Since March 2011, the government has focused on the cost of cleaning up after Fukushima, the worst nuclear disaster since Chernobyl. Now, the bill is coming due for another unbudgeted consequence of that calamity — shutting down the nation’s 48 remaining nuclear reactors for costly safety reviews that could see many of them mothballed.
While their reactors have been idled, nuclear plant operators have had to spend around $87 billion to burn replacement fossil fuels. This, in part, explains the utilities’ estimated combined losses of around $47 billion as of March, and the $60 billion wiped off their market value.
That pain is beginning to tell.
In early April, Kyushu Electric Power Co. was confirmed to be seeking an almost $1 billion bailout in the form of equity financing from the government-affiliated Development Bank of Japan because of the cost of idling its reactors. Hokkaido Electric Power Co. has also asked the bank for financial backing.
Even as Prime Minister Shinzo Abe’s government has hammered out the final terms of a delayed energy policy, the bill for a reduced role for nuclear power in the world’s third-largest economy is becoming clearer. One way or another, taxpayers are going to be saddled with the cost of throttling back on nuclear power through taxes and higher electricity bills, analysts say, just as the government has had to provide funding for those who lost their homes and livelihoods due to the Fukushima disaster.
The government took a controlling stake in Fukushima No. 1 operator Tokyo Electric Power Co. in 2012 to keep it from insolvency, and Tepco, as it is known, still relies on government credits to pay compensation to those affected by the disaster, which forced 160,000 people from their homes.
The expanded government role in helping utilities pivot from nuclear power — from providing around 30 percent of Japan’s electricity to less than 10 percent — has echoes of the public bank bailouts from the 1990s, said Tom O’Sullivan, founder of energy consultancy Mathyos Japan and a former investment banker. “The banks were forced to consolidate after those losses, so the outcome might be similar in this case,” he said.
Regional power companies also face the prospect of tougher competition under planned electricity reforms that may ultimately see them broken into transmission and generation companies by around 2020.
All of the nation’s 48 nuclear reactors have been shut down since last year, forcing utilities to import extra fossil fuels, driving their costs higher. To ease the strain, the companies have raised electricity charges, but the industry minister has warned that further increases must be avoided.
The nine publicly traded nuclear plant operators together have lost the equivalent of about $31 billion in the two business years since Fukushima, and five of them also expect to be loss-making in the year that ended in March. Those results are due early next month. Japanese banking practices make it difficult for private lenders to extend credit, including the refinancing of existing loans, to companies that post three straight years of losses.
Many creditors face the possibility of a double whammy in if any of the utilities collapse because they also hold shares. A unit of Mitsubishi UFJ Financial Group is the biggest shareholder of Hokkaido Electric, and at least one of the big three banks is listed in the top 10 shareholders of all the utilities except one, Shikoku Electric Power Co.
Hokkaido Electric’s equity ratio — a measure of how much of its assets are financed by shareholders rather than creditors — has dropped to 8.9 percent from 24.2 percent before March 2011. Kyushu Electric’s ratio has more than halved to 11.5 percent. The average ratio of Japan’s top companies is 43 percent, Finance Ministry data show.
Hokkaido Electric, Kyushu Electric, Kansai Electric Power Co. — the second-biggest utility after Tepco — and Shikoku were the most reliant on nuclear power before the Fukushima disaster.
All of them forecast a third year of losses for the 12 months to March 31.
The two reactors at Kyushu Electric’s Sendai nuclear plant are on the fast track for restarting, and are likely to be the first to come back online.
The utilities are also likely to have large, but still uncertain, decommissioning costs as many idled reactors are unlikely to pass strict new standards, a Reuters analysis has shown. Of the 48 reactors, 17 are unlikely to be restarted, and as many as 34 may have to be mothballed.
Utilities are required to set aside reserves for future decommissioning costs, but have an industrywide shortfall of about $11 billion if all the reactors remain offline, according to trade ministry estimates.
“Given Japan’s government finances are mainly paid for by debt, bailing out the utilities means they’re passing on the cost to future generations, which are declining in numbers,” said Gerhard Fasol, the founder of Eurotechnology Japan, a Tokyo-based consultancy on energy and technology issues.
“Speeding up the pace of liberalization might help by reducing costs. But this is unlikely to happen, given the pace of change in the electricity industry is generally slow.”