Industrial heartland faces possible energy crunch

Loss of coal-fired plant in Kyushu leaves safety margin razor-thin amid lack of nuclear power

by Jacob Adelman

Bloomberg

The industrial heartland in western Japan is facing the prospect of electricity shortages over the summer in the absence of nuclear power.

Electric Power Development Co., better known as J-Power, said Thursday it won’t be able to fully restore a 1,000-megawatt coal-burning generator in Nagasaki Prefecture until June 2015. The unit at its Matsuura plant, which serves western Japan, has been offline since March 28, when it was damaged by an accident during an inspection.

A power crunch could hit while Japan is completely without nuclear energy over the peak summer season for the first time in more than four decades, a legacy of the Fukushima disaster of 2011. The nation is working on a thin margin of reserves and the fear is that another plant failure could leave companies and homes without enough electricity.

Absent power from the unit at J-Power’s Matsuura plant, the region with Panasonic Corp., Toyota Motor Corp. and Nissan Motor Co. factories will barely meet minimum levels required by the government to assure a stable supply, according to projections by the Ministry of Economy, Trade and Industry.

The projections assume the Matsuura unit will remain offline through the summer. METI expects the peak-use period to last from July through September.

“The biggest risk is the failure of an additional thermal power plant,” Akihiro Matsuta, assistant director of METI’s electricity infrastructure division, said in an interview Tuesday. “If one additional power plant fails, the supply-demand balance will be largely affected.”

The risk is exacerbated by the nation’s quirky incompatibility between the eastern and western power grids, which carry electricity at different frequencies.

To lift western Japan’s cushion for protection from blackouts — it’s reserve margin — above the minimum of 3 percent excess capacity, the region will draw power from the east over a network of frequency converters operating at a level seldom reached during normal operations, Matsuta said.

The converted electricity, which will be supplied by Tokyo Electric Power Co., will lift western Japan’s reserve margin from 2.7 percent to 3.4 percent.

In Kansai Electric Power Co.’s service area, which includes the headquarters of Panasonic and Sharp Corp. and a region that accounts for about a fifth of Japan’s economy, the influx of power from east to west will bring the reserve margin from 1.8 percent to 3 percent. Kyushu Electric Power Co. will go from a margin of 1.3 percent to 3 percent.

Before the debacle at Tepco’s Fukushima No. 1 nuclear plant, the country’s utilities regularly kept their margins above 10 percent, Matsuta said. Prior to 2011, nuclear accounted for more than a quarter of the nation’s electricity.

The nine power utilities serving the four main islands were told May 16 to complete emergency inspections of their power plants by the end of June and advise the ministry of the results, the first time they’ve been ordered to deliver such reports, Matsuta said.

METI is offering fuel subsidies to industrial and commercial users that have on-site thermal plants so that they draw less power from the regional grid. It’s also encouraging utilities to negotiate contracts with big power users that offer summertime discounts in exchange for a promise to cut back on power use if asked due to shortages.

The voluntary measures are aimed at avoiding the supply cuts that the government forced utilities to impose in summer 2011, when the country lost power capacity due to earthquake damage to thermal plants.

Companies were forced to take extraordinary measures, such as moving manufacturing shifts to weekends when electricity demand is lowest, which required increased payouts to workers that hurt earnings.

“That had a huge negative impact on their operations,” said Hiroshi Takahashi, an energy research fellow at Fujitsu Research Institute. “No one wants to do that again.”

Panasonic spokeswoman Chieko Gyobu said her company expects the government to avoid setting energy policies that would hurt business.

“Mandatory power use caps may have a great impact on production activity,” said Gyobu, adding that the company has been using energy-saving equipment and temperature controls to cut electricity use.

Nissan spokeswoman Noriko Yoneyama said her company doesn’t have any special summer energy-saving plans beyond its year-round measures such as switching off lights when employees leave for lunch breaks and controlling air conditioner use.

The company doesn’t plan to sign any power supply contracts that would oblige it to cut electricity use and won’t be taking up the government subsidy to fuel its on-site generator, which is reserved for emergencies, she said.

Toyota has continued to take steps toward reducing power consumption, such as switching to more energy-efficient equipment, spokesman Dion Corbett said.

Toyota’s Kyushu plant has an on-site generator that can supply up to half of the facility’s electricity needs, he said.

Sharp is also limiting use of air conditioners and lighting, and encouraging staff to wear short-sleeved shirts and other comfortable clothes as part of the government-led Cool Biz campaign, according to spokeswoman Miyuki Nakayama.

Although companies during the last two summers avoided having to take the drastic steps of 2011, this will be Japan’s first summer with no nuclear plants online.

All 48 functioning reactors were shuttered due to damage or safety checks after the Fukushima disaster as of May 2012, but two units at Kansai Electric’s Oi plant were permitted to resume that July. Those units closed again for maintenance in September 2013, after most of that year’s peak summer demand period had passed. The country has been without nuclear power since then.

Utilities have applied to restart some reactors, and while the government supports the use of nuclear power, no timetable has been set for its resumption.

Fujitsu Research’s Takahashi said the 3 percent reserve margin should be sufficient to ward off any severe shortages.

Still, he said, “no one can guarantee 100 percent that there’s going to be no problem.”