IEEJ © July 2016. All Rights Reserved.

26 July 2016
The 423rd Forum on Research Work

Economic and Energy Outlook of Japan through FY2017
Appropriate domestic energy policy measures are required to deal with rising oil prices.
AOSHIMA Momoko, K. Tomokawa, M. Tsunoda, Y. Yorita, K. Ueno, R. Eto, K. Jin , C. Onda, Y. Shibata,A. Yanagisawa, S. Suehiro, K. Taguchi and K. Ito

Executive summary
Nuclear power generation | Pay attention to the restarts▌ Gradually, the passing of safety checks and the process of restarting under the new regulation
standards is proceeding. And yet, there is still much ambiguity including judicial ruling and/or local
acceptance which will influence the pace of restart. This paper analyses the influences on the 3Es(Economy, Energy Security, and Environment) of four cases of different levels of nuclear power units
approval and restart by the end of FY2017.
▌ The [Reference Scenario] assumes that by the end of FY2016, a cumulative total of seven nuclear
power units will have restarted and that by the end of FY2017, 19 units will be in operations. They will
be in service during FY2017 with a total electricity generation reaching 119.8 TWh, which is 42% of
the pre-earthquake FY2010 level. Compared to FY2010, total spending on fossil fuel imports
decreases by JPY4.7 trillion, while the electricity cost (*) per kWh (i.e. electricity unit cost) rises by
about JPY1,100/MWh. Relative to the same period, the energy-related CO2 emissions decrease by
45 Mt-CO2 (2.1%) and the self-sufficiency rate remains lower by 3.4% point at 14.4%.
*Electricity Cost = Fuel cost + FIT + Grid Stabilization Cost
Actual power tariffs include capital and labour costs(Source of definition: METI, [Long-term Energy Demand and Supply Outlook] May 2015)▌ In the [High Case], which assumes a total of 25 units to restart by the end of FY2017, total fossil fuelimports spending decreases by JPY0.7 trillion relative to the [Low Case] where only 12 units areassumed to restart. In this comparison, the average electricity cost is lowered by about JPY600/MWh,the self-sufficiency rate improves by 4.8% point and the energy-related CO2 emissions decrease by
52 Mt-CO2 (4.6%) whilst GDP increases by JPY0.6 trillion (0.12% point).
▌ The hypothetical [Best Mix Case] reflects the generation mix of METI’s [Long-term Energy Supply &Demand Outlook]. Under this Case, compared to the [Low Case], total fossil fuel imports spending
decreases by JPY1.2 trillion. In this comparison, the self-sufficiency rate is improved by 9.0% point
and the energy-related CO2 emissions are decreased by 114 Mt-CO2 (10.1%). The average electricity
cost is increased by JPY600/MWh, reaching JPY6,900/MWh, which is the highest among the fourcases (but it is lower than the estimated JPY9,100/MWh based on the [Long-term Energy Demand &Supply Outlook] target) .
▌ Because of the judicial ruling that ceased operations at the Takahama Unit No.3 and 4, it is importantto analyse the effect of stopping operations of nuclear power plants from a local point of view. As arule, if one nuclear plant with the capacity of 1 MW stops operation for one year in an area whereannual demand is about 100 TWh, total fossil fuel costs increase by JPY60 billion and theEconomic and Energy Outlook of Japan through FY2017|1IEEJ © July 2016. All Rights Reserved.

energy-related CO2 emissions increases by 4 Mt-CO2 (7% increase for the local emissions). The
average electricity unit cost will increase by JPY400/MWh (1.8% rise of the average power unit price).
Figure 1 | Impacts of restarting nuclear power plants (FY2017)
300 FY2010

90288.2

FY2015
7 7.1

151.2

FY201018 18.1

80
5.9

6FY2015
0 9.4

Nuclear powergeneration (TWh)FY20101,1391,132FY2015

16 16.1

5.81,0941,1005 FY2010

144.9

39.1

1,150

79.6

119.8
100

FY20151,168

FY2015
83.6

6.3

195.0

200

6.9

1,200

FY201070 70.6

14.0
13.5

1,079

70.9
67.5

1,050

13.3
12.8

1,018

61.7

412

Electricity unit cost(JPY/kWh)
Low Case

60

Total spending on
fossil fuel imports(JPY trillion)

Reference Scenario

High Case

1,000

LNG imports(Mt)

CO2 emissions(Mt-CO2)Best Mix Case

Lower oil prices | Overview of the crude oil price influence on Japan▌ If the oil and LNG prices drop by $10/bbl and by $1.4/MBtu, they will contribute to the growth cycle
for consumption and investment and Japan’s GDP will increase by 0.1% (JPY0.6 trillion). The
improved trade balance brought by the decrease in total fossil fuel imports spending of JPY2.0 trillion
is the main factor for GDP expansion.
▌ A decrease in investment for energy resource development is feared to negatively influence theworld economy. When crude oil prices dropped by $40/bbl in FY2015, world energy development
investment decreased by JPY15 trillion and by JPY1 trillion in Japan, compared to FY2014.
▌ Looking at the influence of the lower oil prices on corporate profits, oil companies reported almost
JPY1.0 trillion loss of final profit due to losses in inventory valuation and impairment related toresource development. On the other hand, increase in operating profit through decrease of fuelcosts and power tariff was much bigger at JPY2.0 trillion.

Executive summary of outlook through FY2017 [Reference Scenario]
Macro economy | FY2016 & 17: Japanese economy grows but slowly▌ The Japanese economy will continue to grow but more slowly in FY2016 at 0.7%. Private demand willslow down from the previous year while public and overseas demand will lead the growth. ForFY2017, GDP grows at 0.9% for the period, led by private demand. Consumer spending will slow
down slightly, while private investment will remain strong.

Energy supply and demand | Energy use continues to decrease but at aslower pace
▌ Total primary energy supply in FY2016 decreases due to the slow recovery in domestic production of
the manufacturing sector as well as the advancement of energy saving. Because of a continued
economic expansion and other factors, the decline of energy supply of FY2017 will slow down. The

Economic and Energy Outlook of Japan through FY2017|2IEEJ © July 2016. All Rights Reserved.

restart of nuclear power plants and use of renewable energy will reduce the oil and natural gas
consumption.
▌ In FY2016, total final consumption decreases for the seventh consecutive year since the Great East
Japan Earthquake. Industry sector’s consumption decreases because of reduced production
including Ethylene. The transport sector consumes less due to an increased share of fuel-efficientcars while consumption increases in the residential and commercial sectors due to temperatureeffect. In FY2017, industry sector’s consumption will increase through gradual expansion of
production activities while the consumption of the residential and commercial sectors will remain flatand the transport sector will consume less.

Energy sales | City gas and electricity grow and fuel oil declines.
▌ In FY2016, electricity sales by utilities to households increase for the first time since the earthquake.
This is because of the increase in cooling and heating demand as a rebound from the previous year’scooler summer and warmer winter. Sales for power services increase for the first time in four years,
reflecting growth in cooling and heating demand for commercial sector and better production andeconomic conditions.
3▌ City gas sales in FY2016 increase to 40.4 billion m due to demand development efforts andtemperature effect despite a slow pace of production recovery in the manufacturing sector. InFY2017, sales to industry will increase reflecting the recovery of production activities. The overallsales will mark the highest-level for a second consecutive year.
▌ Total fuel oil sales show an overall decrease in FY2016, primarily in response to a decline in Naphthasales as well as a decline in the use of Type C fuel oil for power generation due to the return of
nuclear power units. In FY2017, overall sales of fuel oil will decrease for the fifth consecutive year. It isbecause sales for Type C fuel oil for power generation will decrease, due to more re-starts of nuclear
power stations, and because of the decrease in Gasoline and Kerosene sales.

Renewable power generation | Operational capacities will reach 65 GW. The
cumulative cost burden could be JPY56 trillion▌ The pace of expansion for renewable power generating capacity of the last few years, supported bya generous Feed-in Tariff (FIT) system, is slowly subsiding due to reduced tariff for solar PVs and thecancellation of approvals for contracts/permits of some facilities, which have not started operation.
Despite such situation, the operating capacity of renewable power generation (excluding large-scalehydro) by the end of FY2017 will reach 65 GW.
▌ Coincidently, the unavoidable burden expands also. The cumulative cost burden for 20 years could
be JPY56 trillion if all of the approved 87 GW (of which 79.9 GW is solar PVs) by the end of March
2016 become operational. This is equivalent to an increase of JPY3,200/MWh above the rates inplace just before FIT started – an increase of 14% for households and 19% for industrial consumers.

CO2 emissions | Reduce for the fourth consecutive year through FY2017,11.4% lower than FY2013 level▌ Energy-related CO2 emissions reached a historical high of 1,235 Mt-CO2 in FY2013 but will decrease
for the fourth consecutive year through FY2017. The energy saving and the restart of nuclear power
plants combined with the increase in renewable energy will considerably diminish oil and natural gas
consumption, lowering the emission by 141 Mt-CO2 to 1,094 Mt-CO2 in FY2017. While the GOJ sets

Economic and Energy Outlook of Japan through FY2017|3

IEEJ © July 2016. All Rights Reserved.

the Nationally Determined Target of 26% for GHG emissions reduction (25% for CO2) from 2013 by2030 as an international commitment, CO2 emissions in FY2017 will be 11.4% less than in FY2013.
The main contributions for the emissions reduction come from the re-starts of nuclear power
generation (40%) and from the increase in renewable energy (20%).
Table 1 | Summary of Reference Scenario
Historical
Projections
Year-to-year changes
FY2010 FY2013 FY2014 FY2015 FY2016 FY2017 FY2015 FY2016 FY2017

513.3
232.3
Oil (GL)
73.6
Natural gas2 (Mt of LNG equiv.)
LNG imports (Mt)
70.6
184.7
Coal2 (Mt)
Nuclear (TWh)288.2
Renewables excl. large hydro (TWh) 63.9
Final energy consumption3 (Mtoe) 339.6
157.4
Industry4
Buildings
99.3
Transport
82.8
Petroleum products
176.1
Natural gas and city gas
34.6
Coal and coal products
35.9
Electricity
89.8
Electricity sales (TWh)
926.6
39.28
City gas sales5 (Billion m3)
Fuel oil sales (GL)
196.0
Energy-related CO2 emissions3 (Mt) 1,139(FY2013=100)
92.2
Crude oil, import, CIF ($/bbl)84
LNG, import, CIF ($/t)
584($/MBtu)
11.3
Steam coal, import, CIF ($/t)
114
Coking coal, import, CIF ($/t)
175
Nominal GDP (JPY trillion)
480.5
Real GDP (JPY2005 trillion)
512.7
Industrial production (2010=100)
99.4
Exchange rate (JPY/$)
86.1
Primary energy supply (Mtoe)1

EconomyPricesEnergy

2

488.5
234.5
91.1
87.7
194.6
9.3
67.9
322.2
151.0
91.5
79.5
164.2
34.6
35.6
84.7
871.5
39.82
193.6
1,235
100.0
110
837
16.1
108135
482.4
529.8
99.0
100.0

473.0
217.6
91.5
89.1
190.0
0.0
76.0
313.5
147.4
88.8
77.2
158.4
34.4
35.1
82.7
851.4
40.16
182.7
1,189
96.3
89797
15.3
93
109
489.6
524.8
98.4
109.2

466.4
211.7
86.6
83.6
190.29.4
87.6
309.4
145.8
86.3
77.3
158.0
33.8
33.5
81.6
837.5
39.91
180.5
1,168
94.5
49
452
8.7
76
88
500.4
529.0
97.4
120.4

463.1
205.5
84.4
82.2
190.2
18.8
99.7
306.7
143.7
87.1
75.8
154.1
34.3
33.5
82.2
842.9
40.45
176.1
1,151
93.2
47
324
6.3
7086
508.0
532.6
97.7
105.5

462.3 -1.4% -0.7% -0.2%
197.3 -2.7% -2.9% -4.0%
73.0 -5.3% -2.5% -13.5%
70.9 -6.2% -1.6% -13.8%
190.1 0.1% 0.0% -0.1%
113.1.. 99.4% 501%112.8 15.2% 13.8% 13.2%
306.0 -1.3% -0.9% -0.2%
144.1 -1.1% -1.4% 0.3%
87.1 -2.8% 0.9% 0.0%74.7 0.1% -1.8% -1.5%
152.2 -0.3% -2.5% -1.2%
34.9 -1.6% 1.4% 1.8%
33.7 -4.7% 0.0% 0.6%
82.6 -1.4% 0.8% 0.5%
846.7 -1.6% 0.6% 0.4%
41.18 -0.6% 1.3% 1.8%
172.8 -1.2% -2.5% -1.9%
1,094 -1.8% -1.4% -5.0%
88.6
..
..
..
54 -45.2% -3.2% 14.6%
394 -43.3% -28.3% 21.7%
7.6..
..
..
72 -18.4% -7.5% 2.6%
97 -19.3% -1.6% 12.8%
514.9 2.2% 1.5% 1.4%
537.4 0.8% 0.7% 0.9%
98.6 -1.0% 0.3% 1.0%
105.0 10.2% -12.4% -0.5%

Notes:
1. Mtoe = 1013 kcal
2. Conversion factors for Oil: 9,126 kcal/L; Natural gas: 13,043 kcal/kg; Steam coal: 6,139 kcal/kg; Coking coal: 6,928 kcal/kg until FY2012.
2. Conversion factors for Oil: 9,145 kcal/L; Natural gas: 13,141 kcal/kg; Steam coal: 6,203 kcal/kg; Coking coal: 6,877 kcal/kg since FY2013.
3. Final energy consumption and CO2 emissions in FY2015 are estimation.
4. Industry includes non-energy use.
5. Conversion factor: 1 m3 = 10,000 kcal

Economic and Energy Outlook of Japan through FY2017|4IEEJ © July 2016. All Rights Reserved.

Table annex | Impacts of restarting nuclear power plants
FY2010

Cumulative number ofFY2017

..
..
..
288.2

[FY2016]

restarted nuclear reactors1 FY20017
Average period for operation (months)
Electricity generation by nuclear (TWh)FY2010

Low CaseReferenceScenario[5]12539.1[7]199119.8

FY2017 (changes from FY2010)
Low Case Reference High Case
Scenario

Electricity unit cost2 (JPY/kWh)Fuel cost
EconomyFIT purchasing cost
Total fossil fuel imports (JPY trillion)
Oil
LNG
Trade balance (JPY trillion)
Real GDP (JPY2005 trillion)
Gross national income (JPY trillion)

4.9
3.8
0.2
18.1
12.3
3.5
5.3
512.7
480.5

High Case Best Mix Case[9]258151.2..
..
..
195.0

FY2017 (changes from the Low Case)Best Mix Reference High CaseBest Mix

Case

Scenario+2.0-0.4+3.3-5.4
-3.7
-1.0
-4.5
+25.3
+35.0

-0.4
-0.4
-0.5
-0.2
-0.4
+0.5
+0.5
+0.6

-0.6
-0.6
-0.7
-0.2
-0.5
+0.7
+0.6
+0.8

+0.6
-0.8
+1.4
-1.2
-0.4
-0.7
+1.0
+1.0
+1.2

-31.0
-35.2
-36.8
-40.1
+8.5
-0.3
-3.7
-9.4
+9.0
+0.3
-3.1
-8.9
-6.9p
-3.4p
-2.1p +2.1p
-7
-45
-60
-121
[-8.4%] [-11.4%] [-12.6%] [-17.6%]

-4.2
-8.8
-8.8
+3.4p
-38
..

-5.8
-12.1-12.1+4.8p-52..

-9.0-17.9-17.9+9.0p-114..

+1.5+0.4+1.9-4.1
-3.3
-0.3
-5.5+24.3
+33.8

+1.1
-0.0+1.9-4.7-3.5-0.6-5.0+24.7
+34.4

+0.9
-0.2
+1.9
-4.9
-3.5
-0.8
-4.8
+24.9+34.6

Case

EnergyPrimary energy supply
Oil (GL)
Natural gas (Mt of LNG equivalent)
LNG imports (Mt)

ment

Environ-Self-sufficiency rate
Energy-related CO2 emissions (Mt-CO2)

Changes from FY2013

232.3
73.3
70.6
17.8%
1,139[-7.8%]

Reference Scenario: Seven nuclear power plants restart by the end of FY2016.
About one plant restarts every month in FY2017 and 19 plants in total restart by the end of FY2017.
Low Case: Five nuclear power plants restart by the end of FY2016.
About 0.5 plant restarts every month in FY2017 and 12 plants in total restart by the end of FY2017.
High Case: Nine nuclear power plants restart by the end of FY2016.
About 1.5 plants restart every month in FY2017 and 25 plants in total restart by the end of FY2017.
Best Mix Case: A hypothetical case reflecting the power generation mix (22%-24% of renewables, 20%-22% of nuclear, etc.)
in the Long-term Energy Supply and Demand Outlook by METI (2015).
1. Thirty-nine reactors operated at the end of 2010.
2. Sum of fuel cost, FIT purchasing cost and grid stabilising cost divided by total power generation.

Contact: report@tky.ieej.or.jp
Economic and Energy Outlook of Japan through FY2017|5