Monday, March 14, 2011

Aftershocks for Japan's Power Industry

Aftershocks for Japan's Power Industry

By JAMES SIMMS

The precarious situation at several Japanese nuclear reactors after last week's devastating earthquake leaves big risks hanging over the economy.

The impact of a severe nuclear accident could be broad. It would affect consumer and corporate sentiment—hardly on a high already, with the strong yen and weak government finances casting a pall over any recovery. It could also hurt Japanese companies hoping to benefit from a recent global reawakening of interest in nuclear power.

Even if an extreme nuclear situation is avoided, the damage inflicted on the Fukushima plants, as well as conventional thermal plants, has made a big dent in the region's power-generating capacity. Some one-quarter of the electricity supplied to the region served by Tokyo Electric Power, which runs the Fukushima plants, has been knocked out, the Agency for Natural Resources and Energy said. And even if conventional plants come back online faster, some reactors probably never will, after having corrosive seawater pumped into them. Any shortfall would be particularly noticeable in the peak summer months.

The region that includes Tokyo accounts for nearly 40% of gross domestic product and so far seems largely unaffected by the earthquake itself. But the knock-on effect there, from compromised generating capacity in the nearby prefecture that bore the brunt of the damage, could prove a significant drag. Given the long lead times required to replace electricity-generating capacity, that could hobble a key region of the Japanese economy for many months, if not years. Rolling blackouts already in place in and around Tokyo may just be a taste of the ripple effects to come.

Write to James Simms at james.simms@dowjones.com

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