Japan’s earthquake has left a gaping hole in the nation’s power capacity that looks set to last months, threatening to make economic recovery far more feeble than hoped. The first rolling power cuts in the history of the giant Tokyo Electric Power Company (Tepco) have already closed many plants, with Toyota shutting down until today at least.
Rolling three-hour blackouts have wrecked the clockwork precision of Japan’s railways while a thousand schools across Tokyo cancelled classes. Even Tokyo’s ubiquitous neon signs have gone dark, a big blow to confidence in a country that lives by routine and order.
With a new explosion at a nuclear plant in Fukushima threatening a far more serious radiation leak, the power shortage will not get better anytime soon.
“It looks like Japan could be in a ‘power down’ state for a protracted period,” said Stephen Roberts, Nomura’s chief economist for Australia. “That’s what makes it different from other major quakes.
“People tend to compare it to Kobe and assume a V-shaped recovery, but Kobe never caused this level of power disruption. It means any proper recovery could be delayed right out to the fourth quarter.”
Early estimates for the cost of the latest earthquake run up to around $150 billion (R1 trillion) to $180bn, but analysts assume the boost from rebuilding will spark a swift recovery.
After all, the Kobe quake of January 1995 is estimated to have cost around $100bn, but the economy rebounded faster from it than many expected at the time. While manufacturing production fell by 2.7 percent in January, it climbed 4.4 percent over the following three months.
That largely reflected industry’s ability to shift production to plants in unaffected parts of the country. There is certainly still plenty of unused manufacturing capacity in Japan, less when it comes to power.
Analysts at Macquarie estimated the earthquake and tsunami took out a quarter of Tepco’s total capacity of 65 gigawatts, shared between nuclear and oil.
In all, 15 nuclear plants were shut down and it was not clear how many would re-start or when, though Macquarie expected power supply shortages and rations in Tepco’s supply area to continue for months rather than weeks. And the growing crisis at the Fukushima plant brings into question Japan’s experiment with nuclear power, which provides about one-third of total generating capacity. “We believe this increases the risk of Japan’s nuclear policy being scaled back,” said Macquarie.
Nomura’s Stephens said there was perhaps scope to ramp up power output at some of Japan’s oil and coal plants, though at great extra cost. Japan’s increased demand for coal, oil and liquefied natural gas (LNG) for generation would also add to upward pressure on resource prices and so to inflation risks elsewhere in Asia. But even then it was unlikely to be enough to make up the current shortfall in power. “If this lasts to the summer, which is more than possible, there is no way the system could supply the power for air conditioning,” he warned.
Even the simplest gas turbine power plants takes between one and two years to build, with coal plants usually a lot longer. Still, Japan was lucky to have a potential major supplier of LNG in Australia, where a number of massive projects are under way. “Any potential switch away from nuclear power is likely to favour gas-fired generation, the most practical low carbon-emission alternative,” said Arnon Musiker, a director in the energy team of ratings agency Fitch. – Reuters