axelrod energy projects llc 1

Axelrod Energy Projects LLC www.axelrodenergyprojects.com 1

Axelrod Energy Projects LLC www.axelrodenergyprojects.com

Keeping the Lights on in Japan

Tomoharu NishinoAxelrod Energy Projects, LLC

2012 Energy ConferenceOctober 28-30, 2012

Miami Beach, FL


Agenda• Overview of Japanese power• The Fukushima accident and developments in 2011–2012• Response

– Conservation and renewables– Thermal Power

• Projections (FY2012–2013)– Demand, conservation and renewables– Nuclear Power– Thermal Power (coal, crude oil, fuel oil, and LNG)

• Medium-term forecast– Nuclear– Thermal power (coal, crude oil, fuel oil, and LNG)


Overview of Japanese Power

• Japanese Power Sector– 10 regional power companies operate as regulated regional

monopolies, engaged in both generation and transmission– There are a handful of independent power generators, most

notably J-Power (hydro and thermal), and Japan Atomic Power Company (nuclear).

• Prior to March 11, 2011– Approximately 213GW of total generation capacity– 54 commercial nuclear reactors with a total generation capacity

of 49GW (or roughly one quarter of the country’s total capacity)– Nuclear used as “base load” power source– National energy policy to be 50% nuclear by mid-century

g


Past Generation PatternsPower Generation by Energy Source (TWh)

FY2007 FY2008 FY2009 FY2010 FY20110

200

400

600

800

1,000

1,200

264 258 280 288

102

77 76 75 75

74

661 621 569 621

679

3 2 3

2

3

Nuclear Hydro Thermal Renewables

Power Generation by Energy Source (TWh, %, FY2010)Power Co Nuclear Hydro Thermal

Hokkaido 16 48% 4 12% 13 39%

Tohoku 21 29% 8 11% 43 60%

Tokyo 84 32% 11 4% 169 64%

Chubu 15 12% 9 7% 100 81%

Hokuriku 12 35% 6 18% 16 47%

Kansai 67 51% 15 11% 49 37%

Chugoku 2 4% 3 7% 40 89%

Shikoku 16 55% 2 7% 11 38%

Kyushu 37 47% 4 5% 38 48%


Japanese, Nuclear Power Plants

Location of Nuclear Reactors


Developments in FY2011• Immediate consequences of the March 11, 2011 Earthquake

– 4 TEPCO reactors at Fukushima Daiichi suffer melt-downs– 10 additional reactors are brought to a safe shutdown– 3 reactors at Chubu Electric’s Hamaoka plant were shut down in the days

immediately following – Total capacity immediate shut down: 15,874MW

• Subsequent developments– In the ensuing debate over the safety of nuclear power plants, the Japanese

government has attempted to placate public concern by establishing new safety regulations, establishing a new regulatory agency and legal framework.

– Nevertheless, public support for restarting nuclear power plants has been tepid.– Japan operates its nuclear power plants on a 13 month duty cycle. Every 13

months of operation, plants are shutdown and put through an inspection regime. – Until July of this year, No plant that entered its periodic inspection cycle has been

allowed to resume operations.


Nuclear Power in FY2012• Nuclear shutdowns

– On May 7, 2012 the last remaining operating nuclear reactor reached cold shutdown, and entered its inspection cycle.

– For the first time in 40 years, there were no operating nuclear reactors in Japan.

• Nuclear restarts– Two reactors at the Ohi plant operated by Kansai Electric were allowed to resume

operations in July.– Despite the creation of new regulatory agency in August, no other nuclear reactors have

been allowed to resume operation. Moreover, the experience of this past summer has blunted the arguments calling for an expeditious restart.

– Pushed by popular pressure, the ruling Democratic Party announced (and then partially retracted) an energy policy platform based on eliminating nuclear power altogether by 2050, including a moratorium on construction of new nuclear power plants, and the non-extension of the service life of existing power plants beyond 40 years.

– Nuclear will be slow to return. It is unlikely that any other nuclear plants will be allowed to resume operations for this coming winter. Gradual resumption to about half capacity towards summer 2013 is possible.


The challenge: Japan, Nuclear Power Generation (GWh)

2009.04

2009.06

2009.08

2009.10

2009.12

2010.02

2010.04

2010.06

2010.08

2010.10

2010.12

2011.02

2011.04

2011.06

2011.08

2011.10

2011.12

2012.02

2012.04

2012.06

2012.08 0

5,000

10,000

15,000

20,000

25,000

30,000


Response: Conservation• Immediate widespread

conservation efforts following the earthquake.

• Demand reduction during the winter proves difficult.

• For the summer of 2012 power companies asked for a 10% reduction in peak load relative to 2010. Actual reduction in peak load averaged 12.3% for the country as a whole.

• Overall demand for FY2012 to-date has been about 95.5% of the comparable period in FY2011.

• Demand growth is expected to resume in FY2013.

Max load(MW)

Vs. 2011

Vs. 2010

Ttl Dmd Jul & Aug (GWh)

Vs. 2011

Vs. 2010

Hokkaido 4,630 -4% -8.5% 5,354 -5.8% -8.6%

Tohoku 13,640 +9.5% -12.4% 14,279 +5.4% -11.6%

Tokyo 50,780 +3.2% -15.3% 53,207 +2.9% -13.7%

Chubu 24,780 -1.7% -8.5% 24.967 -0.2% -6%

Hokuriku 5,260 -1.3% -8.2% 5,434 -1.6% -6.9%

Kansai 26,820 -3.7% -13.4% 28,525 -3.2% -9.8%

Chugoku 10,850 +0.2% -9.6% 11,725 -0.1% -6.6%

Shikoku 5,260 -3.4% -11.9% 5,538 -4.2% -9.5%

Kyushu 15,210 -0.9% -13.1% 16,962 -1.6% -7.1%

Okinawa 1,480 +2.8% +0.3% 1,743 +1.4% -1.8%

Total 155,950 -0.4% -12.3% 167,744

+0.2% -10%


Response: Renewables

• At the end of FY2010, renewable power sources accounted for <1% of total power generation.

• In July 2012, the Japanese Ministry of Economy, Trade and Industry (METI) initiated a feed-in-tariff system for renewables.

• The target additional capacity for renewables is 2,500MW for FY2012.

• As of September, Japan has added 912MW of capacity (mostly solar).

Existing as of 2011

FY2012 through Sept

Solar (res) ~4,000MW 744MW

Solar (non-res)

~800MW 141MW

Wind ~2,500MW 12MW

Small hydro ~9,550MW 3MW

Biomass ~2,100MW 12MW

Geothermal ~500MW 0MW

Total ~19,450MW 912MW


Response: Thermal Power

12

Apr 2011

May Ju

n Jul

AugSe

pOct

NovDec

Jan 2012

Feb

Mar Apr

May Ju

n Jul

Aug0.0

10.020.030.040.050.060.070.080.090.0

18.0 14.9 13.0 12.3 9.6 7.3 6.7 7.1 5.5 3.7 2.1 1.5 0.7 0.1 0.0 1.0 1.8

5.4 8.3 8.6 8.07.4 7.7 5.2 4.4 4.6 3.9 4.4 6.5 7.1 7.3 6.6 8.1 6.6

40.9 41.7 47.456.2 60.3

54.753.1 54.4

65.4 70.6 69.4 64.656.2 54.5 55.2

62.1 67.3

Japan, Power Generation by Source (FY2011–FY2012TD, TWh)

Nuclear Hydro Thermal


Response Thermal Power Fuel Consumption Trends

Apr 2011

May Ju

n Jul

AugSe

pOct

NovDec

Jan 2012

Feb

Mar Apr

May Ju

n Jul

Aug0

500

1000

1500

2000

2500

3000

3500

596 551 674 831 826 784 744 744 776 847 866 763 593 576 689 874 880

961 979 1133

1225 1310 1226 1066 1154

1348 1425 1456 1372

1284 1206 1205 1289 1390 78 91

97 111 161

150 206 224

266 296 361

245 243 231 212

178 231

68 85 104

157 216

189 193 203

281 331

360

274 244

221 249 256

320

Japan, Fossil Fuel Consumption for Thermal Power(FY2011–FY2012TD, KB/D FOE)

Coal LNG Crude Fuel Oil


Response: Fossil Fuel Consumption

14

Japan, Fossil Fuels for Power Generation (KB/D FOE)

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012TD0

500

1,000

1,500

2,000

2,500

3,000

895 865 821 773 750 718

960 938 934 967 1,219 1,271

186 132 60 78

190 219 206 178

97 109

204 258

Fuel OilCrudeLNGCoal


Response: Thermal Power• Coal

– Effectively capacity constrained– Older technology with higher cycle times– Very little movement in response to demand

• LNG– LNG is the preferred adjustment mechanism– LNG hits its own capacity constraint at ~1,450 KB/D FOE.

• Crude and fuel oil– Serve as the final adjustment mechanism in response to peak seasonal

demand.• Fuel Oil: 216 KB/D in August 2011, 360 KB/D in February 2012, 320 KB/D in

August 2012.• At no point below 220 KB/D in CY2012 to date.• Domestic production capacity is 100–120 KB/D


Near Term Projections• Power demand growth

– Exceptional demand management through aggressive conservation and load shifting efforts averted disaster for summer FY2011.

– Aggressive conservation efforts managed to keep demand growth in check for FY2012. Some of the conservation efforts over the last 18 months have permanently reduced power demand.

– Conservation was aided by a mild summer. Conservation is less effective during the winter months.

– Industrial output is back to pre-quake levels. Economy is growing at a 3.6% annualized rate

– The lack of resolution regarding the nuclear power issue, however, keeps grass-roots momentum alive for conservation efforts.

– The power situation has prompted a new round of capital investments in green power and demand management technologies.

• We expect power demand in FY2013 to be 2–3% above FY2012.


Projections: Renewables and Conservation

• Conservation– 4.5% total demand reduction in FY2012 to-date. Particularly impressive considering the

economic growth rate for the first half of 2012 was 3.6%– Some conservation investments will have permanent effects, but sustainability in the face of

economic growth is questionable.– Market-based conservation measures (such as demand response) has been slow to catch on.

• Renewables– Growth of renewables infrastructure will take time. So far this year, Japan has added

912MW of renewable capacity, mostly in the form of solar, with some very high profile “mega-solar” projects.

– However, the geography of Japan makes it particularly challenging for renewables• Energy density of solar, and the need for distributed generation and associated infrastructure, will

pose a continued challenge. Sparse wind resources

• Projections– FY2012 is a good baseline for future power demand, which incorporates the permanent

effects of the conservation efforts over the last 18 months. But demand growth will resume in FY2013, and renewables will be slow to contribute to the power infrastructure.


Projections: Nuclear• In mid-June 2012, two nuclear reactors at Kansai Electric Power’s Ohi plant,

with a combined capacity of 2.36GW were granted permission to resume operations. Both reactors have been operational since late July.

• The remaining reactors in Japan will come under the jurisdiction of a new Nuclear Safety Commission, which will begin the process of evaluating these plants in August. But thus far, no additional plants have been given the green light, and popular resistance to nuclear restarts has remained strong.

• After a go-ahead is granted, plants will typically require 30-45 days to reach full output.

• It is unlikely that additional nuclear capacity will be available for the coming winter season.

• There is the possibility of a gradual ramp up to about half capacity by the end of next year.


Projected Power Generation (TWh, FY2012-2013)

Apr 2012

Jun

AugOct Dec

Feb

Apr 2013

Jun

AugOct Dec

Feb

0

10

20

30

40

50

60

70

80

90

1 0 0 1 2 2 2 2 2 2 2 2 2 4 4 6 6 8 8 10 10 12 12 12 7 7 7 8 7 7 5 4 5 4 4 6 6 8 8 8 7 7 5 4 5 4 4 6

56 55 5563 68 66

61 6270 76

69 6657 52 52

60 65 6156 56

64 68 60 58ThermalHydroNuclear


Required Fossil Fuel Burns (KB/D FOE)

Apr 2012

Jun

AugOct Dec

Feb

Apr 2013

Jun

AugOct Dec

Feb

0

500

1,000

1,500

2,000

2,500

3,000

3,500



Projected Fossil Fuel Requirements

FY 2010 FY 2011 FY 2012 FY 20130

500

1,000

1,500

2,000

2,500

3,000

772 750 780 771

967 1,221

1,343 1,295

78

191 250

172

110

205

300 229

Projected Fossil Fuel Consumption (FY2012-2013, KB/D FOE)



Projected fuel requirements

• Coal– Demand will remain flat at 770-780KB/D FOE for the remainder of FY2012 and FY2013.

• Crude oil– Demand will grow through FY2012, to 250KB/D FOE, then decline to 172 KB/D FOE in

FY2013, as some nuclear capacity returns.– All of this demand will be met through imports

• Fuel Oil– Demand will grow through FY2012 to 300 KB/D, then decline to 250 KB/D in FY2013, as

some nuclear capacity returns.– Domestic production capacity will remain at 100–120KB/D, with the balance coming from

imports.• LNG

– LNG will continue to supply the bulk of the power void left by the absence of nuclear, averaging 1,345 KB/D FOE in FY2012.

– Demand will remain strong as some nuclear capacity returns at 1,295 KB/D FOE, reflecting Japan’s preference for LNG over crude or fuel oil.


Forecasting the medium term

• Nuclear– Popular opposition to nuclear power remains strong– The option for “zero nuclear” by mid-century is still on

the table.• Moratorium on new construction• No extension of useful life of nuclear plants beyond 40 years.

– 15 out of the remaining 50 nuclear reactors, with a total capacity of 10GW, will reach their service limits by 2020.

– If no new reactors are constructed, that lost capacity will have to be replaced, most likely with LNG-based thermal plants operating as base load.


Fossil fuel burn trends (KB/D FOE)

2009.04

2009.07

2009.10

2010.01

2010.04

2010.07

2010.10

2011.01

2011.04

2011.07

2011.10

2012.01

2012.04

2012.07 0

200

400

600

800

1,000

1,200

1,400

1,600

Coal LNGCrude Oil Fuel Oil

• LNG– Pre-quake: annual growth rate of 10% per

year– Post quake: surge in demand to fill the void

left by nuclear, with growth rates up to ~20% per year

– Growth will moderate over the medium term, but will remain strong.

• Coal– No new coal fired plants– Continues long term decline trend

• Crude and fuel oil– Pre-quake: long term decline– Post-quake: surge in demand to fill the void

left by nuclear.– No new plants planned. At least one power

company Chubu will retire all its oil burning plants in 2013.

– Will resume long term decline as nuclear returns, and new LNG plants come online.


Thermal power plants• 108 LNG generation units with a total

capacity of 64GW.• 98 crude fired generation units with a

total capacity of 40GW.• 140 fuel oil fired generation units with

a total capacity of 47GW.

• No new oil fired power plants are planned.

• Chubu Electric Power will be retiring all of its oil burning power plants (5GW total capacity) in 2013.

• 8 new LNG power plants are in various stages of planning or construction.

Operator Operational Capacity

Tokyo 2013 500

2016 1,420

Chubu 2012 595

2013 1,190

2014 595

Kansai 2013 487

2014 1,461

2015 974

Total 7,222

New LNG Power Plants (MW)


Forecast: Medium term fuel requirement trends

• Coal– Will continue its long term decline

• Crude and Fuel Oil– The surge in demand over the last 18 months should be considered an anomaly.– Demand will moderate once some of the nuclear power plants come back on line, and

additional LNG capacity becomes available.– Demand will return to FY2010 levels (with very small import demand) beyond FY2014, and

continue its pre-quake trend of long term demand decline.– Japanese refiners are already beginning to reduce its refining capacity in anticipation of

declining Fuel Oil (and gasoline) demand over the coming years.• LNG

– Significant capacity growth over the next 5 years.– Combined with return of some nuclear power, nuclear and LNG will displace crude and fuel

oil based generation.– Japanese oil companies and trading companies are anticipating this with significant

investments in shale gas exploration, which are expected to begin production in the 2015 timeframe.

axelrod energy projects llc 1

Documents

safety of nuclear power

axelrod energy projects

nuclear restarts

operating nuclear reactors

commercial nuclear reactors

location of nuclear

regional power companies

jpower hydro