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High time to reassess the economics of nukes

April 1, 2018



Reassess the economics of nuclear power



The recent decision by Shikoku Electric Power Co. to decommission the aging No. 2 reactor at its Ikata nuclear facility in Ehime Prefecture serves as yet another reminder that tightened safety regulations and market conditions in the aftermath of the 2011 Fukushima crisis are imposing a heavy financial burden on power companies that run nuclear power plants.


Whether or not they push for reactivating the reactors idled in the wake of the 2011 accident, both the government and the power industry are urged to reassess the economics of nuclear power to determine whether they are still worth the cost.


The Ikata reactor is the ninth at six nuclear power plants across Japan to be decommissioned after the 2011 disaster, not including the six at Tokyo Electric Power Co.’s Fukushima No. 1 plant, which was crippled by the meltdowns at three of its six reactors in March 2011 after the plant was flooded by giant tsunami in the Great East Japan Earthquake. All of the reactors were aging and nearing the 40-year limit on their operation, and the power companies were faced with the question of whether to decommission the reactors or apply to the Nuclear Regulation Authority for approval of a one-time extension of their operation for another 20 years — which would have entailed costly additional investments to bump up their safety under the post-Fukushima rules.


Shikoku Electric, which had already decided to scrap the No. 1 reactor at Ikata, reportedly determined that reactor 2, with a relatively small output capacity of 566,000 kilowatts, wouldn’t be able to recoup the safety investments — estimated at nearly ¥200 billion — needed to get the NRA’s approval if its operation were to be extended by 20 years. The power company had already spent roughly ¥190 billion on extra safety features on the plant’s reactor 3 to clear the NRA screening under the revamped standards adopted in 2013. That unit, with a larger output capacity, was reactivated in August 2016 after the NRA granted approval, but its operation was ordered suspended in a Hiroshima High Court decision in December. Such a litigation risk is also believed to have weighed on the company’s decision regarding the fate of reactor 2.


Most of the reactors that have been tagged for decommissioning have relatively small output capacity, which makes them unlikely, as in the case of the No. 2 unit at Ikata, to generate enough earnings to cover the cost of the safety investments. However, two of them — reactors 1 and 2 at Kansai Electric Power Co.’s Oi plant in Fukui Prefecture — had a capacity of over 1 million kilowatt each. The extra safety investments that Kansai Electric has made to seek restarting its other reactors was estimated to have topped ¥800 billion, and additional spending to extend the operation of Oi units 1 and 2, with their unique structures requiring major work, could have expanded the entire cost beyond ¥1 trillion.


Major power companies that run nuclear power plants long monopolized the electricity markets in their respective regions. That changed with the liberalization of the electricity retail business that was completed in 2016, exposing them to tough competition. Added to that is the decline in electricity demand due to power-saving efforts and the declining population in rural markets. The extra cost of restarting the aging reactors come as an increasingly heavy burden on the power companies.


Meanwhile, 14 reactors at seven power plants have cleared the NRA’s screening since 2013, and seven reactors at five plants have resumed operations. Two more — reactor 4 at the Oi plant and reactor 4 at Kyushu Electric Power’s Genkai plant in Saga Prefecture — are expected to restart in May. However, the No. 6 and No. 7 units at Tepco’s Kashiwazaki-Kariwa plant in Niigata Prefecture — the world’s largest in terms of output capacity — cleared the NRA screening in December, but the prospect of their restart remains unknown due to opposition from the local governor.


Kyushu Electric will also have to decide whether to seek a restart of the No. 2 reactor at the Genkai plant — which in 2021 will have reached 40 years since its operation began and has a relatively small capacity. Tepco has not made a decision on what to do with the reactors at its Fukushima No. 2 plant — despite requests from Fukushima Prefecture to decommission the facility.


The government has a target of nuclear power accounting for 20 to 22 percent of the total electricity supply in 2030 — which is expected to require some 30 reactors in operation. The feasibility of meeting that target should be reviewed given the circumstances surrounding nuclear power plants.


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