Shulman Advisory

COVID-19 Exposes Vulnerabilities in Japan’s Electricity Generation

With US oil prices having gone negative for the first time in history this past Monday, it’s doubtful that there’s anyone left who hasn’t noticed the impact that COVID-19 is having on global energy markets.

Such attention-grabbing headlines should not, however, distract us from the multitude of other ways that the pandemic is affecting energy production and consumption. While the long-term effects of these unprecedented dynamics will take years to play out, near-term impacts are already apparent in both our day-to-day lives and in the larger ways that societies and economies work to maintain stability.

In Japan, over the past week, two major risks hanging over electricity production have become apparent. While one of the risks has the potential to affect the operation of the country’s gas-powered plants, the other puts the operation of nuclear power plants in question.

In this article, we will take a look at both of these risks in greater detail and we will also examine what they mean for the future of Japan’s electricity generation.

Disrupted Supply Chains and Liquified Natural Gas

When Japan’s nuclear reactors were brought offline following the 2011 Fukushima Daiichi accident, nearly 30% of the country’s baseload generation vanished.  Natural gas has been used to make up for much of the shortfall, eventually contributing nearly 40% of generation.

Japan Energy Mix

From its very beginnings, Japan’s nuclear power program had been aimed at lowering the nation’s dependence on hydrocarbon fuels after the 1973 oil shock. Perhaps unsurprisingly, the recent increase in dependence on natural gas has indeed made Japan’s energy supply more vulnerable.

The proximate threat this time is not Middle Eastern geopolitics, though. This time, the threat comes from the combination of COVID-19’s effects on international supply chains and the fact that liquefied natural gas (LNG) is poorly suited for long term storage.

On April 23, 2020, Nikkei Asian Review reported that Japan has only a two-week stockpile of LNG, meaning that any considerable disruption of the shipping of LNG to Japan could quickly lead to power outages.

Nikkei Asian Review explained that Japan’s near-term risk mitigation strategy involves forbidding contact between ship crews and land-based workers and outfitting some gas-fueled power plants with accommodations allowing their staff to live on site if travel to work by public transport becomes too risky.

COVID-19 and Nuclear Power Plant Employees

A parallel risk has arisen for some of Japan’s small number of nuclear power plants presently operating.

The Nikkei reported earlier this week that on April 14, 2020, an employee of Obayashi Corporation working on the construction of new anti-terrorism emergency facilities at Unit 3 of Kyushu Electric Power Company’s Genkai Nuclear Power Plant tested positive for coronavirus. The plant operator immediately put the construction on hold and ordered 40 employees and 260 contract workers who had been involved in the construction to stay home.

In spite of Kyushu Electric Power’s assurances that no employees involved in the operation of the plant were exposed, the pause in construction creates longer term risks for the plant’s ability to produce electricity.

Kyushu Electric Power recently had to shut down Unit 1 of its Sendai Nuclear Power Plant on account of failing to complete construction of the same type of emergency facilities by the regulatory authority’s deadline. Failure to complete construction at Genkai 3 by the summer 2022 deadline would force the plant to be shut down until the construction can be completed.

The Post-COVID-19 Future of Japanese Electricity Generation

Disruption of a variety of supply chains–including those of medical equipment, food, and other commodities–is exposing the downside of offshoring production capacity for indispensable products and materials in many countries around the world today.

Though one may take exception to the particular set of choices Japan has made about securing its energy supply, it’s undeniable that Japan’s lack of domestic primary energy sources has left it with no option but to do its best to manage the risk as it imports fuels from overseas.

The vulnerability of the nuclear approach was revealed at Fukushima in 2011, and public acceptance of nuclear power in Japan remains low.

Japan has taken a beating on the international stage in recent months for its continued construction of high carbon-emitting coal plants.  Nonetheless, coal’s availability from politically stable countries like Australia and its better characteristics for long-term storage than LNG continue to make it an appealing option for the country’s decision makers.

All that said, with investors around the world making an exodus from coal and with the effects of climate change having made themselves so apparent during the typhoon season in Japan in the fall of 2019, it’s hard to imagine that the pressures to move away from coal will not continue increasing.

Renewables have a big role to play–once constructed, they don’t need to be fueled–but this can only put a substantial dent in Japan’s reliance on imported fuels in the long term.

Not only do the plants need to be funded and constructed, but their efficient large-scale operation will also require significant investment in the grid and in storage and other technologies which help smooth the variable output of wind and solar plants.

One need only look to Japan’s postwar economic development–or to the Meiji Era, if you’re a bit of a history nerd–to be reminded that Japan is capable of making enormous changes in direction when its leaders and its people wish to do so.

Japan’s energy future can undoubtedly be different–greener and more resilient–than its energy present, if the will to navigate difficult trade-offs and mobilize resources can be found.

Here’s to hoping that the difficulties of the COVID-19 crisis crystallize the thinking of leaders and citizens in Japan and in the rest of the world about what it means to make our energy supply systems more resilient to the challenges facing humanity now and in the decades to come.

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