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Cost of pulling plug on reactors

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In its latest discussions on electricity market reform, the Ministry of Economy, Trade and Industry is reportedly considering a measure to financially help major power companies with decommissioning their nuclear plants. METI is reportedly weighing having new entrants to the liberalized power retail market shoulder part of the decommissioning cost, which would be added to the electricity bills of their customers. That would be nothing less than welfare for the major suppliers that are seeing nuclear power lose its cost advantages in the face of power retail deregulation since April. The government should avoid policies that could distort the principles of electricity business liberalization.

In its discussions launched in late September, the ministry says the committee will weigh establishing a system that would have power suppliers respond to “issues of public interest,” such as investments to prepare for decommissioning nuclear plants and severe nuclear accidents amid market liberalization. That sounds like a legitimate question to consider, but the measures contemplated by the ministry pose many problems.

One is a change to the accounting system for decommissioning nuclear power plants. Tokyo Electric Power faces massive financial problems in dealing with its Fukushima No. 1 plant, which suffered triple meltdowns after it was hit by the March 2011 Great East Japan Earthquake and tsunami. The cost to decommission the crippled plant is certain to far exceed the estimated ¥2 trillion — in fact it is impossible to grasp the total cost at this stage since the technology to remove molten nuclear fuel from its reactors has not yet been established. Compensation for victims of the nuclear disaster, which was estimated in 2014 at ¥4.9 trillion, has already topped ¥6 trillion. The cost to decontaminate areas polluted with radioactive fallout from the plant is likely to top ¥2.5 trillion in the government’s plan.

Even in the absence of a major disaster like the Fukushima catastrophe, the major utilities operating nuclear power plants face a shortage in financial reserves to pay for decommissioning as they needed to scrap the plants earlier than scheduled in response to the tightened plant regulations following the Fukushima disaster, along with the overshooting of the cost of decommissioning from earlier forecasts. Besides Tokyo Electric, five major power firms have made decisions to decommission six of their reactors — one each for Kyushu Electric, Chugoku Electric, Shikoku Electric and Japan Atomic Power and two for Kansai Electric.

To cover the bloated expenses of decommissioning, the ministry is thinking of having all electricity suppliers — including new entrants to the market that do not run nuclear power plants — share the cost in the form of surcharges to the fees that they pay for accessing power transmission lines to service their customers. The cost will then be added to customers’ electricity bills.

Under the current system, the major suppliers operating nuclear power plants can include the cost of decommissioning them in the future — along with all other expenses in their power generation — in their electricity charges. But that system will be abolished in 2020, when their power transmission and distribution sections are to be separated from the power generation operations in the final phase of the reform. The idea of having all suppliers — and consequently all consumers — pay for the cost of decommissioning nuclear plants is intended to cope with this change. However, such a measure will blur the responsibility of major power companies that have relied heavily on nuclear power generation and miscalculated the related costs.

That will also have the effect of denying consumers the right to refuse to pay for electricity generated by nuclear power. The retail market liberalization in April enabled consumers to choose power suppliers, instead of being tied to regional monopolies. Some suppliers offer electricity mainly generated by renewable sources such as solar and wind. But applying the surcharge to all suppliers will result in forcing all consumers — including those who may not want to buy electricity from the former monopolies that run nuclear plants — to shoulder the cost of decommissioning.

The ministry’s committee is also reportedly weighing a scheme to enable suppliers that operate large-scale thermal power plants to receive a certain amount of revenue for keeping the plants even without running them — based on their power-generation capacity. The idea represents another relief measure for major power companies whose thermal power plants saw their operating ratio fall with the sharp rise in renewable sources in recent years. The scheme is touted as necessary to maintain thermal power capacity as a buffer in case the supply from renewable sources decreases. But experience in other countries indicates that such a mechanism is not essential to managing possible fluctuations in the supply of renewable energy.

The government has long based its energy policy on the argument that nuclear power is cheaper than most other forms of power generation. But the fact that it is seeking to introduce a relief measure for major suppliers that run nuclear plants indicates that argument is no longer tenable. The government needs to reflect on the real meaning of the measures it is contemplating.

http://www.japantimes.co.jp/opinion/2016/10/15/editorials/cost-pulling-plug-reactors/#.WAJK0yQzYU0

October 15, 2016 Posted by | Japan | , | Leave a comment

Federation estimates Fukushima nuke plant cleanup costs, redress may rise to ¥8 trillion ($77.10 billion)

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An industry group has estimated costs for decontamination work at the disaster-struck Fukushima nuclear plant and compensation for nuclear damage to be around ¥8 trillion ($77.10 billion) more than the current official projection, a source said Thursday.

The Federation of Electric Power Companies of Japan, which consists of the country’s 10 electric power companies, has informally asked Prime Minister Shinzo Abe’s government to use state funds to cover the extra costs, the source also said.

The costs are supposed to be covered by the utilities, including Tokyo Electric Power Company Holdings Inc., operator of the crippled Fukushima No. 1 nuclear power plant, where three reactors melted down in the aftermath of the March 2011 quake-tsunami disaster. The government is cautious about using taxpayer money to deal with the issue, the source said.

Under the current estimate, compensation payments are projected to total ¥5.4 trillion, while decontamination costs are forecast to reach ¥2.5 trillion.

Tepco and other nuclear power plant operators have paid contributions for compensation payments to a state-backed fund. As for decontamination costs, the fund will seek to retrieve that money by selling Tepco shares that it owns.

http://www.japantimes.co.jp/news/2016/10/07/business/federation-estimates-fukushima-nuke-plant-cleanup-costs-redress-may-rise-%C2%A58-trillion/#.V_gNhCTKO-c

 

October 7, 2016 Posted by | Fukushima 2016 | , | Leave a comment

Fukushima Cleanup Talks Put Tepco Survival Risk in Focus

Tokyo Electric Power Co. is still struggling to put the Fukushima nuclear disaster behind it, admitting this week that paying for decommissioning the plant in one go risks leaving it insolvent.

The cost to insure debt in Japan’s biggest utility climbed to a seven-month high of 89 basis points on Oct. 5 after President Naomi Hirose said after a meeting in Tokyo with a government commission that the company is asking for help in avoiding financial ruin. Tepco has already received state aid for compensation and decontamination.

The March 2011 nuclear accident and its fallout will ultimately cost more than 11 trillion yen ($106 billion), according to a study by academics including Kenichi Oshima, a professor of economics at Ritsumeikan University. Tepco has estimated that decommissioning alone will cost about 2 trillion yen. Investors should hold off buying bonds of other utilities until there is more clarity on how the government will close the Fukushima plant, according to BNP Paribas SA.

Now is not the best time to be investing in electricity utility bonds, with discussions going on about nuclear plant decommissioning, and the potential for spreads to widen,” said Mana Nakazora, chief credit analyst at BNP Paribas in Tokyo. Even so, she added, “the government has little choice but to take measures to avoid a default by Tokyo Electric.”

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While Prime Minister Shinzo Abe’s government has committed to provide up to 9 trillion yen for compensation to individuals and business hurt by the Fukushima disaster and for decontaminating areas affected, that figure doesn’t include decommissioning of the nuclear plant itself, according to a report by Moody’s Investors Service last month.

Scrapping the Fukushima reactors may take 30 years to 40 years, and Tokyo Electric will only start removing debris from the plant from in 2021, a decade after the incident, according to the utility’s road map for dealing with the remnants of the disaster.

In speaking to reporters, Tepco President Hirose was probably making a public case for more government support, according to Yutaka Ban, the chief credit analyst at SMBC Nikko Securities Inc. in Tokyo. Ban said he saw little probability that support will be withheld.

Things will likely settle down” after the government adopts the new measures, said Ban. “Without government support, the costs would be extremely high.”

For a Bloomberg Intelligence report on Asia-Pacific utilities, click here.

Tepco’s credit-default swaps have come down from as high as 1,762 basis points in October 2011, according to data provider CMA. The utility has said it plans to return to the bond market by the end of the fiscal year to March 2017. Jun Oshima, a spokesman for Tokyo Electric, said that plan is still in place. It stopped issuing notes after the Fukushima disaster.

The extra yield on Tepco’s 1.155 percent bonds due in 2020 was 64 basis points more than sovereign debt, the lowest since before the Fukushima disaster, according to Bloomberg-compiled prices. The spread on Osaka-based Kansai Electric Power Co.’s 0.976 percent notes due in 2020 was 39 basis points.

Tokyo Electric has a Ba3 rating from Moody’s and BB- score from S&P Global Ratings, both three levels below investment grade.

Decommissioning is currently the biggest unknown, and clarity matters in terms of credit,” said Mariko Semetko, a Moody’s analyst in Tokyo. “The lack of clarity there has been holding back the credit quality.”

http://www.bloomberg.com/news/articles/2016-10-06/fukushima-clean-up-talks-put-tepco-survival-risk-back-in-focus

October 7, 2016 Posted by | Fukushima 2016 | , , , | Leave a comment

Tepco Falls After President Highlights Fukushima Cost Risk

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Japan utility declines 3.3% to settle at lowest in two weeks

Company seeks government help to eliminate insolvency risk

Tokyo Electric Power Co. Holdings Inc. closed at the lowest in more than two weeks after its president said it may face insolvency if it recognized at one time the cost of decommissioning the wrecked Fukushima nuclear plant and that it’s asked the government to help eliminate the risk.

Tepco, as the company is better known, fell as much as 7.9 percent during intraday trading and closed 3.3 percent lower at 414 yen a share in Tokyo, the lowest since Sept. 16. The benchmark Topix index rose 0.6 percent.

As it becomes possible to estimate the Fukushima decommissioning cost, we will have the problem of recognizing the liability at once. That means there is a possibility Tepco becomes insolvent,” President Naomi Hirose told reporters in Tokyo Wednesday after meeting with a Ministry of Economy, Trade and Industry commission charged with reforming the company. “We are requesting institutional measures to remove such risk.”

As of June, nearly 1 trillion yen ($9.7 billion) has been allocated to decommissioning and water treatment at Fukushima, Tepco spokesman Tatsuhiro Yamagishi said last month.

The March 2011 nuclear accident and its fallout will ultimately cost more than 11 trillion yen, according to a study by Japanese college professors including Kenichi Oshima, a professor of economics at Ritsumeikan University.

http://www.bloomberg.com/news/articles/2016-10-05/tepco-plummets-after-president-highlights-fukushima-cost-risk

October 5, 2016 Posted by | Fukushima 2016 | , , , | Leave a comment

New Power Firms to Pay Some of the Decommissioning Costs

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New power firms may have to pay some costs for nuke reactor decommissioning

The Economy, Trade and Industry Ministry has begun discussions on a plan to have new smaller electric power companies shoulder part of the costs of decommissioning nuclear reactors, officials said.

This is due to fears that nine major power companies that operate nuclear plants and the Japan Atomic Power Co. alone cannot fully foot the costs of decommissioning their reactors in the future.

The government intends to draw a conclusion on the plan by the end of the year, but the move could spark criticism that nuclear plant operators would be given preferential treatment.

The industry ministry convened the first meeting of an advisory panel on electric power system reform on Sept. 27 to discuss challenges to the liberalization of the power market. At the meeting, the ministry proposed that the costs of decommissioning nuclear reactors be added to power grid usage fees that new power supplies pay to major utilities.

If new power companies add the costs of reactor decommissioning to electricity charges, consumers will be required to shoulder such additional costs.

The industry ministry has worked out the plan, which could be viewed as a relief measure for major utilities, because the business environment surrounding these companies has worsened following the liberalization of the power market and criticism of nuclear power in the wake of the outbreak of the Fukushima nuclear crisis.

The costs of decommissioning a nuclear reactor are about 10 times that for a thermal power generator. The operators of nuclear plants use part of their income from electricity charges to save enough money to dismantle their reactors in the future.

However, if the liberalization of the electricity market progresses, a growing number of consumers could switch to new power suppliers and the prices of electric power could further decline because of intensifying competition, making it more difficult for major utilities to secure enough funds to decommission their nuclear reactors.

The suspension of operations at most atomic power stations is also adversely affecting major power companies.

Power companies could secure enough funds to decommission nuclear reactors if they saved money on the assumption that the rate of utilizing such plants stood at 76 percent and that the lifespan of each reactor was 40 years.

However, the suspension of operations at many nuclear plants has been prolonged and power companies are being forced to decommission some reactors earlier than planned, as a result of which they have been unable to secure enough funds.

Under these circumstances, major power companies are insisting that new power companies should shoulder part of the decommissioning costs.

“Customers of new electric power firms previously used power generated by nuclear plants operated by major utilities. We would like these customers to shoulder a fair share of the costs for reactor decommissioning,” an official of one major power company said.

Major power suppliers have asked the executive branch of the government and ruling Liberal Democratic Party (LDP) legislators to consider their requests.

The government has shown consideration to major power companies that are being forced to shoulder the expenses of changes in Japan’s energy policy — such as market liberalization and stepped up safety regulations — following the outbreak of the Fukushima nuclear crisis in 2011.

A working group within an advisory committee to the industry ministry called on the government in March 2015 to consider a system that would take advantage of the pricing system for power transmission and distribution to help power companies cover decommissioning costs.

However, new power suppliers are opposed to the move. “It’d be unreasonable for new electric power companies that don’t have nuclear plants to shoulder the costs of those facilities,” said an executive of a Kansai-based new power supplier.

Ennet Corp. President and CEO Tsutomu Takeda told the panel on Sept. 27, “We can’t convince our customers unless you (the government and major power companies) explain how much it will cost to decommission a reactor.”

An executive of a new power company based in the Tokyo metropolitan area said, “It’d be difficult to gain understanding from our customers who have switched from major power companies following the outbreak of the nuclear disaster.”

In response, the industry ministry will consider setting up a market in which power is traded and encouraging major utilities to supply less expensive power generated by nuclear power and coal-fired thermal power plants to the market. The ministry is aiming to allow new power companies to procure less expensive power from the power transaction market in a bid to persuade them to shoulder part of the costs of decommissioning nuclear reactors.

Under the old power supply system in which major utilities enjoyed regional monopolies, power companies were able to secure funds to build and decommission nuclear plants solely by using electricity charges, allowing them to take advantage of low fuel costs for nuclear plants.

With the liberalization of the power market, however, nuclear power plants have lost their edge.

The government has postponed discussions on whether to go ahead with the construction of new nuclear power plants.

The system proposed lately could give preferential treatment to nuclear plants and encourage power companies to build more atomic power stations.

In-depth debate needs to be held on whether nuclear plants will be consistent with the policy of liberalizing the power market.

http://mainichi.jp/english/articles/20160928/p2a/00m/0na/015000c

Related article from September 8, 2016

Gov’t may shift nuke accident, reactor decommissioning costs onto new power suppliers

The government is moving to bill new electricity suppliers for a portion of nuclear reactor decommissioning costs and compensation payments related to the Fukushima nuclear disaster, it was learned on Sept. 7.

After decades under regional utility monopolies, the electricity supply market was opened to competition in April this year. The government apparently fears that the old monopolies such as Tokyo Electric Power Co. (TEPCO) lose too many customers to new suppliers and they may no longer be able to cover the high costs of decommissioning old reactors or compensate the victims of nuclear accidents, hence the move to shift some of the financial burden onto new market entrants.

However, these costs were originally supposed to be covered by the nine big utilities, and the government’s moves would essentially transfer that burden onto the Japanese people, making a clash more than likely.

Under the current system, large utilities must cover nuclear reactor operating expenses — including eventual decommissioning — from electricity bill income. Also, TEPCO receives monies to cover Fukushima nuclear disaster compensation claims from the government-licensed Nuclear Damage Compensation and Decommissioning Facilitation Corp. (NDF), which is in turn funded by all the large utility companies.

The new system being considered by the government would spread the financial burden of nuclear accident compensation and reactor decommissioning to new electricity suppliers, lightening the load on the big utilities. The government estimates the total cost for reactor decommissioning plus Fukushima nuclear disaster compensation paid before the NDF was established at some 8 trillion yen. The new power suppliers would likely pass on their share of these costs to their customers, resulting in monthly power bills up to about 200 yen higher than at present for an average three-person household.

However, forcing customers of the new electricity firms to pay for the old utilities to decommission their reactors and for TEPCO’s nuclear disaster liabilities runs counter to the goals of liberalizing the electricity market, which was intended to push down prices through competition. It would also in essence be corporate welfare for the big utilities operating nuclear plants.

A sub-committee to debate the new system will be established under the Advisory Committee for Natural Resources and Energy reporting to the minister of economy, trade and industry. The committee will decide on what direction to take by the end of this year, with an eye to submitting a bill to revise the Electricity Business Act to the ordinary Diet session next year.

http://mainichi.jp/english/articles/20160908/p2a/00m/0na/006000c

September 28, 2016 Posted by | Japan | , | Leave a comment

Gov’t may shift nuke accident, reactor decommissioning costs onto new power suppliers

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The government is moving to bill new electricity suppliers for a portion of nuclear reactor decommissioning costs and compensation payments related to the Fukushima nuclear disaster, it was learned on Sept. 7.

After decades under regional utility monopolies, the electricity supply market was opened to competition in April this year. The government apparently fears that the old monopolies such as Tokyo Electric Power Co. (TEPCO) lose too many customers to new suppliers and they may no longer be able to cover the high costs of decommissioning old reactors or compensate the victims of nuclear accidents, hence the move to shift some of the financial burden onto new market entrants.

However, these costs were originally supposed to be covered by the nine big utilities, and the government’s moves would essentially transfer that burden onto the Japanese people, making a clash more than likely.

Under the current system, large utilities must cover nuclear reactor operating expenses — including eventual decommissioning — from electricity bill income. Also, TEPCO receives monies to cover Fukushima nuclear disaster compensation claims from the government-licensed Nuclear Damage Compensation and Decommissioning Facilitation Corp. (NDF), which is in turn funded by all the large utility companies.

The new system being considered by the government would spread the financial burden of nuclear accident compensation and reactor decommissioning to new electricity suppliers, lightening the load on the big utilities. The government estimates the total cost for reactor decommissioning plus Fukushima nuclear disaster compensation paid before the NDF was established at some 8 trillion yen. The new power suppliers would likely pass on their share of these costs to their customers, resulting in monthly power bills up to about 200 yen higher than at present for an average three-person household.

However, forcing customers of the new electricity firms to pay for the old utilities to decommission their reactors and for TEPCO’s nuclear disaster liabilities runs counter to the goals of liberalizing the electricity market, which was intended to push down prices through competition. It would also in essence be corporate welfare for the big utilities operating nuclear plants.

A sub-committee to debate the new system will be established under the Advisory Committee for Natural Resources and Energy reporting to the minister of economy, trade and industry. The committee will decide on what direction to take by the end of this year, with an eye to submitting a bill to revise the Electricity Business Act to the ordinary Diet session next year.

http://mainichi.jp/english/articles/20160908/p2a/00m/0na/006000c

September 9, 2016 Posted by | Japan | , , , , | Leave a comment