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Boston, MA -- (SBWire) -- 06/12/2013 --The second anniversary of the Great East Japan Earthquake of March 2011 found Japan power sector still reeling and redefining its future. The landslide election victory by the Liberal Democratic Party (LDP) in December 2012 brought about a significant change in the government's attitude towards nuclear energy. However, several factors - chiefly the upcoming upper house elections and the ongoing work on new nuclear safety standards - continue to convolute the outlook. While we maintain our view that nuclear generation will play an important part in Japan's electricity mix in the long-term, restarts could thus be delayed in the near term. Hence, reliance on thermal generation will remain high in the coming years, with the government set to hike coal consumption to limit expensive oil and gas imports.

The nuclear plants that did not shut down immediately after the quake and resulting tsunami that hit Japan in 2011 were eventually forced to go offline for their required scheduled outages over 2012. With political pressures preventing restarting; Japan thus found itself without atomic power for the first time since 1970 when Tomari Unit 3 shut down in May 2012. Faced with overcoming a severe energy situation for the summer of 2012 through electricity conservation schemes and measures to secure supply capacity, the Democratic Party of Japan (DPJ)-led government eventually supported the restart of Ohi Units 3 and 4 in July 2012. Yet, it committed to phase out nuclear by the 2030s. However, the landslide election victory by the LDP brought about a new U-turn in the Japanese government's attitude towards nuclear energy. Not only is the new government supportive of restarting existing facilities, but on December 31 2012, the new Prime Minister Shinzo Abe also stated that his government will endorse the construction of new nuclear power plants. In a policy that echoes our view, the LDP believes that a nuclear phase out is not a realistic option for the country.

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In spite of these new commitments, the power sector remains in a state of flux, as political and regulatory dynamics cloud the outlook. Overall, we thus believe that excessive optimism towards the future of the sector and of Japanese utilities could be premature, and anticipate that thermal-fired generation will continue to play a prime role in 2013 - especially as progress has been made in building new thermal power plants and repairing existing ones. We also believe that, although the government may not set numerical power-saving goals this summer according to recent news reports, continuing efforts to save electricity nationwide will be supported by hikes in power tariffs - necessary to pay for surging fuel costs at their thermal power plants. Most specifically, we highlight that:

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