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JAPAN: Nuclear scandal may juice power prices

by Shigeru SatoBloomberg
April 4th, 2007

Japan's electricity prices may surge because safety coverups could prompt the government to order more nuclear reactors closed, Mizuho Investors Securities says.

The average price on the Japan Electric Power Exchange may climb more than 58 percent to pass the record of 21, or 17.70 U.S. cents, a kilowatt hour for the peak hours of 1 p.m. to 4 p.m. when demand peaks in July and August, Hirofumi Kawachi, an energy analyst at Mizuho Investors said in an interview from Tokyo.

Japan relies on nuclear power to produce 30 percent of its electricity and demand rises in summer as higher temperatures increase air-conditioning use in homes and offices.

Hokuriku Electric Power will keep two reactors closed until March 2008 after the government ordered them shut. Japan Atomic Power, which hid an accident in 1997, may have to shut a plant.

"The government may call on several other utilities to suspend reactor operations and conduct emergency inspections after the scandal," Kawachi said. "That should spark concern over a power shortfall."

The wholesale power exchange in Tokyo enables utilities and new market entrants like Nippon Oil and Tokyo Gas to trade 1,000 kilowatt-hour lots of electricity for delivery the next day or month as far as a year ahead. The exchange began trading in April 2005.

Electricity for delivery during peak hours averaged 13.33 on the exchange Tuesday.

In 2004, Japan's retail electricity prices for household use averaged 19.6 cents a kilowatt hour, compared with 8.9 cents for the United States, 17.6 cents for Germany, and 14.1 cents for France, according to research conducted by the Organization for Economic Cooperation and Development.

In 1999, there was an uncontrolled nuclear chain reaction at the No. 1 reactor at Hokuriku Electric's Shika power station during a maintenance shutdown. Control rods were improperly handled, the Toyama City-based company said March 15. The company did not record the accident or notify local and state authorities.

In February, the 10 regional power utilities burned 1 million kiloliters, or 6.3 million barrels, of crude oil and heavy fuel oil for thermal power generation, less than 2.3 million kiloliters consumed a year ago, according to statistics compiled by the Federation of Electric Power, Japan.

To compensate for the shutdown, Hokuriku Electric plans to more than double the use of crude oil and fuel oil for thermal power generation to 1.25 million kiloliters in the year started April 1 from 550,000 in the previous year.

Power from oil- and coal-fired stations is more expensive than electricity from nuclear plants.

The government ordered the company to shut the 540-megawatt No. 1 reactor at the Shika nuclear power station on March 15. Hokuriku closed the 1,358-megawatt No. 2 reactor last July after finding cracks in turbines supplied by Hitachi.

The trade ministry may decide this month whether Japan Atomic Power will have to close the reactors at its Tsuruga plant for safety checks, Kawachi said.

Akira Amari, minister of economy, trade and industry, said Friday that the government would decide within a month on the penalties and punishment for plant accident coverups and safety data fabrication during the past three decades.

In November last year, the government ordered all of the country's power producers to review their plant operation records and find whether they had violated safety laws. It also ordered the utilities to reveal all safety breaches at their plants by March 30.

"Closure of the Tsuruga power station could lead to a major supply problem for Hokuriku Electric," Kawachi said.

Japan Atomic Power supplies all electricity produced at the Tsuruga station to Hokuriku Electric, Kansai Electric Power, and Chubu Electric Power.

The Tsuruga station houses two reactors: the 357-megawatt No. 1 reactor and the 1,160-megawatt No. 2 unit.

"For now, we have no plans to shut down reactors any time soon," Isao Tanabe, spokesman for Japan Atomic Power, said Monday. "But, it's up to the trade ministry."

Tokyo Electric Power, Asia's largest generator, estimates the utilization rate for its 17 nuclear reactors at about 70 percent of capacity in this business year, down from 75 percent last year, a spokesman, Takuya Ito, said by telephone.

The drop came after additional maintenance work on the reactors was carried out, he said.

Temperatures in Japan's major cities have already been higher than average this year, a trend that is expected to continue into the summer, the Japan Meteorological Agency said.

"Power demand will increase if heat waves hit Tokyo, Osaka and other cities in August," said Kawachi of Mizuho. "In tandem with growing supply concerns, the utilities may shift back to oil and burn more crude oil and heavy fuel oil."

In February, temperatures in Tokyo's Otemachi financial district averaged 8.6 degrees Celsius, or 47 Fahrenheit, marking the highest for the month in 131 years, according to the agency's data.

Huaneng Power International, the largest Chinese electricity producer listed in Hong Kong, plans capital spending of 36.7 billion yuan, or $4.74 billion, during the next three years as it expands capacity to meet demand.

Spending will be 17.5 billion yuan this year, excluding acquisitions, the company's vice chairman, Huang Long, told reporters in Hong Kong. In 2008, the company plans to invest 13.8 billion yuan and 5.4 billion yuan in 2009, he said.



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