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The government’s push to shutter old coal-fired power plants by 2030 to rein in greenhouse gas emissions may force a major revision in business strategy for the power industry by depriving it of cheap coal power to drive profit growth.

Minister of Economy, Trade and Industry Hiroshi Kajiyama announced earlier this month that the government is phasing out coal plants that aren’t using the best available technology — ultrasupercritical (USC) or integrated gasification combined cycle (IGCC) — by 2030 as part of its goal of reigning in carbon emissions and raising Japan’s use of renewable energy.

Among the nation’s power plants, there are about 140 coal-fired units and about 100 of the older ones are likely to be decommissioned. This policy is therefore expected to have a larger impact on small utilities that are more reliant on fossil fuels to stay afloat.

Experts say a halt of some 100 older coal-fired power plants may result in higher electricity prices for consumers. | BLOOMBERG
Experts say a halt of some 100 older coal-fired power plants may result in higher electricity prices for consumers. | BLOOMBERG

The move may also raise electricity bills, said Reiji Ogino, senior analyst at Mitsubishi UFJ Morgan Stanley Securities.

“This could have a big impact on the utilities’ earnings, as replacing cheap coal power with gas would raise costs for power generation,” he said. “If the government creates a scheme similar to the feed-in-tariff for renewables, where the utilities would be able to pass on additional power generation costs to consumers, then the impact for them would be zero. But without such a scheme, the impact to their earnings would likely be significant.”

Amid concerns about the safety of atomic power since the triple core meltdown at the Fukushima No. 1 power plant in 2011, utilities have been scrambling to offset the loss of nuclear energy, which accounted for roughly a third of Japan’s power. To fill the void, utilities have generally been running coal plants at full capacity for cost competitiveness while using gas-fired units on the side. In fiscal 2019, coal accounted for a third of all the electricity generated nationwide.

Ogino said the government’s policy will have the biggest impact on Japan’s biggest user of coal power — Electric Power Development Co., better known as J-Power. Most of J-Power’s fossil fuel units burn coal, and the power generated by inefficient, older units accounts for 36.8 percent of its output, according to METI.

J-Power spokesman Fumito Kumagai said the utility is standing firm, for now.

“We have no plans to shift to gas power based on this government policy,” Kumagai said, emphasizing that coal power is necessary for ensuring stable power supply.

The impact of the government policy for phasing out older coal units is seen as being less severe for major utilities. | BLOOMBERG
The impact of the government policy for phasing out older coal units is seen as being less severe for major utilities. | BLOOMBERG

The move will also affect Hokuriku Electric, which is known for having the cheapest electricity of all major utilities. Hokuriku Electric relies heavily on coal for roughly half of its output. The utility, based in Toyama, on the Sea of Japan coast, has six coal-fired units, half of which are the older type targeted by the government’s phaseout policy.

Hokuriku Electric will scrap one of the three older units in 2024 but has no plans to build new ones, a spokeswoman said. Since it is unable to restart its sole nuclear plant in Shika, Ishikawa Prefecture, the utility said it is worried how the coal policy will affect its business.

“While curbing carbon dioxide emissions is an agenda that needs to be addressed, we consider coal an important base-load power, and its stable operations are necessary,” a spokeswoman said.

The phaseout policy is expected to have a less severe impact on the major utilities.

Kansai Electric Power Co. uses modern coal units, while Jera — Japan’s biggest utility and new owner of the power plants run by parent firms Tokyo Electric Power Co. and Chubu Electric Power Co. — only relies on inefficient power for 7.4 percent of its output, the second-lowest after Kansai Electric. Jera is also building state-of-the-art coal units.

“Because Japan is a resource-poor country, we need to have a certain share of coal power in the energy mix,” Jera President Satoshi Onoda said at a news conference last week. “I fully back the government in making a transition to low carbon to address global warming issues. To curb carbon dioxide emissions, we should be looking at scrapping coal units that are not utilizing the latest USC technology.”

A METI panel kicked off talks Monday on the phaseout policy and is likely to come up with detailed proposals by year’s end. The government is expected to make exceptions for older coal plants in Hokkaido and Okinawa, due to the limited availability of alternatives and grid limitations in acquiring backup electricity from neighboring islands.

Fresh on the experts’ minds is the September 2018 Hokkaido blackout, which was triggered when an earthquake maxing out at 7 on the Japanese seismic intensity scale shut down a critical coal plant run by Hokkaido Electric Power Co., plunging the entire prefecture into darkness.

Hokkaido Electric Power Co. and Okinawa Electric, which do not share a power grid with neighboring Kyushu, rely on inefficient coal for 38.8 percent and 55.1 percent of their power, respectively.

Despite the government’s plan, it’s likely coal-fired plants will still account for a large portion of their power beyond 2030 as efficient units are allowed to stay in operation.

According to a analysis last week by Kiko Network, the phaseout will mothball coal units equivalent to 20 nuclear reactors by 2030 in terms of output capacity, but leave coal accounting for 24 percent to 27 percent of Japan’s 2030 energy mix, down from 32 percent. The activist group is calling on the government to phase coal out completely by 2030, impose regulations on new coal units, and draft a plan for a staged but quick phaseout by 2030.

“The government policy means that more than 70 percent of current coal plant capacity, or 35 gigawatts, would continue operations beyond 2030,” Takako Momoi, director of Kiko Network’s Tokyo office, said. “As part of goals for limiting global warming to 1.5 degrees Celsius under the Paris Agreement, advanced nations need to phase out coal power by 2030 at least.”

Experts say advanced coal technology still emits around 650 grams of carbon dioxide per 1 kilowatt-hour, compared with around 900 g for older coal units, and is nearly twice that of gas-fired units. | BLOOMBERG
Experts say advanced coal technology still emits around 650 grams of carbon dioxide per 1 kilowatt-hour, compared with around 900 g for older coal units, and is nearly twice that of gas-fired units. | BLOOMBERG

Even the most advanced coal-energy technology, IGCC, still emits around 650 grams of carbon dioxide per 1 kilowatt-hour, she said. This compares with around 900 g for older coal units, and is nearly twice that produced by gas-fired units.

Hurdles are also likely to impede the construction of modern coal plants as the fossil fuel faces stiff headwinds at home and abroad. The nation’s top banks have already decided to stop financing new coal power projects as Japan is the only member of the Group of Seven with new coal plants in the pipeline.

“Germany has an energy self-sufficiency of about 30 percent, the lowest in the European Union, versus only 6 percent in Japan even with nuclear power included,” Ogino said. “Because of the difference, Japan should not drop the coal option as a matter of national interest. But I don’t think Japan would be able to approve the construction of highly efficient USC and IGCC coal units five years from now at a time when the EU is debating how they can halt gas-fired power on top of coal.”

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