IEEJ © December 2015. All Rights Reserved.

18 December 2015
The 422nd Forum on Research Work

Economic and Energy Outlook of Japan through FY2016
Japanese economy on its way for recovery with help from oil prices.
Appropriate domestic energy policy measures are required.
YANAGISAWA Akira, R. Ikarii, S. Iwata, R. Eto, K. Tomokawa, E.S. Lim, M. Tsunoda, C. Onda,
Y. Shibata and K. Ito

Executive summary
Nuclear power generation | Restart under new control rules is under way▌ In November 2015, the #2 unit of the Sendai Nuclear Power Station has restarted its commercial
operations. It is the second unit to restart under the new regulation standards, following the #1 unit,
which restarted last September. This paper analyses the influences on the 3Es (Economy, Energy
Security, and Environment) of four cases of different levels of nuclear power units approval andrestart by the end of FY2016.
▌ The [Reference Scenario] assumes the restarts of three more nuclear power units to proceed in
FY2015. By the end of FY2016, 12 units will have restarted, on average at the pace of approximately
one unit every second month. They will be in service on average for only seven months during
FY2016, for a total electricity generation reaching 61.8 TWh, which is 21% of the pre-earthquake
FY2010 level. Compared to FY2010, total spending on fossil fuel imports decreases by JPY2.1 trillion
because of energy saving and lower fossil fuel prices, while the average power generation cost rises
by about JPY2,100/MWh. Relative to the same period, the self-sufficiency rate remains lower by 6.1%
point at 11.7%.
▌ In the [High Case], which assumes a total of 18 units to restart by the end of FY2016, total fossil fuelimports spending decreases by JPY0.4 trillion relative to the [Low Case] where only six units are
assumed to restart. In this comparison, the average power generation cost is lowered by about
JPY400/MWh, the self-sufficiency rate improves by 2.1% point and the energy-related CO2 emissions
decrease by 24 Mt-CO2 (2.1%) whilst GDP increases by JPY0.3 trillion (0.05%).
▌ The hypothetical [Highest Case] assumes that 25 units for which applications for conformity tests
have been submitted, excluding Oma Power Station which is under construction, do generate
electricity with a capacity factor of 80% in FY2016. Under this Case, compared to the [Low Case], total
fossil fuel imports spending decreases by JPY1.1 trillion, the average power generation cost islowered by about JPY1,200/MWh, the self-sufficiency rate is improved by 6.2% point and theenergy-related CO2 emissions are decreased by 69 Mt-CO2 (6.0%) with GDP increases by
JPY0.8 trillion (0.14%).
▌ The restart of Sendai Nuclear Power Station is only the first step of the reutilisation of nuclear power.
There are many issues ahead to be addressed in order to realise a balanced energy mix.

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Figure 1 | Impacts of restarting nuclear power plants
Nuclear power

Power generation

Total spending on

generation (TWh)cost (JPY/kWh)fossil fuel imports

LNG imports (Mt)

CO2 emissions(Mt-CO2)(JPY trillion)
300

288
14

25

174 12

82
62
34

0
0
2010 2012 2014 2016

10.5
10.3 20
10.1
9.3

10

25.1

82.5
80

Low Case

1,200

77.3 1,150
75High Case

1,144
1,139

1,131
1,121

1,100

18.1

Reference Scenario

1,190

79.6

70.6
16.3 70
16.0
8.2
15.9
8
15
15.2 65
2010 2012 2014 20162010 2012 2014 20162010 2012

Historical

1,250

89.1

85

200

100

90

30

14.4

67.4
2014

1,075

1,050
2010 2012 2014 20162016

Highest Case

Lower oil price and its positive impacts | Lower energy burden forhouseholds and boosts for business▌ Lower crude oil price brings benefits for households. During the period of higher crude oil prices,
households of colder climate regions spent twice as much on energy as those of warmer climate
regions. The discrepancy diminishes to 1.8 times in FY2016. As the future of crude oil prices is
uncertain, colder climate regions should remain alert against the risk of higher oil prices.
▌ If the oil and LNG prices become lower by $10/bbl and by $1.4/MBtu, respectively, they willcontribute to a positive growth cycle for consumption and investment and Japan’s GDP will increaseby 0.4% (JPY1.9 trillion). The virtuous influence will reach domestic demand type industries that do
not consume much in terms of fossil fuels, such as oil, and will increase the total production value by
JPY3.4 trillion and employment by 220,000 persons. On the other hand, all this is vulnerable to apossible hike of oil and LNG prices. In order to prepare for such eventuality, the promotion of an
appropriate economic growth strategy, distribution policies and energy policies is needed.

Executive summary of outlook through FY2016 [Reference Scenario]
Macro economy | Japanese economy grows by 0.9% and 1.5% due toimprovements of domestic demand▌ Japan sees its economic recovery strengthening towards the latter part of FY2015 with the economy
growing on average at 0.9% during the period. Private consumption gradually recovers due toimproved employment status and higher wages; private investment improves supported by higher
corporate profits induced by lower oil prices; and exports benefit from the yen’s depreciation. For
FY2016, the economic expansion continues and GDP grows at 1.5% for the period, led by a strong
domestic demand.

Energy supply and demand | In FY2015, energy use decreases to below
470 Mtoe (first time in 25 years) and it will continue to decrease in FY2016▌ Total primary energy supply in FY2015 decreases due to the slow recovery in domestic production of
the manufacturing sector. Because of a continued economic expansion and return of electricity

Economic and Energy Outlook of Japan through FY2016|2

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demand, the decline of energy supply of FY2016 will slow down with the level slightly less than theprevious year despite the continuing energy saving. The restart of nuclear power plants will sharply
reduce the oil and natural gas consumption for power generation.
▌ In FY2016, final consumption increases in buildings sector by 0.4% due to economic recovery andtemperature effect. Industry sector’s consumption decreases because of continued energy
conservation and reduced production in energy-intensive petrochemical industry. Transport sector
consumes less due to improved fuel efficiency and the effect of the previous leap year. The overall
consumption will mark six consecutive years of decrease.

Energy sales | City gas and electricity grow. Fuel oil declines after respite▌ Electricity sales by utilities decrease slightly in FY2015, because of stumbling production, slow
economic recovery, cooler summer and warmer winter. In FY2016, sales for lighting services, mainly
to households, increase for the first time since the Great East Japan Earthquake. This is because of a
return to normal temperatures and a relaxed consciousness towards electricity savings. Sales for
power services, mainly large-scale power users, increase, reflecting better economic conditions.
▌ City gas sales in FY2015 slightly decrease because of a delayed production recovery in the
manufacturing sector. In FY2016, sales to industry will increase reflecting the recovery of production
activities and fuel switching while all the sales except for electric utilities will also increase. The
temperature factor will also push the sales up. The overall sales will renew the highest-level marked
five years ago.
▌ Despite lower oil prices and the additional effect of a leap year, total fuel oil sales show an overall
decrease in FY2015, primarily in response to a huge decline in the use of Type C fuel oil for power
generation. In FY2016, sales for Type A and Type C fuel oil products will decrease because of fuelswitching and the use of naphtha will decrease because of a reduced ethylene production.
Consequently, this leads to overall sales to be less than 180 GL, the lowest level in 47 years.

Renewable power generation | Operational capacities will reach 60 GW. The
cumulative cost burden could be JPY55 trillion▌ The rapid expansion for renewable power generating capacity of the last few years, supported by agenerous Feed-in Tariff (FIT) system, is slowly subsiding due to the cancellation of approval forcontracts/permits without secured land and/or facilities, setup grid connection-ready capacities orstrengthened power control. Despite such situation, the operating capacity by the end of FY2016 willreach 60 GW.
▌ Coincidently, the unavoidable burden expands also. The cumulative cost burden for 20 years could
be JPY55 trillion if all of the approved 87.7 GW (of which 82.1 GW is solar PVs) by the end of July
2015 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 household and 19% for industrial consumers.

CO2 emissions | Reduce for three consecutive years, FY2016 lower than
FY2010 level▌ Energy-related CO2 emissions reached a historical high of 1,235 Mt-CO2 in FY2013 but will decrease
for three consecutive years through FY2016. The restart of nuclear power plants combined with theincrease in renewable energy and energy conservation will considerably diminish oil and natural gas

Economic and Energy Outlook of Japan through FY2016|3

IEEJ © December 2015. All Rights Reserved.

consumption, lowering the emission amount down to 1,131 Mt-CO2 in FY2016. CO2 emissions will be
8.5% less than in FY2013 and 0.7% less than before the earthquake (FY2010).

Table 1 | Summary of Reference Scenario
Historical
Projections
Year-to-year changes
FY2010 FY2012 FY2013 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016

513.3
232.3
2
73.3
Natural gas (Mt of LNG equiv.)
LNG imports (Mt)
70.6
2
184.7
Coal (Mt)
Nuclear (TWh)288.2
Renewables excl. large hydro (TWh) 22.8
Final energy consumption (Mtoe)
339.4
3
158.3
Industry
Buildings
98.0
Transport
83.1
Petroleum products
176.2
Natural gas and city gas
34.3
Coal and coal products
35.9
Electricity
89.8
Electricity sales (TWh)
926.6
39.28
City gas sales4 (Billion m3)
Fuel oil sales (GL)
196.0
Energy-related CO2 emissions (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

EconomyPricesEenrgyOil2 (GL)

483.6
242.8
88.6
86.9
183.4
15.9
67.9
321.7
148.4
92.9
80.4
165.5
34.9
34.3
84.6
870.9
40.33
197.8
1,221
98.9
114
866
16.7
127
173
474.4
519.5
95.8
82.6

488.5
234.5
90.1
87.7
194.6
9.3
76.0
321.3
151.0
90.9
79.5
163.9
34.4
35.5
84.5
871.5
39.82
193.6
1,235
100.0
110
837
16.1
108
135
482.4
529.8
99.0
100.0

473.1
217.6
90.5
89.1
190.0
0.0
87.6
312.7
147.3
88.2
77.1
157.9
34.3
34.9
82.7
851.4
40.16
183.0
1,190
96.4
89
800
15.3
93
109
489.6
524.7
98.5
109.2

469.0
212.2
86.7
85.0
189.6
10.6
102.8
311.6
146.6
87.6
77.4
157.4
34.1
34.7
82.5
849.3
40.01
180.9
1,162
94.1
52
433
8.3
76
89
501.0
529.3
98.3
122.1

468.6 -3.2% -0.9% -0.1%
203.6 -7.2% -2.5% -4.0%
81.8 0.4% -4.1% -5.7%
79.6 1.5% -4.5% -6.4%
190.2 -2.4% -0.2% 0.3%
61.8 -100%.. 484%115.7 15.2% 17.3% 12.6%
309.0 -2.7% -0.4% -0.8%
145.0 -2.4% -0.5% -1.1%
87.9 -2.9% -0.8% 0.4%
75.9 -3.0% 0.3% -1.9%
153.3 -3.7% -0.3% -2.6%
34.6 -0.3% -0.5% 1.4%
34.8 -1.6% -0.8% 0.5%
83.3 -2.1% -0.3% 1.0%
857.9 -2.3% -0.2% 1.0%
40.53 0.9% -0.4% 1.3%
175.1 -5.5% -1.1% -3.2%
1,131 -3.6% -2.4% -2.7%
91.5
..
..
..
53 -19.0% -41.4% 0.9%
382 -4.5% -45.8% -11.7%
7.3 -4.5% -45.8% -11.7%
76 -14.2% -17.7% 0.3%
88 -19.6% -18.0% -1.0%
511.3 1.5% 2.3% 2.1%
537.1 -1.0% 0.9% 1.5%
99.8 -0.5% -0.2% 1.5%
124.8 9.3% 11.8% 2.2%

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. Industry includes non-energy use.
4. Conversion factor: 1 m3 = 10,000 kcal

Economic and Energy Outlook of Japan through FY2016|4

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Table annex | Impacts of restarting nuclear power plants
FY2010[FY2015]

Cumulative number ofrestarted nuclear reactors

1

..
..
..
288.2

FY20016

Average period for operation (months)
Electricity generation by nuclear (TWh)FY2010FY2016
Low Case

Reference
Scenario

[3]
6
8
34.0

[5]
12
7
61.8

FY2016 (changes from FY2010)
Low Case Reference High Case
Scenario

2

Power generation cost (JPY/kWh)EconomyTotal fossil fuel imports (JPY trillion)
Oil
LNG
Trade balance (JPY trillion)
Real GDP (JPY2005 trillion)
Gross national income (JPY trillion)

(8.2)
18.1
12.3
3.5
5.3
512.7
493.8

High Case Highest Case

[5]
18
6
82.2

..
25
..
174.1

FY2016 (changes from the Low Case)

Highest Reference High Case

HighestCase

Scenario

+1.1
-3.0
-2.3
-0.3
-6.3
+25.0
+41.9

-0.2
-0.2
-0.1
-0.1
+0.2
+0.2
+0.2

-0.4
-0.4
-0.1
-0.3
+0.4
+0.3
+0.3

-1.2
-1.1
-0.4
-0.7
+1.0
+0.8
+0.8

-27.1
-28.8
-30.1
-35.6
+11.4
+8.4
+6.2
-3.7
+11.9
+9.0
+6.8
-3.2
-7.3p
-6.1p
-5.2p
-1.2p
+6
-8
-18
-63
[-7.3%] [-8.5%] [-9.3%] [-12.9%]

-1.8
-2.9
-2.9
+1.2p
-14
..

-3.0
-5.2
-5.2
+2.1p
-24
..

-8.5
-15.1
-15.1
+6.2p
-69
..

+2.3
-1.9
-2.0
+0.4
-7.3
+24.2
+41.1

+2.1
-2.1
-2.0
+0.3
-7.1
+24.4
+41.3

+1.9
-2.3
-2.1
+0.2
-6.9
+24.5
+41.4

Case

ment

Environ-EnergyPrimary energy supply

232.3
73.3
LNG imports (Mt)
70.6
Self-sufficiency rate
17.8%
Energy-related CO2 emissions (Mt-CO2)
1,139
Changes from FY2013[-7.8%]
Oil (GL)

Natural gas (Mt of LNG equivalent)

Reference Scenario: Commercial operation resumes in autumn 2015, followed by one unit restarting
about every second month.
Low Case: Commercial operation delayed compared to the Reference Scenario, with the other units
to restart about one year later.
High Case: Commercial operation resumes in autumn 2015, followed by one unit restarting about every month(thanks to a more efficient assessment process).
Highest Case: A hypothetical case where 25 units generate electricity with an 80% capacity factor.
1. Thirty-nine reactors operated at the end of 2010.
2. Power generation cost in FY2010 is for the general electric utilities, estimated based on
their profit-and-loss statements.

Contact: report@tky.ieej.or.jp

Economic and Energy Outlook of Japan through FY2016|5