Impact of Fukushima Crisis on Global Energy Markets

Analyst Briefing

By

Ravi Krishnaswamy

Vice President

Energy & Power

April 8, 2011

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The Fukushima Crisis has put a question mark on Nuclear Renaissance

Triple disaster of unprecedented levels

Worst nuclear crisis since Chernobyl accident

Serious concerns about the real situation on the ground, despite Japan’s preparedness and perceived lack of transparency by TEPCO

Nuclear Power will still remain in the energy basket, though some countries may decide to delay their plans

Source: World Nuclear Association

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Crisis to have profound impact on the Japanese and Global Energy Industry

> Reconstruction to increase

energy demand significantly

> Solar energy to increase its

market share> Japan’s utility

sector to undergo overhaul

> Increase in CAPEX and OPEX for

nuclear power > Stringent global

regulatory regime

> Renewable Energy & Energy

Efficiency gets a boost

> Natural gas and clean coal gains

ground

> Power shortages to

impact industrial production and

economic growth

> Increased import of fossil fuels to make up for lost power capacity

> State involvement in

TEPCO

> Stress Test - Stringent safety

checks for existing nuclear power facilities> Delay in decision to

renew licenses or building new nuclear facilities

> Adverse impact on nuclear

related stocks

Global Energy Sector

Japanese Energy Sector

Long Term

Short Term

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Power Shortages in Japan

Power Shortages in Japan

• Power shortages of about 10 to 15 million kW is predicted this summer• Government likely to impose restrictions on power use• Large power users may be impacted while household may be urged to

undertake voluntary savings• Economic growth and confidence on manufacturing sector likely to be

impacted

• Power shortages of about 10 to 15 million kW is predicted this summer• Government likely to impose restrictions on power use• Large power users may be impacted while household may be urged to

undertake voluntary savings• Economic growth and confidence on manufacturing sector likely to be

impacted

Increased Import of Fossil Fuels

Increased Import of Fossil Fuels

• Estimates suggest that Japan’s energy demand could increase by somewhere between 400,000 and 750,000 barrels per day of oil equivalent (Source: STRATFOR)

• International LNG shipments from the open market and spot trade, might be diverted to Japan

• To make up for its lost nuclear power, Japan will import 10 percent more LNG than it did last year and an additional 130,000 barrels of oil per day

• Estimates suggest that Japan’s energy demand could increase by somewhere between 400,000 and 750,000 barrels per day of oil equivalent (Source: STRATFOR)

• International LNG shipments from the open market and spot trade, might be diverted to Japan

• To make up for its lost nuclear power, Japan will import 10 percent more LNG than it did last year and an additional 130,000 barrels of oil per day

State Involvement in

TEPCO

State Involvement in

TEPCO

• Share prices at historic low, falling below 1951 levels and has lost 87 percent of its market value since the crisis

• With mounting claims and loosing 20 percent of its generation capacity, TEPCO looks very vulnerable

• Government likely to step in either taking partial stake, or providing bail out funds or help in spinnning of the nuclear power facilities into a separate company and acquire it fully

• Share prices at historic low, falling below 1951 levels and has lost 87 percent of its market value since the crisis

• With mounting claims and loosing 20 percent of its generation capacity, TEPCO looks very vulnerable

• Government likely to step in either taking partial stake, or providing bail out funds or help in spinnning of the nuclear power facilities into a separate company and acquire it fully

In short term, more fossil fuel imports and mandated energy savings measures to be in place

Japan

Long

Term

Global

long term

Japan

Short

term

Global Sho

rt Term

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Stress Test – Stringent Safety

Checks at Existing Facilities

Stress Test – Stringent Safety

Checks at Existing Facilities

• All major nuclear power generating countries including USA, France, China & India have ordered reassessment of safety features in likely scenario of disasters

• Political fall out of the nuclear crisis bigger in some countries like Germany • Some European countries are considering to close any reactors that have not

passed the stress test • Major countries like USA, France, China, India are categorical in going ahead

with their nuclear power plans

• All major nuclear power generating countries including USA, France, China & India have ordered reassessment of safety features in likely scenario of disasters

• Political fall out of the nuclear crisis bigger in some countries like Germany • Some European countries are considering to close any reactors that have not

passed the stress test • Major countries like USA, France, China, India are categorical in going ahead

with their nuclear power plans

Delay in ApprovalsDelay in

Approvals

• Germany has announced a three-month moratorium on extending the life-span of the country's 17 nuclear plants

• Obtaining finance for nuclear power in several countries will be delayed and become more expensive

• Environmentalists, political parties and public in some cases are likely to complicate the approval process for new power plants through legal route

• Germany has announced a three-month moratorium on extending the life-span of the country's 17 nuclear plants

• Obtaining finance for nuclear power in several countries will be delayed and become more expensive

• Environmentalists, political parties and public in some cases are likely to complicate the approval process for new power plants through legal route

Impact on global nuclear stocks

Impact on global nuclear stocks

• Investor appetite for nuclear sector is quite low• Stocks of General Electric, Areva, Energy Resources of Australia etc which

crashed after the crisis onset has recovered some lost ground• Stocks of OEMs who have a wider prortfolio and diversified operators could

rebound

• Investor appetite for nuclear sector is quite low• Stocks of General Electric, Areva, Energy Resources of Australia etc which

crashed after the crisis onset has recovered some lost ground• Stocks of OEMs who have a wider prortfolio and diversified operators could

rebound

Japan

Long

Term

Global

long term

Japan

Short

term

Global Sho

rt Term

Delay in Approvals and Mixed Sentiments to plague the sector globally

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Reconstruction to increase

power demand

Reconstruction to increase

power demand

• Reconstruction costs estimated to be about $200 billion, though some estimates put it at as high as $1 trillion

• Temporary and permanent power requirement will increase in quake hit regions to support reconstruction

• Power rental companies set to benefit – Aggreko signed 200 MW deal to supply gas and diesel fired power to TEPCO for one year

• Reconstruction costs estimated to be about $200 billion, though some estimates put it at as high as $1 trillion

• Temporary and permanent power requirement will increase in quake hit regions to support reconstruction

• Power rental companies set to benefit – Aggreko signed 200 MW deal to supply gas and diesel fired power to TEPCO for one year

Solar Energy to gain

Solar Energy to gain

• Japan may look towards solar PV as a solution to alleviate power needs in the short term and also to maintain the growth of one of its sunrise industries

• RPS and other solar incentives may take a back seat so for as the utilities are concerned

• As a part of reconstruction package the government may allocate a share of the expenditure to promote solar PV

• Japan may look towards solar PV as a solution to alleviate power needs in the short term and also to maintain the growth of one of its sunrise industries

• RPS and other solar incentives may take a back seat so for as the utilities are concerned

• As a part of reconstruction package the government may allocate a share of the expenditure to promote solar PV

Japan

Long

Term

Global

long term

Japan

Short

term

Global Sho

rt Term

Power Rental Companies and Solar Energy likely to gain in Japan

Utility Sector to Undergo Overhaul

Utility Sector to Undergo Overhaul

• There could be a rethink on the way the utilities are currently structured in Japan, private and vertically integrated utilities

• Government will seek to at least have more regulatory oversight, if not some form of stake in the nuclear power sector

• There could be a rethink on the way the utilities are currently structured in Japan, private and vertically integrated utilities

• Government will seek to at least have more regulatory oversight, if not some form of stake in the nuclear power sector

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Increased CAPEX and

OPEX for Nuclear Power

Increased CAPEX and

OPEX for Nuclear Power

• Even the Current nuclear power construction estimates of about US$6000 per kW have always been overrun

• Engineering and construction costs to raise significantly due to need for multiple level of redundancies

• Safety checks and disaster planning will increase the operation costs• Insurance costs likely to increase

• Even the Current nuclear power construction estimates of about US$6000 per kW have always been overrun

• Engineering and construction costs to raise significantly due to need for multiple level of redundancies

• Safety checks and disaster planning will increase the operation costs• Insurance costs likely to increase

Stringent Regulatory

Regime

Stringent Regulatory

Regime

• Ability of an individual plant operator to tackle a large crisis will be evaluated• Ways of commercial cooperation with the government and international

agencies will be incorporated• Operation under prologned blackout periods will be reasessed• French President has called for International safety standards for nuclear

power plants

• Ability of an individual plant operator to tackle a large crisis will be evaluated• Ways of commercial cooperation with the government and international

agencies will be incorporated• Operation under prologned blackout periods will be reasessed• French President has called for International safety standards for nuclear

power plants

Renewable Energy and

Energy Efficiency to

Benefit

Renewable Energy and

Energy Efficiency to

Benefit

Japan

Long

Term

Global

long term

Japan

Short

term

Global Sho

rt Term

Cost of Nuclear Power set to Increase, while alternate forms of energy gets more support

Natural Gas and Clean Coal Gains

Ground

Natural Gas and Clean Coal Gains

Ground

• Natural gas easiest option to add significant base load and peaking capacity• Abundant natural gas supply from Qatar and Russia• LNG and piped natural gas time tested and resilient• Clean Coal Technologies like IGCC and CCS will get renewed focus and

governement funding in some cases

• Natural gas easiest option to add significant base load and peaking capacity• Abundant natural gas supply from Qatar and Russia• LNG and piped natural gas time tested and resilient• Clean Coal Technologies like IGCC and CCS will get renewed focus and

governement funding in some cases

• It will be poltically damaging for Governments not to support renewable energy or energy efficiency; hence current subsidies will continue

• German wind power industry claims it can power 65% of country’s needs in long term completely replacing nulear

• It will be poltically damaging for Governments not to support renewable energy or energy efficiency; hence current subsidies will continue

• German wind power industry claims it can power 65% of country’s needs in long term completely replacing nulear

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Contact Details

Ravi has over 18 years of industry experience and has long-standing working relationships with leading industry participants in multiple geographies. His expertise covers a wide range of sectors; Power Generation & Renewable Energy, Utility, Power Systems & Power Quality and Oil & Gas. He is an opinion maker and constantly helps to shape the opinions of the industry by holding interviews on TV and print media as well as making keynote speeches at conferences.

For any other enquiries, email us:

apacfrost@frost.com