Tepco boosts coal capacity to cut need for costly oil

Bloomberg

Tokyo Electric Power Co. may cut its oil purchases by more than one-third as it boosts its reliance on coal plants to reduce an energy bill that’s ballooned since the Fukushima nuclear crisis started.

Tepco will generate or buy as much as 54 percent more electricity from coal-fired plants starting this month compared with last year, according to calculations based on company statements. That may enable it to reduce its purchases of crude and fuel oil by as much as 3.95 million kiloliters, or 68,000 barrels a day, according to Osamu Fujisawa, an independent energy economist in Tokyo. Tepco bought 10.8 million kiloliters in the year that ended in March, the company said Wednesday in a report on its website.

Tepco’s fuel costs surged after the March 11, 2011, earthquake, tsunami and nuclear disaster, since it’s had to rely on oil, gas and coal to replace idled nuclear capacity. The utility will do “whatever it takes” to return to profitability and hopes to do so without raising rates for customers, Naomi Hirose, Tepco’s president, said earlier this month.

“By establishing new coal-powered plants, thermal power generation costs can be reduced, first by cutting the use of oil-burning units,” said Reiji Ogino, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co. “Japanese government requests to power companies that they lower the rates they charge will encourage movement to coal-fired plants, since coal is a relatively cheap energy source.”

Tepco will add 2.6 gigawatts a year of coal-fired power from two new plants and electricity bought from two units owned by Tohoku Electric Power Co. that restarted after being damaged in the earthquake.

The No. 2 unit at Tepco’s Hitachinaka plant, which can produce 1 gigawatt, began operating April 4, while the 600-megawatt No. 6 unit at its Hirono facility will start in the middle of this month, company spokesman Yusuke Kunikage said.

Tepco is also purchasing half of the power produced by the No. 1 and No. 2 units at Tohoku Electric’s Haramachi plant, each of which can generate 1 gigawatt, said Hiroki Enami, a Tohoku Electric spokesman. Unit No. 2 began operating on Nov. 3, while No. 1 started Jan. 28, he said.

Tepco’s coal-fired generating capacity, including power purchased from independent producers and other utilities, was 4.77 gigawatts in the year that ended in March 2012, the most recent year for which the company has released data. No additional coal capacity was added between then and November, when the power generated by Tohoku Electric’s Haramachi plant became available, Kunikage said.

Tepco’s electric power business had an operating loss of ¥323.7 billion during the fiscal year that ended in March 2012. This was because of a 13 percent increase in operating expenses from higher fuel prices and greater purchases stemming from the loss of its nuclear stations, according to its most recent annual report. The company is expected to announce results for the fiscal year that ended last month by mid-May.

Tepco bought 7.45 million kiloliters of fuel oil in the year that ended in March, up 29 percent from the previous year, while crude purchases rose 31 percent to 3.33 million kiloliters, the company said on its website. Liquefied natural gas imports rose 3.2 percent to 24.9 million metric tons and coal purchases rose 1.2 percent to 3.35 million tons.

In March alone, fuel oil purchases declined 18 percent to 546,000 kiloliters and crude purchases dropped 58 percent to 183,000 kiloliters. LNG imports fell 3.6 percent to 2.12 million tons, while coal purchases jumped 40 percent to 515,000 tons.

“The highest-priced fuel is oil,” said economist Fujisawa, who worked for Saudi Arabian Oil Co. and Showa Shell Sekiyu K.K. “If you’re trying to select which fuel to back out from, you will come to the conclusion that it should be fuel oil and crude.”

It would require 6.5 million tons of coal to produce 2.6 gigawatts a year, Fujisawa said. That would cost ¥69.1 billion, based on the average price Japan paid for coal in 2012, according to Finance Ministry data.