Japan’s dependence on natural gas imports for the majority of its electricity supply will place pressure on the government to pivot to other power types, in light of the challenges in the gas sector. We expect Japan to be one of the markets in Asia that will experience a strain in electricity supply following the surge in gas prices. Gas power has been Japan’s dominant power type since 2009, contributing 28.4% to the generation mix then. In the aftermath of the Fukushima 2011 disaster, Japan’s gas power sector expanded rapidly to replace nuclear power generation after the halting of nuclear power plants. This further cemented the gas power sector’s top position among other power types at 36.4% in 2011, a healthy margin of 9.0% ahead of coal, the second largest contributor to the generation mix. As of end-2021, gas power remains Japan’s dominant power type, contributing 40.2% to the market’s generation mix. However, as the market increased its dependence on gas, the vulnerability of its power supply to gas price fluctuations and disrupted gas supply has increased. As a result, the onset of rising gas prices from the Russia-Ukraine crisis has affected Japan’s power market significantly. This has taken the form of higher electricity prices, and even reputational risks from continuing its stake in the Russian gas field of Sakhalin-1 and 2. Overall, we expect this situation to contribute to a muted growth in Japan’s gas power generation, at an annual average of 0.5% from 2022 to 2031.
In order to wane off dependence on gas power generation, Japan has acknowledged the need to speed up restarting of nuclear power plants, presenting upside risks to our conservative nuclear generation forecast. In May 2022, Prime Minister Fumio Kishida announced that Japan is actively looking to diversify its power mix away from gas power generation, largely from growing nuclear power generation. Additionally, the soaring oil and gas prices have resulted in calls for nuclear power plant restarts in Japan to bring down rising electricity prices. Within the next two years, we expect the nuclear power sector to increase in its contribution to the generation mix. We forecast nuclear power generation to have strong growth in the short term, with 10.4% and 5.4% growth in 2022 and 2023 respectively, mainly supported by the restart of Mihama 3, Onagawa 2, and Takahama 1 and 2 nuclear reactors. These plants have passed the stringent safety checks, will be retrofitted with anti-terrorism mechanisms and received the appropriate regulatory approvals. Aside from these plants, we expect limited growth in Japan’s nuclear power sector for the longer term, although we now see upside risks to this forecast if Japan successfully diversifies its generation mix.
Unwavering opposition and strict regulatory requirements to the restarting of nuclear power plants inform our conservative long-term nuclear generation growth forecast. While the Prime Minister announced that nuclear power will play a larger role in future energy policies, Japan has yet to experience an acceleration in restarting nuclear power plants. The number of nuclear power plants in operation at the moment is limited, with only eight out of 33 operable plants in operation. Restarting of nuclear power plants in Japan has been slow due to stringent safety procedures, resistance from communities and environmental concerns. The process is also lengthy depending on the geographical proximity of nuclear power plants to geographical fault lines. All nuclear capacity and generation growth will also come from existing nuclear plants as electricity companies concentrate their resources to restart them. As a result of the challenges to restart nuclear power plants and introduce new plants, we maintain a conservative growth outlook for nuclear power generation and capacity. We expect the robust short-term growth in nuclear power generation will taper down to an annual average of 0.6% growth from 2024 to 2031. We expect Japan to reach 82.2TWh in 2031, which is only 29% of its 2010 generation when nuclear power was at the market’s peak before the 2011 Fukushima crisis.