Recently, Jenny Corbett, Executive Director of the Australia-Japan Research School at ANU, sat down with Tatsuo Hatta, Professor Emeritus at Osaka University and a former President of the Japanese Economic Association. At the time of the interview, Professor Hatta was a Visiting Fellow at ANU’s Research School of Asia and the Pacific.
On behalf of The Conversation, Professor Corbett asked how Japan is powering its economy since March’s Fukushima disaster shut down much of the country’s nuclear power. Their edited conversation appears below.
Professor Corbett: Let’s start with the question about the effect of the disasters in March and particularly the impact on the Fukushima Nuclear power plant. Can you explain for us how important nuclear power was before Fukushima and to what extent nuclear power has been reduced?
Tatsuo Hatta: The total supply capacity of Tepco before March 11 was 63 million kilowatts. Of that, approximately 20% of the supply capacity was lost immediately after the earthquake. About half of that was loss of nuclear and the other half was thermal.
Fukushima Daichi itself had accidents. Daini, which is the neighbouring plant compound, didn’t have a serious accident, but you can’t use it because that area’s contaminated. The total loss is quite high: 28 to 30% altogether. It’s fairly serious.
So 63 kilowatts was the total supply capacity. In 2010 the maximum use of electricity in the Tepco area was 60 million kilowatts at the peak time. With this very large loss, you just can’t cope with the [power demand in] summer. Of course, Tepco was able to recover many of its thermal plants and import electricity from other areas. And they built many, many new gas turbine plants.
Corbett: So what kinds of measures were used to cope with the power shortage?
Hatta: Immediately after the earthquake Tepco introduced rolling blackouts; planned blackouts for less than one month. Every day Tepco announced which districts would be subject to blackouts. That caused great inconvenience and it was extremely unpopular because it stopped even trains and hospitals; hospitals of course couldn’t have operations during that time. There are still debates now if that type of large scale rolling blackout was necessary. Tepco tried to be very cautious because unplanned blackouts can spread very widely.
The other major step was taken in summer. That was the consumption limitation order applied from July 1st to September 22nd. Each buyer of electricity in the Tepco area whose consumption capacity is greater than 500 megawatts had to cut their consumption by 15% compared with the previous year. There were some exceptions allowed to hospitals and industries which couldn’t cut consumption. But by and large most companies followed that order.
Other than their official measures, the consumers and the factories in general were encouraged to make conservations through all sorts of means. I think people voluntarily cooperated with that request. The especially important thing was to keep the temperature of air conditioning high during the summer and I think people kind of endured.
Corbett: Do you have a sense of how much that actually reduced demand this year compared with a normal year?
Hatta: At least 15% during the very peak because there was an order. But even households which were not obligated to reduce consumption did reduce consumption quite a bit.
Corbett: And what about next year? How many measures are likely to be used again in a normal year at the peak usage time in the summer?
Hatta: Well, that’s a good question. You know this year was a special year, so this limitation order was probably something that people felt inevitable. But, I think the root of the matter is that in the Japanese electric supply system practically no price mechanism is installed. So at the time of extreme electricity shortage,the price of electricity doesn’t go up.
Buyers are not given any price incentive to cut consumption except for moral suasion. Factories which have their own generators, if they are given some price incentives, will try to cut their use and then sell the residual amount outside, but no such price incentives are given. One of the very important measures we could take is to introduce price mechanisms quickly before next summer.
Second thing is gas turbine generators can be set up very quickly and we should be prepared with new investments in gas generators. One serious barrier to that is the environmental regulations; it’s very reasonable to have environmental regulations on the noise and pollution that gas generators emit. But I think one of the reasons why it takes years for a permit to be granted is concern about rare birds. At this time probably those type of regulations should be eased in favour of the prevention of blackouts.
Corbett: What about coal? In the short term is there going to be an increase in the use of coal-fired plants?
Hatta: Well, we do have many coal plants and some of them are not effectively used, but if the price goes up they may start. I think Japan is at the forefront of developing technologies to use coal in generators in a very energy efficient way, to emit the minimum CO₂. Those applications may be possible, but my understanding is that the gas turbines are much quicker to install.
Corbett: And what about other alternative forms of energy, like thermal and wind? What proportion do they provide and how much can be they expanded?
Hatta: The proportion of wind and sunlight is very limited compared with Europe. I think there are two reasons for it. One is that Europe’s electricity network is very big, so they can offset small fluctuations in frequencies. The Japanese network is much smaller, and the west and east parts of Japan have different frequencies. So they’re not really integrated.
Second is that electricity utilities are regional monopolies with both transmission and power generators. They tend to have very strict rules on any new entrants, particularly to renewable resources. So for these reasons the rate is very small. But there are arguments that in order to substitute for the lack of nuclear energy we should promote renewables.
Corbett: How much impact does this have on Japan’s imports of energy resources?
Hatta: We import most of our oil, and gas also. We produce a little bit in Niigata but it’s minimal. Of course we import uranium too, and uranium is relatively cheap compared with other imported energies so having nuclear is useful for energy security. Arguments are made that we should develop other natural resources particularly in Japan because of energy security.
Somewhat unexpectedly, our biggest constraint on the Japanese energy supply now is the shortage of energy ships. They are already being made full use of now, to import natural gas. So there is a capacity constraint from shipping. Natural gases are now very cheap: American natural gas prices are roughly a third of the price we have in Japan, mainly due to shale gas development. There are some environmental concerns, but shale gas is now found almost everywhere in the world, except Japan.
Most of the LNG in Japan is imported under long term contract and so the price is fixed. In order to increase the share of LNG gas for electricity, new plants would have to be constructed in the United States to liquify the gas and export it to Japan. These processes take time. So I think in the long run there’s a clear direction that we will depend more heavily on natural gas.
Corbett: What about Japan’s emission reduction targets? How are these likely to be affected by the shift from nuclear?
Hatta: Yes, well, it will be affected. In the Kyoto protocol the target for Japan was 10% reduction of emissions in 1990. Prime Minister Hatoyama made an international promise that we will increase that number to 25% if other governments also cooperate. The Ministry of Economy, Trade and Industry had to follow that up. In 2010 they formulated the new energy policy and showed the way we can cut our CO₂ consumption by 25%. The centrepiece of that was construction of nine more nuclear generators. And now that plan is scrapped.
Now a committee is formulated to draft a new version of it. I think the possibility is that the shift from coal and oil to gas, which is very effective in reducing CO₂ emissions, and maybe ways to cut peak demand in electricity will be part of it. At the peak we tend to use things like coal, with a very high CO₂ content.
Many people argue that we have to subsidise renewable generators. We have a very nominal CO₂ tax, but probably improving that is essentially important. The other important thing is to cooperate with foreign countries to reduce CO₂ emissions in other countries. For example, Japan’s emissions are 4% of global emissions while China, with the same GDP as us, produces 20% of CO₂ in the world. We are already quite efficient in our energy use.
If you’re going to use the same amount of money in reducing CO₂, to do it in Japan can be very expensive. We have all those sort of technologies already developed. So I think we should help the emerging countries in cutting their emissions. And I think the Japanese government should re-orient itself to do more effective work in foreign countries.
Corbett: Your view though is that the proportion of Japan’s energy coming from nuclear is likely to be much lower in the future.
Hatta: There are two types of argument. One is whether it’s feasible to increase nuclear plants. I really don’t think it’s feasible because the local communities near nuclear plants would not agree to re-open the plants. Not only the local communities where plants are located but all the surrounding communities have seen that they will be affected too. So this is, politically, very difficult.
Another more important thing is that it’s very likely that producing nuclear energy in Japan is far more expensive than was previously thought, especially because we are an earthquake-ridden country. The consumers of nuclear power have not been paying the insurance fees that the government provides for the compensation of this sort of accident.
And also we don’t know where to dispose of the used fuels. Nobody knows. The government should have made it very clear that they would take full responsibility for disposal in return for payment by the nuclear energy companies for this disposal service. If that fair price is computed it could be quite high. So far, partly due to the political pressure from the nuclear energy industry, they were able to disguise the true costs, but that’s not feasible anymore. So in those two ways I don’t think nuclear has much future in Japan.
Corbett: What other changes should there be in policies towards the energy industry in Japan?
Hatta: I already mentioned that we don’t have an effective price mechanism to control the quantity demanded at times of electricity shortage. And also, as everybody knows, we had a serious nuclear accident partly due to the lax regulation of nuclear plants. I think both of them come from the same root.
In most countries, other than Japan and some parts of the US, transmitters and generators are separate business organisations. And scale economies exist in transmission, not in power plants. So as far as power plants are concerned, the competitive market should be maintained. Certainly, a price mechanism would have worked at the time of shortage.
Also, if that type of competition is introduced, the nuclear plant is one of those generators that would be competing against other types of commercial power plants. Any government subsidies to them would have to be scrutinised; the rationale has to be examined. But so far the alleged cheapness of nuclear plants has been used as a kind of deterrent fo the new competitors to come in.
The problems we have can be solved by creating a very competitive electricity market. In order to do that, we must face the very politically difficult task of splitting transmission and power generation. It has to be done. It’s a very important reform that must take place after this earthquake.
Corbett: Those types of policies are a form of deregulation of the market, and I wonder if there are other kinds of additional regulations that should be put in place.
Hatta: Even now, on paper, the power plants are supposed to be competitive. But to ensure that, the government has to regulate the transmission part of the activities so that they will be really fair. The problem is two-fold. Even if transmission and the plants are separated, we have to have very strong regulatory agencies to ensure fair competition.
But before we reach that stage, those utilities have intrinsic desire to set up barriers for new entry, so regulatory agencies have to be even stronger than normal, and we don’t have any. I think deregulation implies that we have to have a very strong regulatory agency.