Like many nations, Japan is moving forward with the deregulation of its electric power industry. Currently, large-scale commercial customers -- those using over 20kilovolts/2000kilowatts -- are already able to purchase electricity on the open market. This currently deregulated segment of the market represents approximately 30 percent of the total electric power demand in Japan.
On February 18, 2003, the Electric Industry Committee, an advisory committee to the Minister of Economy, Trade and Industry, issued a report that includes a model for furthering the deregulation of Japan's electric utilities. Based on the report, a bill to amend the Electricity Utility Industry Law was submitted to the Diet on March 7.
When the bill becomes law, all high voltage users whose demand is over 50 kilowatts will have the option of selecting their electricity suppliers from April 2005. In addition, a new Power Exchange will also be established. As a result, 63 percent of Japan's total power demand will be liberalized. Moreover, complete liberalization is scheduled for consideration beginning in April 2007. The bill also stipulates that the ten existing electric utilities will handle the overall operations of generation, transmission, and distribution of electric power to retain the advantages of the present power supply system, while transparent and impartial operation of transmission and distribution must be guaranteed by a neutral organization as a rule maker and supervisor.
According to the bill, it is necessary to consider appropriate systems and measures to achieve smooth implementation of nuclear power generation and back-end cycle business operations, as well as to promote a functioning investment environment. The bill states that the question of specific systems and measures, such as economic ones, should be considered by the end of 2004. These considerations also include determining the proper roles for the government and the private sector, as well as dealing with issues of coordination with the existing system.
Japanese utilities believe that it is important to consider these issues soon because the promotion of deregulation increases the risk of uncertainty for very long-term business operations, such as cost recovery and demand prospects. Balancing the key public concern of long-term energy security with deregulation and competition is vital.
Energy security is an extremely important issue for resource-poor Japan, which is dependent on imports for about 80 percent of the primary energy supply. Nearly 90 percent of total crude oil supplies come from the Middle East. Nuclear power makes a great contribution to energy security by producing the equivalent of approximately 465 million barrels of oil per year, which corresponds to about 30 percent of annual crude oil imports. Further energy security will be supported by the domestic nuclear fuel cycle in which unburned uranium and plutonium are recovered through spent fuel reprocessing to conserve uranium resources. In addition, nuclear power generation does not emit carbon dioxide (CO2), and thus helps to cope with growing concern about global warming. So far, nuclear power generation has had the net effect of reducing Japan's total CO2 emissions by 20 percent.
The latest Long-Term Electric Power Facilities Development Plan of Japanese utilities reveals that nuclear power generation will play an important role in meeting the anticipated growing power demand of the near future. As Japan's electricity deregulation progresses, FEPC is firmly committed to nuclear power generation and nuclear fuel recycling.
Developing a Basic Energy Plan
Since April 2003, the Basic Plan Subcommittee of the Advisory Committee for Natural Resources and Energy to the Minister of Economy, Trade and Industry has been holding meetings to discuss a Basic Energy Plan. The Plan will be made in accordance with the Basic Law on Energy Policy Making. Because such a comprehensive and long-term-based energy law had not existed in Japan, the Diet passed the law in June 2002, anticipating confirmation of energy policy principles under advancing deregulation. The Basic Plan has to be designed for consistent implementation of appropriate policies according to three basic principles of the Basic Law:
1) Securing a Stable Supply,
2) Harmonization with the Environment and
3) Greater Use of Market Forces which should be coordinated with the first two principles.
The Basic Plan is intended to provide guidance for the future direction of overall energy supply and demand. Once the Economy, Trade and Industry Minister has received a report from the Advisory Committee and listened to the views of the heads of the relevant administrative agencies, a draft Basic Plan for approximately the next ten years will be prepared, endorsed by the Cabinet, and reported to the Diet. In order to smoothly implement the plan, the government will take necessary measures such as budget allocation every fiscal year.
Especially in terms of supply issues, it is expected that the plan will include measures to promote the use of nuclear energy as well as renewable energy and natural gas. Since the plan will most probably aim to reduce dependence on oil as well as emissions of carbon dioxide (CO2), FEPC believes that the Basic Plan should confirm that nuclear energy contributes to a stable supply of electricity and helps to meet environmental standards. Nuclear energy is the focus of Japan's energy policy; the need for nuclear power generation and the nuclear fuel cycle remains unchanged. The Japanese energy supply system is vulnerable because of its dependence on imported sources of energy, evidenced by the fact that energy supply self-sufficiency -- including nuclear energy -- is as low as 20 percent. Nuclear energy helps to replace crude oil imports by as much as 30 percent, and in terms of environmental gains, the use of nuclear power has reduced the country's CO2 emissions by about 20 percent.
As deregulation of electric utilities proceeds, uncertainty arises about the future of stable energy demand and long-term cost recovery. In particular, back-end operations of nuclear businesses, such as reprocessing of spent fuel and disposal of radioactive wastes, take a significant amount of time, and uncertainty in policy planning remains. We believe the private sector will find these operations to be challenging.
This situation contrasts with other countries where public institutions perform certain roles, such as managing overall operations. For the private sector to progress with nuclear power generation and the nuclear fuel cycle, we think public and private roles should be reviewed and operational risks to private companies should be taken into consideration. The government is requested by the Diet to consider the question of specific systems and measures, including economic ones, to take necessary steps by the end of 2004.
Harmonizing Nuclear Energy with Deregulation
Japan's first Basic Energy Plan was decided by the country's Parliamentary Cabinet on October 7, 2003, and was subsequently reported to the National Diet. The Plan, which was formulated in accordance with the Basic Law on Energy Policy Making enacted in June 2002, describes the country's overall energy policy for three basic objectives: 1) securing stable supply; 2) ensuring environmental compatibility; and 3) increasing the role of market principles. The application of market principles must be consistent with the first two principles.
Nuclear energy is defined as a semi-domestic energy source in the Basic Energy Plan because nuclear fuel is easy to store; the reprocessing of spent fuel promotes the effective use of resources; and nuclear power emits virtually no carbon dioxide. The Plan clearly states that "Nuclear power generation, including the nuclear fuel cycle, will be promoted as a key power source, based on the premise that safety will be guaranteed."
As confirmed in the Basic Energy Plan and stated in the Atomic Energy Commission's Long-Term Program for Research, Development and Utilization of Nuclear Energy, the promotion of nuclear power is a vital component of Japan's energy policy in terms of security of stable supply and environmental compatibility. Once a closed nuclear fuel cycle has been established within our country, energy resources will be efficiently utilized and long-term energy security will be enhanced.
Therefore, the establishment of a domestic nuclear fuel cycle has been promoted as Japan's fundamental stance since the beginning of our country's nuclear development. Electric power companies in Japan have promoted the use of nuclear energy, including the nuclear fuel cycle, in accordance with the important energy policies of Japan. Private companies have been proceeding with their business operations in specific areas, such as power generation, as they are able to carry out these operations efficiently. As for the nuclear fuel cycle, Japan Nuclear Fuel Limited (JNFL), financed by electric power companies and others, is preparing for the start-up of the commercial operation of a reprocessing plant in July 2006 in Rokkasho Village, Aomori Prefecture. This will be JNFL's main operation.
The Electricity Utility Industry Law was revised in June 2003, and the energy retail market will be further liberalized after April 2005. The private sector will continue to proceed with the Rokkasho reprocessing project, while at the same time, preparations to make nuclear energy viable in the deregulated market continue.
However, in order to promote a closed nuclear fuel cycle, the so-called back-end work, e.g. reprocessing operations and the treatment and disposal of radioactive waste, involves much more time compared with other industries and power sources. In addition, these operations face many uncertainties, as this is the first commercial reprocessing project ever undertaken in Japan. Business risks involving new projects would have been averted under the traditional regulated system, but such risks might not be fully avoided in the new liberalized power market. For this reason, concrete measures and systems, including economic steps, are indispensable, based on the characteristics of back-end operations.
In order to analyze and evaluate the back-end project cost structures and the profitability of nuclear business to discuss such measures and systems, the Subcommittee to Study Costs and Other Issues has held several meetings. The Subcommittee was set up within the Electricity Industry Committee, which is the advisory body to the Minister of Economy, Trade and Industry. The Federation of Electric Power Companies (FEPC) reported to the committee the latest overall back-end operation estimate costs, which total 18.80 trillion yen. The closed nuclear fuel cycle costs account for roughly 20 percent to 30 percent of the entire nuclear power generation costs; and the costs of the back-end work, a part of a closed nuclear fuel cycle, cover approximately 10 percent to 20 percent. Trial calculations have been made on nuclear and other power generation costs, based on the back-end cost estimate. It was concluded that nuclear power generation cost per kilowatt hour is as economical as that of other power sources.
Power Generation Cost/kWh (yen/kWh; Utilization rate: 80%)
Example 40-year operation period; discount rate: 3%
|
Oil-fired |
LNG-fired |
Coal-fired |
Nuclear
(back-end) |
|
10.7 |
6.2 |
5.7 |
5.3
(0.81) |
The Subcommittee determined that the FEPC made reasonable trial calculations at the present time, and calculated that nuclear power is as profitable as other power sources. On the other hand, this estimate is still a forecast for every back-end operation in the future and, therefore, the committee also pointed out that there are many technical and regulatory uncertainties in the back-end business.
On the basis of the final report of the Subcommittee, measures and systems will be discussed in the Electricity Industry Committee so that the private sector will be able to carry out back-end work smoothly. The conclusion will be made and such systems and measures are to be implemented by the end of 2004.
