Japan Energy Policy Likely to Change Course

From Wall Street Journal

By Mitsuru Obe

Japan’s coming general election is likely to upend not just the government of Prime Minister Yoshihiko Noda, but the country’s energy policies as well.

The Liberal Democratic Party, which major opinion polls suggest will emerge victorious in the first election following the March 2011 nuclear meltdowns, is historically more pro-business and pronuclear than Mr. Noda and his Democratic Party of Japan. It is expected to take a much more positive view of atomic energy and be more supportive of the nation’s embattled utilities than the current administration.

The LDP’s platform proposes a three-year period in which to decide which of the country’s 48 offline reactors are safe enough to restart—a controversial issue that has been stalled since last year’s massive earthquake and tsunami sparked one of the world’s worst nuclear accidents and turned most of Japan against atomic power. While the DPJ has said it favors turning all reactors off by 2040, the LDP, led by Shinzo Abe, is merely saying it would like to create a society that doesn’t depend on nuclear energy.

Another potential flash point is the Nuclear Regulation Authority, which was set up in September by the DPJ after the old one was slammed for being lax in the wake of the 2011 nuclear accident. Critics say that the regulator wields too much power over restart decisions, and favor changing the half-year-old law governing it to give more authority to the government, so it could decide on reactor restarts itself.

To be sure, with another general election—for the upper house of parliament—coming up next summer, the LDP is moving with caution. They don’t want to appear too eager for nuclear power until the upper house election is over, experts and government officials say.

The main issues a new administration would have to tackle are whether and how to restart the halted reactors, how to support Japan’s struggling utilities and what the role of renewable energy should be.

If the LDP comes into power, the first thing to come under review may be its three-year grace for restarts.

For the business community, the issue of restarts is an urgent one that cannot wait for three years as proposed by the LDP. The loss of nuclear power has forced utilities to rely on expensive fossil fuels, causing all major utilities to suffer big losses in the last fiscal year.

For one, Tokyo Electric Power Co., 9501.TO +2.17% the operator of the stricken Fukushima Daiichi nuclear power plant, is supposed to restart in April its only undamaged nuclear plant, as part of a bailout deal struck with the government and creditor banks. If the restart fails to happen, the whole rescue package could unravel, they warn.

Also coming up on the agenda soon is what to do with a nuclear plant in Tsuruga, western Japan, operated by Japan Atomic Power Co. The plant’s No. 2 reactor is sitting atop geological faults, and an expert panel of the Nuclear Regulation Authority on Thursday concluded that one of them is likely an active one. The regulator will discuss the panel’s findings and is expected to make a final judgment early next year.

The Tsuruga plant is one of the two owned by Japan Atomic Power. If the plant’s Unit 2 is considered at risk of a direct hit by an earthquake, it would have to be shut down, even though the unit is only halfway through its 40-year service life, causing a big loss to the operator.

Japan Atomic Power may be a relatively small player, but if its trouble spurs speculation that other utilities dependent on nuclear power—such as Kansai Electric Power Co. 9503.TO +0.94% — might also face a similar fate, credit worries could spread to these companies as well, said Mana Nakazora, head of credit research at BNP Paribas BNP.FR -0.16% in Tokyo.

New safety standards the regulator is set to draw up by July are another source of uncertainty for the industry.

The new standards are expected to include backfit provisions requiring all existing plants to meet the latest safety standards. Some government officials worry that the agency would set safety standards that are too onerous for utilities to follow.

Another bone of contention for the industry is the development of renewable energy, a cause championed by former Prime Minister Naoto Kan, who legislated a feed-in-tariff system last year to kick-start the renewable energy industry.

But skepticism abounds within the LDP, indicating a possible rollback of the renewable energy program.

“The DPJ government has never elaborated on how to transition to renewable energy from nuclear power,” said Hirofumi Nakasone, the leader of the LDP’s upper house caucus.

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