In its latest discussions on electricity market reform, the Ministry of Economy, Trade and Industry is reportedly considering a measure to financially help major power companies with decommissioning their nuclear plants. METI is reportedly weighing having new entrants to the liberalized power retail market shoulder part of the decommissioning cost, which would be added to the electricity bills of their customers. That would be nothing less than welfare for the major suppliers that are seeing nuclear power lose its cost advantages in the face of power retail deregulation since April. The government should avoid policies that could distort the principles of electricity business liberalization.
In its discussions launched in late September, the ministry says the committee will weigh establishing a system that would have power suppliers respond to “issues of public interest,” such as investments to prepare for decommissioning nuclear plants and severe nuclear accidents amid market liberalization. That sounds like a legitimate question to consider, but the measures contemplated by the ministry pose many problems.
One is a change to the accounting system for decommissioning nuclear power plants. Tokyo Electric Power faces massive financial problems in dealing with its Fukushima No. 1 plant, which suffered triple meltdowns after it was hit by the March 2011 Great East Japan Earthquake and tsunami. The cost to decommission the crippled plant is certain to far exceed the estimated ¥2 trillion — in fact it is impossible to grasp the total cost at this stage since the technology to remove molten nuclear fuel from its reactors has not yet been established. Compensation for victims of the nuclear disaster, which was estimated in 2014 at ¥4.9 trillion, has already topped ¥6 trillion. The cost to decontaminate areas polluted with radioactive fallout from the plant is likely to top ¥2.5 trillion in the government’s plan.
Even in the absence of a major disaster like the Fukushima catastrophe, the major utilities operating nuclear power plants face a shortage in financial reserves to pay for decommissioning as they needed to scrap the plants earlier than scheduled in response to the tightened plant regulations following the Fukushima disaster, along with the overshooting of the cost of decommissioning from earlier forecasts. Besides Tokyo Electric, five major power firms have made decisions to decommission six of their reactors — one each for Kyushu Electric, Chugoku Electric, Shikoku Electric and Japan Atomic Power and two for Kansai Electric.
To cover the bloated expenses of decommissioning, the ministry is thinking of having all electricity suppliers — including new entrants to the market that do not run nuclear power plants — share the cost in the form of surcharges to the fees that they pay for accessing power transmission lines to service their customers. The cost will then be added to customers’ electricity bills.
Under the current system, the major suppliers operating nuclear power plants can include the cost of decommissioning them in the future — along with all other expenses in their power generation — in their electricity charges. But that system will be abolished in 2020, when their power transmission and distribution sections are to be separated from the power generation operations in the final phase of the reform. The idea of having all suppliers — and consequently all consumers — pay for the cost of decommissioning nuclear plants is intended to cope with this change. However, such a measure will blur the responsibility of major power companies that have relied heavily on nuclear power generation and miscalculated the related costs.
That will also have the effect of denying consumers the right to refuse to pay for electricity generated by nuclear power. The retail market liberalization in April enabled consumers to choose power suppliers, instead of being tied to regional monopolies. Some suppliers offer electricity mainly generated by renewable sources such as solar and wind. But applying the surcharge to all suppliers will result in forcing all consumers — including those who may not want to buy electricity from the former monopolies that run nuclear plants — to shoulder the cost of decommissioning.
The ministry’s committee is also reportedly weighing a scheme to enable suppliers that operate large-scale thermal power plants to receive a certain amount of revenue for keeping the plants even without running them — based on their power-generation capacity. The idea represents another relief measure for major power companies whose thermal power plants saw their operating ratio fall with the sharp rise in renewable sources in recent years. The scheme is touted as necessary to maintain thermal power capacity as a buffer in case the supply from renewable sources decreases. But experience in other countries indicates that such a mechanism is not essential to managing possible fluctuations in the supply of renewable energy.
The government has long based its energy policy on the argument that nuclear power is cheaper than most other forms of power generation. But the fact that it is seeking to introduce a relief measure for major suppliers that run nuclear plants indicates that argument is no longer tenable. The government needs to reflect on the real meaning of the measures it is contemplating.