Japan's utility sector to struggle meeting CO2 reduction targets

No thanks to slow restart of nuclear power plants.

Moody's Japan K.K. says that Japan's utility sector will find it challenging to meet the industry's CO2 reduction targets because of the slow restart of nuclear power stations and the number of coal-fired power plants planned for construction over the coming years.

"Policy evolution over time and the increasing competitiveness of renewable generation could increase the utilities' risk of having underutilized thermal power assets," says Mariko Semetko, a Moody's Vice President and Senior Credit Officer.

"As competition rises, and when tariffs become unregulated sometime in or after 2020, the utilities may find it harder to fully, or in a timely fashion, recover investments in such thermal power plants," says Semetko.

Moody's conclusions are contained in its just-released report on electric utilities in Japan, "Slow nuclear restart & coal-fired plant build challenge CO2 reduction for utilities".

Here's more from Moody's:

The Japanese power utilities aim to reduce the industry's CO2 emission levels to 0.37kg-CO2/kWh by 2030. As of 31 March 2017, the utilities' emissions ranged between 0.46 and 0.79kg-CO2/kWh.

With the country's nuclear power stations, 12 nuclear reactors, which do not emit CO2, have undergone decommissioning since the March 2011 Fukushima accident, and only five of the remaining 42 reactors have restarted.

The report highlights leaders and laggards in CO2 reduction among the rated utilities. Chugoku Electric Power Company, Incorporated will struggle most to lower emissions, given its high reliance on coal-fired power plants. Until its first gas-fueled plant opens in 2019, and in the absence of nuclear restart, Hokkaido Electric Power Company, Incorporated will rely on coal-fired power.

Kansai Electric Power Company, Incorporated and Kyushu Electric Power Company, Incorporated already have some nuclear reactors running and will be able to lower its CO2 emissions further. Given their large scale, CO2 emission reduction by Tokyo Electric Power Company Holdings, Inc. and Chubu Electric Power Company, Incorporated, which have a large fleet of gas-fired units will have a material impact on the industry.

While the industry still plans to build coal-fired plants, there are some recent signs of the industry moving away from thermal power plants on the margins. Kansai Electric recently canceled plans to build thermal-generating units. We expect that nuclear restarts will be the largest driver for the companies to scrap plans to construct coal-fired generators.

Earlier, in the year ended March 2011, Japanese utilities emitted a total of 374 million tonnes of CO2, and three utilities actually had emissions below the 0.37kg-CO2/kWh mark.

As a result, on the surface, the industry's target of 0.37kg-CO2/kWh by 2030 appears attainable if the utilities switched on their nuclear reactors again.

However, the March 2011 earthquake and tsunami, and the meltdown at TEPCO's Fukushima Daiichi nuclear power plant, combined with the on-going deregulation of the sector, have permanently changed the landscape in which these utilities operate.