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TEPCO Nuclear Disaster Spreads to Japan's Other Utilities

The unfolding disaster at the Fukushima Daiichi nuclear power plant has stretched far beyond operator Tokyo Electric Power's walls in more ways than one. Leaking radiation threatens to reach the ocean; contaminated food has spurred countries to ban imports; and now the rest of Japan's utilities have been dragged into the mix.

Credit-rating company Moody's announced Monday it was reviewing long-term ratings for eight Japanese electrical utilities and two gas companies for potential downgrades. Moody's already announced a review of Tokyo Electric, or TEPCO. Obviously, TEPCO will be the affected most by the nuclear power plant disaster. TEPCO's share price, which is down 73 percent since March 11, has taken a considerable hit. And liability from the disaster could very well cripple the company.

But that black cloud over TEPCO has now extended to the rest of Japan' electricity sector. The upshot? Moody's is at least willing to consider that Japan's electric utility sector could be significantly impacted by the disaster at the Fukushima Daiichi plant. If so, Moody's believes it could cause some plants to be decommissioned earlier than anticipated and the potential cancellation or indefinite postponement of new nuclear generations.

These developments are likely to result in accelerated decommissioning costs, increased capital expenditures for higher cost replacement generation, lower reserve margins, and higher operating costs at existing nuclear plants as a result of increased scrutiny, more stringent safety procedures, and longer required maintenance outages.
Moody's notes that the outcome won't be particularly rosy for power companies, and ultimately consumers:
New constraints on the use of nuclear power will likely raise energy costs for residential, commercial, and industrial customers throughout Japan as more expensive thermal and other sources of generation replace lower cost nuclear power. Costs to construct these other generation sources may not be passed on to customers on a timely basis, resulting in delayed cost recovery and further constraining financial performance and increasing debt leverage.
That leads us to an interesting question. If the scenario Moody's outlines does indeed occur and Japan's nuclear power sector is stifled as a result, what energy source will its place? Currently, about 25 percent of Japan's power comes from nuclear plants. To replace nuclear, Japan would be forced to turn to renewables, or other fossil fuels like coal or natural gas for its electricity. Either scenario will present major financial hurdles to power companies that invest in the different electricity sources. The upfront costs will be massive and will eventually trickle down to the consumer.

Photo from TEPCO

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