of the new Basic Energy Plan in this respect is that it mentions expanding spent fuel storage capacity (specifically, building dry casks), which is more realistic.

Because it does not explicitly state Japan's mix of energy sources in 2030, the new draft plan is hard to understand as a whole. This point is vividly made where the plan talks about the position of nuclear power. The plan describes nuclear power as an "important basic power source," then says it seeks to "lower our dependence on nuclear power as far as possible," and then suggests Japan should "secure as much nuclear power as is deemed necessary." These two reversals are part of what makes the plan so difficult to understand.

♦  ♦  ♦

So, how dependent will Japan be on nuclear power in 2030, and what will be our mix of power sources? In trying to predict these numbers, we get one clue from the 2012 revision of the Nuclear Reactor Regulation Law in which the government decided that, as a rule, nuclear reactors are to be shut down 40 years after they start operating.

If the "shut down after 40 years" standard were strictly applied, 30 of the 48 current reactors would be closed by the end of 2030. Adding to the remaining 18, Chugoku Electric Power Co., Inc. is building Unit 3 at the Shimane Nuclear Power Plant, and Electric Power Development Co., Ltd. (J-POWER) is building one at the Oma Nuclear Power Plant. Even including those, Japan's dependence on nuclear power in 2030 would slip from 26% (2010 level) to only three-fifths of that amount, or 15% (calculations by the Agency for Natural Resources and Energy, 2012; see Table). Thus, the likely energy mix in 2030 would be 15% nuclear, 30% renewables (including hydropower), 40% thermal, and 15% cogeneration (combined heat and power).

Table: Amount of nuclear power to be generated in 2030 if reactors are allowed to operate for 40 years
70% operating rate80% operating rate
No new reactors130,200 GWh (13%)148,800 GWh (15%)
1 new reactor139,400 GWh (14%)159,300 GWh (16%)
2 new reactors148,600 GWh (15%)169,800 GWh (17%)
(Note) Figures in parentheses are the ratio of nuclear power generated to the estimated total of all power generated (% of 1 million GWh)
(Source) Agency for Natural Resources and Energy, "Nuclear Power Generation Percentage (Based on Discussions up to Now)" (April 2012)

♦  ♦  ♦

As for TEPCO's New Comprehensive Special Business Plan, all we can say is that it would be difficult to achieve. That is because the Kashiwazaki-Kariwa Nuclear Power Plant, on which the plan is based, will be difficult to restart as long as TEPCO continues to manage it.

Public opinion is very uneasy about letting a company that caused such a huge catastrophe operate another nuclear plant. In addition, it became clear last year that TEPCO working alone could not respond adequately to the challenges of contaminated water, reactor decommissioning, and decontamination following the disaster at Fukushima. Naturally, people decided there is no way they will allow Kashiwazaki-Kariwa to restart under TEPCO's current management.

As we try to solve the Fukushima and TEPCO problems, it is important to stick to two principles. The first is to make sure that compensation is paid to those in the disaster-affected areas, the reactors are decommissioned, and the area is decontaminated, regardless of who pays for it. The second principle is that TEPCO's service area should continue to receive a stable supply of reasonably priced power, whether or not the company survives as a business.

The national government will have to be involved actively if Japan is to follow through on the first principle. However, there is likely to be strong public opposition to using national funds to pay for restarting Kashiwazaki-Kariwa or for reactor decommissioning and decontamination. The only way to mollify public criticism will be to restructure TEPCO to a greater degree and to ensure that the restructuring is serious enough to convince most citizens.

What would such a restructuring look like? Basically, TEPCO would sell off all of its power generating facilities with a few exceptions, such as pumped storage hydroelectric power stations that the company uses to adjust the power supply during demand peaks.

If this were to happen, the personnel operating the power generating facilities would be transferred to the buyers, greatly reducing TEPCO's staff and making the restructuring more effective. Revenue earned from the sales would go to compensation, decommissioning, and decontamination. Facilities sold would include Kashiwazaki-Kariwa. Having a new operator there would clear the hurdle of restarting the plant. A full-fledged restructuring is the only way to truly revive TEPCO under its new chairman, Fumio Sudo.

Such a restructuring leaves some doubt as to whether TEPCO will be able to survive, but I believe it is possible. Even after TEPCO's power generating facilities are sold, the high-voltage transmission lines running in every direction beneath Tokyo and the power distribution network connecting to them would still provide a foundation for the company's business. TEPCO could survive because it would have the good fortune of operating in one of the most demand-dense areas in the world.

Given the second principle mentioned above, the legal liquidation of TEPCO obviously could be one option. However, we need to remember that TEPCO might get away with shirking its responsibilities if it is legally liquidated. To clarify TEPCO's responsibility and ensure that it continues to bear its fair burden, the proposal to let it survive through a full-fledged restructuring is the best choice under the circumstances. A legal liquidation of TEPCO is the second best choice.

>> Original text in Japanese

* Translated by RIETI.

January 29, 2014 Nihon Keizai Shimbun

February 28, 2014