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Surge in electricity rates obstructs growth strategy

  • 2015-07-31 15:00:00
  • , Sankei
  • Translation

(Sankei: July 26, 2015 – p. 7)

 

 Energy is an important base that supports people’s lives and industry. The energy situation is deteriorating and this is directly affecting Japan’s economy. The “White Paper on Energy” for FY 2016 compiled by the Ministry of Economy, Trade and Industry focuses on the significant increase in energy costs after the Great East Japan Earthquake and analyzes the impact on the Japanese economy. Based on this analysis, it has become clear that electricity rates that are higher than they were before the disaster on account of the prolonged shutdown of nuclear power plants are having a serious adverse effect on corporate activities and household consumption.

 

 According to the white paper, the electricity rate for households in FY2014 had increased by 25% compared to the rate before the earthquake, and 38% for industries. The increase in energy costs was caused by the situation of “zero nuclear power” in which no domestic nuclear plants have been in operation for nearly two years.

 

 Nuclear energy is the most inexpensive power source for generating electricity. Following the Fukushima nuclear accident, each electric company increased its spending for safety measures, but since the generation cost for nuclear energy is 10.3 yen per 1 kilowatt, it is still lower by more than 20% than that of coal-fired power, the most inexpensive of fossil fuels.

 

 As the surge in electricity rates is caused by the inability to use nuclear plants that provide inexpensive power generation, the white paper expresses concern that “the surge may become an obstruction to (the government’s) growth strategy.” In the growth strategy, the Abe administration calls for deregulation that will prompt corporations to invest in plants and equipment in order to rebuild Japan’s economy.

 

 According to a survey on electricity rates conducted this year by Keidanren (Japanese Business Federation) targeting its member companies, 80% of manufacturers replied, “The power rate before the earthquake is the maximum amount the companies can bear.” Fifty percent of companies replied that if the rate exceeds this limit, they will “have to reduce their domestic investment or employment.”

 

 Even if the government encourages corporations to raise wages and investment through the growth strategy, the continuously high electricity rates are preventing those companies from doing so. The situation is akin to applying the accelerator and brake pedals at the same time. It can also be said that the government acknowledges in the white paper the “negative impact” of the shutdown of nuclear plants.

 

 The ratio of fossil fuels such as oil, coal, and liquefied natural gas (LNG) in Japan’s energy mix was 62% in FY2010. By FY2013 when all nuclear plants had stopped operations, the ratio rose to 88%. It should be noted that this dependence on fossil fuels is higher than the level of 76% marked during the first oil crisis in 1973.

 

 Learning from the oil crisis, Japan has aimed to realize “a society that no longer depends on oil” and “a society that no longer depends on the Middle East” as the pillars of its energy strategy. However, 40 years after the oil crisis, Japan’s energy procurement is facing vulnerability. The rate of self-sufficiency dropped down to 6%, which is alarming in terms of energy security.

 

 The public burden for electricity rates of both households and industries (the amount for 10 electric companies) was 14.4 trillion yen in FY2010, but it increased to 17.3 trillion yen in FY2014. The increase is equivalent to the burden imposed by more than 1% of consumption tax.

 

 The outflow of national wealth also continues as seen in the increase in fuel cost that reached 3.4 trillion yen in FY 2014 on account of the shutdown of nuclear plants. Though the amount decreased by 200 billion yen compared to the previous year thanks to the drop in crude oil prices, it is still equivalent to about 10 billion yen per day, which represents a per capita payment of 30,000 yen per year to overseas resource-rich countries.

 

 The white paper also analyzes the influence of the surge in electricity rates on individual consumption. The electricity rate for households rose by 25% in a national average compared to that before the earthquake. The number rose to 34% for the region covered by the Tokyo Electric Power Company, which is equal to 8,452 yen for an average household per month.

 

 The situation is also affecting household consumption. While consumption grew by only 0.3% during 2010 through 2014, electricity rates increased by 14%. On the other hand, social expenses marked a drop of 5.9% and cultural and entertainment expenses fell by 9.2%. This shows that the increase in the fixed cost of electricity rates is being covered by other expenses, putting a strain on family finances.

 

 The impact is more serious for low-income earners. While electricity accounted for 3.6% of consumption for households with incomes of 7 to 9 million yen, it rose to 4.8% for households with incomes of less than 4.36 million yen. Unlike the taxation system in which relief measures are applied according to income, electricity rates have no such measures in place so they pose heavier burdens on low-income earners. This results in “regressivity.”

 

 The Sendai Nuclear Power Plant (Kagoshima Prefecture) operated by Kyushu Electric Power Co., Inc. cleared safety inspections by the Nuclear Regulatory Authority (NRA) and is scheduled to resume operations in the middle of next month. Japan will finally break free from the situation of “zero nuclear power,” but the number of nuclear plants that passed the safety inspections will be limited to five, including the Sendai plant, which will not lead to improving the power shortage or lowering electricity rates.

 

 Despite the Abe administration’s basic stance of “restarting nuclear plants whose safety is confirmed,” inspections by the NRA are lagging behind schedule. This is the main factor for the delay in the resumption of nuclear plants. The government’s stance on resuming nuclear power generation as soon as possible is now being called into question.

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