Kyushu’s nuclear restart is not enough – A perfect storm?

Kyushu’s nuclear restart is not enough – A perfect storm? – Moodys Japan K.K.

“The current tariff, implemented in May last year, is based on four of the company’s nuclear power plants being operational – so even if two reactors are restarted Kyushu will still not be able to return to profitability,” Kazusada Hirose, vice president of Moody’s Japan K.K., told Interfax.

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“On the expenditure side, ordinary expenses increased by 2.5% to ¥1,938.1 billion, affected by […] performances in [the] electricity business as thermal fuel costs increased due to the influence of a weaker yen and costs for power purchases from renewable energy sources increased,” Kyushu said in its FY 2014 results.

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Image source ; http://online.wsj.com/articles/safety-clearance-for-japan-reactors-wont-guarantee-restarts-1405340244

By James Byrne
Posted 15 July 2014

http://interfaxenergy.com/gasdaily/article/11395/kyushus-nuclear-restart-is-not-enough

Restarts at two shuttered nuclear reactors will not be enough to return Japan’s Kyushu Electric to profitability, Moody’s Japan warned on Tuesday in a stark reminder of the difficulties still facing the country’s beleaguered power providers more than three years after the Fukushima crisis.

“The current tariff, implemented in May last year, is based on four of the company’s nuclear power plants being operational – so even if two reactors are restarted Kyushu will still not be able to return to profitability,” Kazusada Hirose, vice president of Moody’s Japan K.K., told Interfax.

“The company’s financial situation is not sustainable on two reactors, and it will have to raise electricity rates again, which the government may be unwilling to do,” said Hirose.

Moody’s warning came one day before the Nuclear Regulation Authority (NRA) was expected to release a draft report on whether the company’s two reactors at Sendai are safe to restart.

The NRA said on Monday it would issue a draft assessment on whether the Sendai reactors had passed updated safety regulations, which were revised in the wake of the Fukushima disaster. The assessment would then be open for public comment for a month before further on-site NRA checks.

“Kyushu Electric’s two Sendai reactors are at the front of the line in terms of inspections. However, since this is the first time reactors would be brought back online, the restart procedure is still uncertain and it remains unclear where the ultimate authority to clear shuttered plants lies,” said Hirose.

Even with central government support, however, Japan’s power providers must secure approval from local communities, many of which have remained staunchly opposed to restarts because of safety concerns.

Earlier in the summer, protestors surrounded government offices in Kagoshima prefecture, the home of the Sendai plant, calling for the reactors to be permanently shut down. During the protest, prefectural officials were handed a petition opposing the restarts signed by around 120,000 people, according to local media. Meanwhile, a March poll by national broadcaster NHK showed 44% of people still believe the country’s nuclear fleet should be permanently shut down.

Deteriorating finances

While the NRA has been inspecting the Sendai plant, Kyushu’s finances have been slowly deteriorating, leading the company to seek a $970 million bail-out from the state-owned Development Bank of Japan (DBJ) earlier in the year.

The bail-out, structured as an issue of preferred stock to the DBJ, functions as a bond with a fixed dividend paid to the state-owned bank, meaning repayments to the state take precedence over investors.

Repeatedly denied dividends because of the company’s dire financial performance, the decision riled private investors, who have repeatedly called for rate hikes to return the company to profitability.

Kyushu posted a ¥96 billion ($950 million) loss for the financial year ending March 2014, down from a ¥338 billion loss in the previous financial year. Meanwhile, the company’s liabilities have continued to climb, reaching close to ¥4.1 trillion by the end of March. Before the crisis, Kyushu booked a ¥42 billion profit for the financial year ending in March 2010, with liabilities standing at just under ¥3 trillion.

“On the expenditure side, ordinary expenses increased by 2.5% to ¥1,938.1 billion, affected by […] performances in [the] electricity business as thermal fuel costs increased due to the influence of a weaker yen and costs for power purchases from renewable energy sources increased,” Kyushu said in its FY 2014 results.

Kyushu’s LNG consumption mushroomed in the wake of the Fukushima crisis, rising by close to 55% in 2011. Since then, LNG burn has climbed by 8.5% each year, with Kyushu importing 4.9 mt in 2013 compared with 2.4 mt before the crisis in 2009. Kyushu has two LNG-fired units with a total capacity of approximately 4.1 GW.

Expensive oil-fired generation also spiked as the utility’s oil-fired plants in Sendai and Buzen, normally used as peak shavers, became baseload generators. Kyushu’s heavy oil consumption was up by 1,600% in 2013 over pre-crisis levels, while crude oil burn was up 790%.

Climbing summer temperatures are likely to cause further pain for Kyushu as the company awaits preliminary NRA approval. Japanese LNG imports for power generation were up by 13% across the country in June, according to data released by the Federation of Electric Power companies on Monday.