Will renewables stop Japan's nuke restart?

Forecasted failures to meet ambitious nuclear targets leave Japan looking to renewables for long-term relief.

When the government announced that it targets nuclear to make up 20-22% of the energy mix by 2030, scepticism flooded the news. The current nuclear share of a meagre 4% coupled with the local political opposition, legal challenges, and regulatory issues made the target seem overly ambitious, especially as energy utilities prefer scrapping old reactors over paying higher costs to meet safety standards post-Fukushima.

In 10 years, Japan could remain heavily reliant on natural gas-fired power as it struggles to achieve a full-on nuclear restart. Due to the country’s reliance on natural gas imports for the longest time since the meltdown, electricity prices have soared to as high as 30% greater than pre-Fukushima prices. Electricity prices have stabilised for a while, as prices for natural gas imports also consistently fell.

According to BMI research, limited growth in coal-fired power generation will make it difficult for the country to reduce the share of gas power in the energy mix from 42% over 2017 to 27% by 2030. New coal builds in the country have been facing opposition as Japanese carbon emission reduction efforts have intensified. Despite calls to become more environment-friendly in power generation, the targets for nuclear and gas made it clear that there is little room for renewable energy in the generation mix.

The current target of 24% by 2030 seems plausible, as analysts expect the share to reach close to 23% by 2027. In the long-term, renewable energy just might save the day for Japan.

“We currently expect Japan to exceed its targets for both solar and biomass contribution to power generation by 2027 as the substantial feed-in-tariff project backlog supports a continued near-term capacity growth surge in both sectors. Should nuclear restarts underperform, we believe it likely that Japan will turn to renewable energy to diversify away from its excessive reliance on imported natural gas and coal,” BMI Research added. Over the last few years since the Fukushima disaster, only eight nuclear reactors have restarted.

Tarak Shah, energy policy consultant, Sasakawa Peace Foundation USA, said that the discussion around the restart of more reactors has been slow as the local opposition is active even after plants have been upgraded and have passed safety reviews. As a result of this and plenty of other challenges in the nuclear restart, Shah estimates that the nuclear share by 2030 would only amount to a number close to 10%.

Nuke headwinds
“Considering the life, location, technology and ownership of the existing nuclear plants, we expect around 6GW additional growth that will increase the aggregate capacity to 15GW,” said Dr. Bikal Pokharel, research director, Wood Mackenzie.

The country’s nuclear restart has made some progress over the course of 2018, as four additional reactors were successfully restarted at the Genkai and Ohi nuclear power plants. This brings the total number of online nuclear reactors to eight, after the suspension of Ikata 3’s operation in December 2017.

Once Takahama 4, and Sendai 1 and 2 are powered up and added to the full output from Genkai and Ohi, the nuclear share of the country would grow to 7% over 2019, a long way from the 2030 target.

Stringent security requirements, active seismic faults, legal battles, volcano eruption concerns in addition to popular opposition are key obstacles blocking nuclear restarts. Our downbeat nuclear restarts outlook is also predicated on the risks facing nuclear reactors that are currently online. The Ohi facility has faced a string of requests for court injunctions, which represents a risk to its future operations. We note that Ohi neighbours the Takahama facility, which over 2016/17 had to suspend operations due to a court injunction,” Shah added.

Operations in the Genkai and Sendai facilities are also in danger of their respective court’s scrutiny, as they are close to active volcanoes, Mt. Aso and Mt. Sakurajima, respectively. Hiroshima’s High Court has also suspended Ikata 3 due to concerns over its ability to withstand large-scale eruptions. Analysts emphasise that the downside risks of the government’s support for the nuclear restart warrant a continued and even cautious outlook.

Slow, but steady
The Institute of Energy Economics in Japan reported that whilst natural gas remains the dominant player in Japan’s energy mix, supply has reached its lowest level since the Great East Japan Earthquake, and for the first time declined in three consecutive years. According to IEE’s report, the shift from oil and natural gas to nuclear and renewable energy continues.

Gas capacity additions are driven by utilities’ aspirations to be cost competitive by cutting generation costs, Pokharel noted. “This does not favour gas plant growth as the cost of generation of gas plants are relatively higher than coal, renewables and nuclear. Flat power demand forecast, increasing role of renewables, nuclear restarts, and planned coal capacity additions do not incentivise investing in gas projects,” he said.

Meanwhile, progress has been made in the comprehensive energy market front. Analysts at IEE said the full liberalisation of the retail electricity market in 2016 will take the next step in 2020 when traditional monopoly players have to compete in the marketplace as they become legally required to split their operations and separate power generation, transmission, and marketing units into independent entities.

Meanwhile, Japan’s energy policies are undergoing intensive review, despite no changes being anticipated for the 2030 power source mix. Shah said that the whilst this sets aside complex political questions around nuclear power, this will slow the energy transition in Japan, leaving the country behind China and India, which are both making huge strides in the energy transition.

“Consumers now have choices in the electricity marketplace, which didn’t exist as recently as two years ago. As of May 2018, over 7.7 million Japanese households have switched electricity suppliers from incumbent providers to new entrants in the power market, representing nearly 15% of the market. If electricity market reforms continue as they are currently scheduled and the power monopolies are fully dismantled in 2020, more competition, lower prices, and better energy outcomes will ensue,” Shah said.

The case for renewables
Power companies such as the Tokyo Electric Power Company (TEPCO) have set their own renewables targets amidst calls to lower carbon emissions. TEPCO set its target at 6-7 GW of total development scale for the company’s domestic and international renewable energy business, to achieve a profit of about $897.1m (JPY100b) as it fulfils its responsibility post-Fukushima.

“We will expand globally our business in order to make renewable energy our main power source. To achieve this goal, we will establish the value chain in Japan from technical development, site development, design, construction and operation & management. Wind power is predicted to account for approximately 70% of the total development scale for our renewable energy business. Especially, offshore wind is expected to make extra benefit other than power generation by structuring value chain,” said Masahiro Sugimura, deputy manager, global communications group, TEPCO.

The country’s greenhouse gas emissions spiked to the highest levels after the earthquake, but have declined amidst a reduction in energy demand, some substitution of oil power generation for natural gas, and the rapid acceleration of renewable energy through a Feed-in-Tariff system that subsidises renewables development. Facilities under construction and expected to start operation by the end of FY2019 are expected to reach 74GW combined with existing ones, and including 43.6GW of non-residential solar PV.

Power generation in the renewables front will expand to 135.1 TWh in FY2019, equivalent to 13% of the country’s total generation. The IEE added that out of 105GW approved, 25GW is assumed to be expired capacities or capacities unlikely to start operation.

“The cumulative amount of consumer burden for the entire purchase period will reach JPY50t, equivalent to a rise in electricity prices of JPY2,900/MWh - 12% for the residential and 17% for the industry sector,” IEE analysts said.

“Even as Japan’s energy future is beginning to improve following the Fukushima disaster, factors within Japan’s control are creating an uneven, slow, and idiosyncratic transition to lower carbon, lower cost energy resources. At the same time, more realism needs to be incorporated into Japan’s energy policies. Over 40 new coal power projects remain in planning throughout Japan, making this the largest planned investment in coal power in the developed world,” Shah said.