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Bright ideas needed
Japan’s power monopolies raise costs and stifle innovation
Sep 17th 2011 | TOKYO | from the print edition
THE corridors were dark, the air uncomfortably hot. The lights at the headquarters of the Tokyo Electric Power Company (TEPCO) were largely switched off; the air-conditioners were turned down. Even the chief executive, Toshio Nishizawa, had removed his tie for an interview on September 5th. In normal times, that would be a glaring breach of Japanese corporate etiquette, but these are not normal times. Since the earthquake and tsunami of March 11th, most nuclear reactors in Japan have been shut down for maintenance and not restarted: 43 out of 54 remain idle. There has been a national drive for setsuden (conserving energy). TEPCO must be seen to share the pain.
The company is staggeringly unpopular. One of its nuclear plants at Fukushima was damaged on March 11th. In the crucial hours after the tsunami, TEPCO failed to add water to cool the reactor cores. It was unable to restore steady back-up power until days later and inexplicably delayed venting a build-up of pressure that eventually led to hydrogen explosions.
As if that were not bad enough, TEPCO withheld information from everyone, including the then prime minister, Naoto Kan, who stormed into its headquarters yelling: “What the hell is going on?” A meltdown began several hours after the tsunami struck, but wasn’t officially disclosed until nine weeks later. “We have lost trust,” admits Mr Nishizawa. Regaining it will take “a long, long time”, he adds.
Asked whether the reactor was damaged by the quake itself (as distinct from the tsunami that followed it), Mr Nishizawa says it is unclear: we must wait for a report in November. This question matters. If the reactors in quake-prone Japan are not quake-proof, nuclear power may not be safe. An official at a nuclear regulator says there is evidence that the quake did indeed damage the reactor.
Since the disaster, Japanese people have made heroic efforts to save energy. Households snuffed out lights and unplugged their heated toilet seats. Big companies reduced their energy use by 15% (on pain of fines). Many began the workday earlier or switched to night shifts. The car industry took Thursdays and Fridays off and toiled at weekends, when electricity demand is lower. In TEPCO’s region (around Tokyo), peak usage fell to 49 gigawatts, from 60 gigawatts last year. Everyone expected blackouts; none occurred. On September 9th, as the summer’s heat faded, the government announced an end to setsuden.
Yet Japan’s energy problems are far from resolved. If the nuclear freeze lasts for a year, it will cut GDP by an estimated 3.6% and destroy almost 200,000 jobs. Meanwhile, three-fifths of the public say they have little confidence in nuclear power.
Japan needs a robust and diverse energy industry. Instead it has ten regional monopolies (TEPCO is one), which hog 97% of the market for electricity generation and transmission. Residential consumers pay nearly twice as much as Americans and three times as much as South Koreans (see chart). After modest deregulation began for big commercial users a decade ago, prices plummeted by 16% between 1999 and 2005. Yet lacking political support, the reforms went into reverse.
Electricity prices are high because the monopolies have little incentive to cut costs. On the contrary, their profit margins are fixed by the government, so if they inflate their costs, they boost their income. At the same time, the utilities charge residential consumers a flat rate, giving them no incentive to run appliances during off-peak hours. Alternative energy gets short shrift. Although Japanese firms are leaders in green technologies such as wind, solar and geothermal, these sources account for only 1% of all power generation.
TEPCO’s influence is vast. It supports politicians from one party; its union supports their rivals. It finances academic research on energy. It takes hacks on junkets. And last year it spent ¥26 billion ($339m) on advertising and promotion—a fortune for a firm with no serious competitors.
Reformers urge the break-up of Japan’s power monopolies. Separating generation from transmission and opening the door to new entrants would raise efficiency and reduce costs.
However, Keidanren, the lobby for big business, opposes deregulation on the ground that TEPCO and its ilk ensure a stable supply of electricity. Several Keidanren members sell parts and services to the power monopolies, and receive steep discounts on the power they use.
Many politicians believe that TEPCO must be preserved so it can compensate the victims of the nuclear accident at Fukushima. A law governing compensation was approved by the Diet on August 3rd. It creates a mechanism to collect funds from TEPCO and other power firms but fails to specify how the costs will be shared. On September 12th TEPCO sent out forms for evacuees to fill in. These are 60 pages long.
The new government of Yoshihiko Noda wants to reduce Japan’s reliance on nuclear power in the medium term, but hopes to restart idle reactors in the meantime. Without cheap, reliable power, businesses may move abroad.
New firms are clamouring to enter the energy business. Masayoshi Son, a wireless tycoon, plans to build huge solar-power stations and a new grid to connect Japanese prefectures. But the regulatory process is a nightmare, he says. A new law on green energy gives few clues as to how new producers can sell power to the grid, or whether the incumbents have to buy it. Not even an earthquake, it seems, can shake the monopolists’ grip.
from the print edition | Business
http://www.economist.com/node/21529037
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