On Japan's Surging Electricity Prices

Via Stratfor,

On Sept. 15, the last operational nuclear reactor in Japan was shut down for routine maintenance, which may leave Japan without nuclear power for the remainder of 2013. In all likelihood, restarting nuclear power will be a long, gradual process that will have only limited, regionalized impacts at first. In the meantime, Tokyo will continue to rely heavily on more expensive thermal power, the cost of which is between $0.10 and $0.11 per kilowatt hour according to a 2012 study by the Institute of Energy Economics. The same study showed that nuclear power plants generate power that is at least 10 percent less expensive, at about $0.09 per kilowatt hour on average.



The difference has meant that several utility companies have been forced to increase rates over the past several months. The latest hikes were approved in the Hokkaido, Tohoku and Shikoku prefectures starting Sept. 1 at average rates of between roughly 8 and 9 percent, while utility company Kansai Electric Power Co. increased rates by nearly 10 percent in May 2013. This illustrates an ongoing trend of increasing electricity prices in order to compensate for increased production costs. Rate hikes such as these will certainly impact Japanese Prime Minister Shinzo Abe's economic revitalization strategy, which includes the goal of meeting a 2 percent consumer price inflation target over the next two years in order to drive inflation expectations and spur growth.