Wed, May 07, 2014 - Page 8 News List

Japanese cost-cutting a lesson for Taipower

By Guo Yung-hsing 郭永興

Electric power companies can turn loss into profit after nuclear power plants are shut down. Here is the story of how Japan’s Chubu Electric Power Co has gone about it.

Chubu Electric supplies electricity to the area around Nogoya.

In the aftermath of the 2011 Tohoku Earthquake, the company suspended operation of its only nuclear power station — the Hamaoka nuclear power plant — on government instructions.

The main reason the Japanese government ordered the Hamaoka plant to shut down was its location. The plant is in a fault zone where powerful earthquakes are considered likely to occur. Furthermore, the plant is close to urban areas. If there is an earthquake, the Tokaido Shinkansen high-speed railway and the Tomei Expressway, the main traffic arteries connecting eastern and western Japan, would probably be shut down. And the nearly 1 million people living within the 30km-radius evacuation zone would have to move. After the 2011 Fukushima Dai-ichi nuclear disaster, the government knew that an evacuation on such a scale would be an unbearable burden, and that is why it insisted that the plant be shut down.

The government’s demand that the Hamaoka plant be shut down gained support from business leaders such as the chairman of Suzuki Motor Corp. For Suzuki, the electricity price hike that would follow was a calculable cost, but Suzuki’s headquarters are located within the plant’s evacuation zone and the costs it would incur in the event of a nuclear disaster would be incalculable.

Following the facility’s shutdown, Chubu Electric has returned losses for three years in a row. However, the company is forecast to turn loss into profit this year.

One of the reasons for this potential turnaround is that Toyota Motor Corp is in the Nagoya region, making it one of the main bases of Japan’s automotive industry and generating good business for industrial electricity supply.

Another reason is increased electricity rates. And while Chubu Electric expects to gain ¥134.5 billion (US$1.32 billion) from electricity rate hikes, it hopes to save ¥191.5 billion by improving its own efficiency.

In its initial application to the Japanese government to raise electricity rates, Chubu Electric planned to save ¥163.3 billion through efficiency improvements and gain ¥162.7 billion in revenue by raising electricity rates. In other words, the company intended to absorb half of the costs incurred after shutting down the nuclear reactors by improving its management efficiency, while getting consumers to absorb the other half.

However, the Japanese government turned down this plan on the grounds that the firm was not trying hard enough.

The plan the government approved was for Chubu Electric to absorb 60 percent of the costs through its own efforts, as seen from the figures given above, and still making it possible for Chubu Electric to make a profit.

After improving its defenses against earthquakes and tsunami, the Hamaoka plant is applying to the government to restart operations. Whether the plant will eventually start running again remains uncertain. Nonetheless, the example set by the Hamaoka plant shows that if Taiwan Power Co ever has to raise electricity rates because of an end to the construction of the the Fourth Nuclear Power Plant in Gongliao District (貢寮), New Taipei City, the company should be able to absorb part of the costs by making itself more efficient.

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