Nuclear shutdown threat to Japan economy

TOKYO (Reuters) - Japan urgently needs new safety guidelines on nuclear power plants to avoid them being shut down completely by next spring, which would curb economic growth by 1.6 percent, the head of a leading think tank said on Friday.

The last of Japan's 54 nuclear plants could be shut by next April, leaving the country with no electricity from nuclear power, unless central government in Tokyo faces down public disapproval and overrides resistance from local officials to having reactors restarted after maintenance checks, said Kazumasa Iwata, president of the Japan Center for Economic Research.

Japan has been forced into a complete rethink of its energy policy with the government facing harsh criticism over its handling of the aftermath of the March 11 earthquake and tsunami and the ensuing radiation crisis at Fukushima Daiichi nuclear plant.

"In the most pessimistic scenario, growth will be shaved by about 1.6 percent in fiscal 2012/13, with the effects still felt until fiscal 2020/21, when growth will be lowered by about 0.5 percent," Iwata told Reuters in an interview.

To pave the way for restarting reactors and avoiding such a scenario, the government must clear three conditions, Iwata said. He listed these as a thorough investigation of how the nuclear crisis occurred and what new steps could prevent the same mistakes being made; setting globally acceptable safety standards; and setting up an independent regulatory body to decide on reactor restarts.

"These steps should be taken by the end of the year. Japan is battling against time, but what the government is doing is putting priorities in the wrong order," said Iwata, a former deputy governor of the Bank of Japan. "Reactors that meet thorough safety standards should be restarted. Otherwise, one must question whether Japan's economy can be sustained," he said.

Before the March disaster, which devastated northeast Japan, nuclear power accounted for about 30 percent of the nation's electricity, with a goal of raising that figure to over 50 percent.

Renewable forms of energy have the potential to become substantial sources of power but it takes time to develop them and they would not meet the imminent need for electricity supply, he said.

Prime Minister Naoto Kan has announced a plan that would see solar panels on the roofs of some 10 million houses by 2030, but the government has so far failed to follow through.

Japan's parliament has yet to pass a bill on a so-called "feed-in" tariff system which is vital for introducing renewables. It would oblige utilities to buy at higher rates electricity from all types of renewable sources.

COST TRANSPARENCY NEEDED

Iwata said a policy of boosting energy self-efficiency and also cutting CO2 emissions through the use of nuclear power is still valid, but the Fukushima crisis has highlighted the challenge of forming the best energy mix. That would reflect the rising cost of the risk involved in nuclear power, long considered a cheaper source of electricity.

He said innovations in technology would allow large-scale production of solar panels and bring down the cost of solar power, while wind power and geothermal also have potential to grow to supplement a lack of nuclear power supply.

Given the trend for rising prices in fossil fuel markets, Japan would need to shift to more renewable sources, Iwata said.

In order to raise the use of renewables, currently considered more expensive than nuclear power, a transparent price mechanism for electricity that reflects demand and supply is needed, he said.

(Editing by Michael Watson)