Analysis: Energy policy chaos threatens Japan's economy
Aug 4, 2011, 1:16 a.m.
By Chikako Mogi
TOKYO (Reuters) - Political disarray over Japan's energy policy will make it tough for Tokyo to avert a total nuclear shutdown next summer and presents a long-term threat to the world's third-largest economy.
The March 11 earthquake and tsunami triggered a meltdown at the Fukushima power plant that shattered the public's confidence in the safety of the country's nuclear fleet. Scandals over the government's cozy relationship with the power industry have exacerbated the concern.
Japan sacked three officials over the scandals on Thursday, but it was unclear if this was enough to help repair public confidence in Tokyo's ability to govern the industry.
The disasters look to have dealt a definitive blow to the future of nuclear energy in Japan.
Prime Minister Naoto Kan has called for gradually weaning Japan off its dependence on nuclear power, a U-turn on the 2010 energy policy that sought to boost nuclear capacity to supply 50 percent of Japan's energy needs by 2030. In that plan, nuclear was seen as a cheaper and cleaner alternative to fossil fuels.
But the unpopular Kan, fighting to stay in his post, has given no detail on how he plans to build enough capacity to substitute nuclear supply, nor how to make alternative supplies economical.
"The issue is the uncertainty over policy," said Naohiko Baba, chief Japan economist at Goldman Sachs.
"Because of an unclear direction about nuclear power plants, companies can't make their investment plans while utilities can't make a decisive shift to other power sources from nuclear power. The uncertainty over the energy future heightens the possibility of companies leaving Japan."
Instead of rebuilding generation capacity, utilities may freeze even the investments necessary to maintain capacity, until they see clarity from Tokyo on the fate of their reactors and government energy priorities.
Uncertainty over the cost and availability of future energy supply may push Japanese companies overseas and stall foreign companies from investing.
"The confusion is expected to last for at least another half year, while the current anti-nuclear public sentiment doesn't provide an environment for an objective debate over the issue," said Xiao Minjie, chief economist at FuNNeX Asset Management in Tokyo.
"The uncertainty over the outlook of the energy policy, together with the rising yen, are pushing Japanese companies to shift operations overseas."
Japan is already getting an indication of the potential cost to the country of a long-term shift away from nuclear power.
The number of Japanese nuclear plants supplying power to the grid is slowly falling as plants are shut down for regular maintenance. Local government officials, wary of public opprobrium, have refused permission for the plants to restart.
The government estimated on Friday that if all of Japan's 54 reactors went offline by May 2012 the nation would face a 10 percent power shortage next summer and electricity costs would spike up 20 percent.
The drag on economic growth from higher energy costs caused by greater use of costly imported fuels while nuclear electricity output dwindles would be substantial, economists say.