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Darkness falls on Tokyo

Japan's electricity industry is in turmoil. This may have a big impact on the world's energy markets

WALK into the Ministry of Economy, Trade and Industry (METI), and you will find most of its lifts shut down, the corridors dark, and—although it is hot and humid—the air conditioners barely working. During the lunch hour, office lights are switched off, and on rainy days (this is Tokyo's rainy season, so there are plenty) bureaucrats can be seen straining to catch what little light comes through the windows as they work through their break. Sometimes offices get so dark that their solar-powered calculators stop working.

The ministry, which oversees the electricity industry, is gearing up for a power shortage that could leave Tokyo facing unprecedented blackouts this summer, when demand for electricity reaches its peak. The reason: Tokyo Electric Power (Tepco), the world's largest private electricity company, had to close its 17 nuclear reactors after it was caught last September falsifying safety records to hide cracks at some of its power plants. Three have now restarted, but it is unclear when the local authorities will allow others to do so.

As these nuclear reactors usually supply almost half the electricity for the region centred on Tokyo, Tepco reckons that it may fall short of expected demand by almost 10% this summer. It is begging the public to conserve energy. Companies such as Honda, Nissan Diesel and Toshiba have agreed to shift some of their factory operations to weekends or nights. Big shops, banks, brokers and even the Tokyo Stock Exchange are using dimmer light bulbs and setting air conditioners to higher temperatures. Workers face a sticky summer, though some bosses are letting them take off their ties. Sadly for bureaucrats at METI, its minister has decided that, as they also oversee the tie industry, they will not be allowed to do this.

Nuclear meltdown

Less well-known is that this summer's sweat may be a mere prelude to much worse problems. The electricity industry faces challenges that could undermine Japan's entire nuclear-power policy. Japan may then have to increase sharply its imports of oil, coal and liquefied natural gas, causing a surge in demand in world energy markets. With few natural resources of its own and one of the lowest energy self-sufficiency ratios among industrialised countries, Japan is already the second-biggest importer of oil and the biggest importer of natural gas. To illustrate the scale of what is involved, Kazuhiro Sakuma, an analyst at Daiwa Securities SMBC, reckons that, if Japan closed its 53 nuclear reactors and switched entirely to oil (in practice, it would probably switch also to coal and gas), oil imports would rise by 30%.

Japan's nuclear reactors were built as part of an environmentally “clean” energy policy developed after the oil shocks of the 1970s. (They may also play a covert security role, giving Japan an option, subject to constitutional change, to use nuclear material for military ends.) Critics now liken this policy to “building a house without a toilet”, for there is no coherent strategy for disposing of spent nuclear fuel.

Nuclear power plants are running out of capacity to store the stuff. Japan used to send spent nuclear fuel to France and Britain to be reprocessed. But the latest contracts with these countries have ended, and the government has no plans to send more fuel abroad. It would face big political obstacles were it to try. America—which has considerable clout with Japan's government—might oppose the shipping of radioactive material halfway across the world on security grounds. Instead, the government is pinning its hopes on Japan's first big reprocessing plant, now being built by Japan Nuclear Fuel (JNFL), a consortium including nine of Japan's ten electricity firms, in Rokkasho, a village on the northern tip of mainland Japan.

Some nuclear power plants have only enough storage space for another two or three years' worth of spent fuel. Strict regulations bar transfers of spent fuel from one plant to another. The earliest a temporary storage facility can be built is 2010. Only if the reprocessing plant starts operating in July 2005, as JNFL insists it will, can nuclear plants avoid prolonged closure.

But as one bureaucrat in METI's Agency for Natural Resources and Energy admits, that is unlikely. Delays could last months, if not years. The ¥2.1 trillion ($17.5 billion) reprocessing plant is already six years behind schedule. Although most of the construction is now finished, only the first of four stages of testing has been completed. And this has raised more than 1,000 problems that need to be fixed.

Worse, the third stage of testing, using uranium, requires approval from local authorities. Yet JNFL recently discovered that one of the three pools used to store spent nuclear fuel, built by Hitachi, is leaking. Kenji Furukawa, the mayor of Rokkasho, insists that, until all leaks are repaired, the uranium test cannot go ahead.

Even then, the reprocessing plant may be unable to open unless the politically charged problem of what to do with the plutonium produced during reprocessing is solved. Normally this is combined with reprocessed uranium to make mixed oxide (MOX) fuel. In principle, this could be used in two ways. The one that would use up the most plutonium would be to deploy it as fuel in a fast-breeder reactor. Alas, Japan's efforts to develop the world's first commercial fast-breeder reactor were halted earlier this year by a court ruling criticising “serious and unforgivable mistakes” by the government over safety regulations at a prototype plant.

The second option would be to use MOX as a substitute for enriched uranium at existing nuclear plants. But this again requires local approval, and already some regional governments are refusing to allow the use of MOX on safety grounds. This follows a series of scandals, ranging from Tepco's cover-up and government failures to disclose safety problems, to data falsification by British Nuclear Fuels over tainted MOX shipped back to Japan, to a disaster when two workers died after using buckets to load a uranium-processing plant. Eisaku Sato, the governor of Fukushima, where Tepco generates 25% of its electricity, says his prefecture has scrapped all plans to permit the use of MOX fuel.

Add to this the vexed, and so far largely unaddressed, question of the cost of reprocessing, should it ever happen, and of disposing of the radioactive waste it generates. High-level radioactive-waste disposal costs alone, now estimated to be ¥3 trillion, could balloon, while other, as yet unquantified, disposal costs could add tens of trillions of yen more, declares Tetsunari Iida, a director at the Institute for Sustainable Energy Policies. Some electricity companies are said to be so concerned that they are privately reluctant for the reprocessing plant to start operating.

Japan's electricity prices are already the highest in the industrialised world, even without these extra costs. The outlook is further complicated by the government's plans to deregulate the market to lower prices, so as to help other industries become more competitive globally. Last month, parliament approved a bill that will deregulate electricity for all large and medium-sized users by 2005. Gas, steel and oil companies are entering the market, putting pressure on incumbents. Deregulating the market, but at the same time pushing nuclear power, which has high start-up and looming, unquantified back-end costs, makes no sense, says Hiroaki Fukami, a professor at Keio University.

If the incumbent electricity companies, as generators of nuclear power, have to foot the bill, they will pass these costs on to households, the only part of the market that will not be deregulated—resulting in a public outcry. Yet imposing some of the burden on new entrants would lead to price hikes across the board, defeating the purpose of deregulation.

One solution would be for the government to follow most others and nationalise the nuclear industry, or at least underwrite its long-term costs. Whether Japan's politicians will do this is debatable. So far they seem to be in denial that there is even a problem, at least in public, and, for the most part, in private as well. That they have already temporarily shut a large part of the country's nuclear industry once is a sign that they may be unable to avoid further temporary, or even permanent, closures in future—with nasty consequences all round.

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