A new system being considered by the government to guarantee a certain price for electricity generated by nuclear power — even after the retail sale of power is deregulated — would amount to the subsidization of nuclear energy by consumers.
It contradicts not only what the government has long touted as the cost advantage of nuclear power over other energy sources but also the government’s pledge in the basic energy plan to reduce as much as possible the nation’s dependence on nuclear power to meet its energy needs.
During a meeting of experts to discuss nuclear energy issues last month, the Ministry of Economy, Trade and Industry proposed creating a new system in which the government and power companies set a standard price on electricity produced by nuclear power plants that reflects the total expenses of power generation, including the costs of future decommissionings of plants and the disposal of spent nuclear fuel.
If the market price of electricity falls below the standard, power companies will be allowed to close the gap by increasing utility charges to consumers. If the market price exceeds the standard, the power firms will repay the margin back to consumers. This mechanism ensures that the power companies will not incur losses from nuclear power generation no matter how much it costs.
Under Japan’s regional electricity monopoly business model, power companies have set utility charges on households — as authorized by the government — on the basis of the total cost involved in the generation and transmission of power plus their profit margin. This system is to be phased out after the regional monopoly is ended in 2016, and it is hoped the deregulation will push down electricity prices as competing new players enter the market.
The major power firms have complained to the government that decontrol of prices could make it difficult for them to recoup the cost of their investments in nuclear power generation through utility charges.
In the METI’s latest proposal, the government effectively acknowledges that nuclear energy will no longer be an economically competitive source of power when power industry deregulation moves forward.
Even under the regional monopoly, it has long been said that the delivery of nuclear power — despite its supposed advantage over thermal power in terms of fuel and other operational costs — is more expensive when all costs are counted, including the cost of future decommissionings of reactors, disposal of spent fuel, as well as government grants distributed to host municipalities.
The cost of safety steps at nuclear power plants substantially increased under the new standards updated in the wake of the 2011 meltdowns at Tokyo Electric Power Co.’s Fukushima No. 1 plant. It has prompted some power firms to consider decommissioning their aging nuclear power reactors, and the government is reportedly weighing introduction of a new accounting system to ease the impact of the decommissioning cost on their finances.
The government’s first Basic Energy Plan since the 2011 nuclear disaster, adopted in April, calls nuclear power an important base load energy source for Japan. Meanwhile, the Abe administration is pushing to reactivate nuclear power reactors — all of which currently remain idle because of safety concerns following the Fukushima disaster — once they have cleared the Nuclear Regulation Authority’s screening under the updated safety standards.
But the energy plan also obliges the government to try to reduce the nation’s dependence on nuclear energy as much as possible through energy-saving efforts and the introduction of renewable energy sources.
The proposed system apparently would run counter to this goal by enabling the power companies to circumvent the cost problem in running nuclear power plants — and possibly in building new reactors — under the competitive environment envisioned after industry deregulation.
If the government accepts the premise that nuclear power may no longer be economically competitive, it needs to explain to consumers why they would end up paying the added costs of maintaining such an energy source.