April 6, 2011 / 6:41 AM / 6 years ago

Japan may order Tokyo-area industry to conserve power

TOKYO (Reuters) - Japan's trade ministry may order big manufacturers in the country's economic heartland around Tokyo to cut their peak summer power use by 25 percent, a ministry official said, as it considers dramatic steps to avert crippling blackouts.

The ministry is also likely to set power-saving targets for households and small businesses, the official said, in what would be the first government curbs on power use since the oil crisis of 1974.

Tokyo Electric Power is scrambling to secure enough power for the capital area's factories and air-conditioners this summer after a devastating earthquake and tsunami took out 23 percent of its generating capacity, including the Fukushima nuclear complex.

The ministry has estimated that, with a particularly hot summer like last year's, peak power production could fall short of demand by as much as a quarter, although Tokyo Electric estimates it can bring more supply on line than the ministry has assumed, while users have been curtailing demand.

The official, who declined to be identified, acknowledged the ministry was operating on very conservative assumptions.

"With the efforts by users to reduce consumption as well as by Tokyo Electric to minimize supply shortages, the gap isn't expected to be as wide," he told Reuters.

Analysts also doubted the ministry would need to demand such drastic power savings.

"I am very skeptical that there will be such severe cuts. These reports seem to be part of a drive to encourage energy conservation in order to minimize disruption over the summer," said Richard Jerram, chief Asian economist at Macquarie Securities.

Rolling Blackouts

The ministry aims to finalize strategies to cope with the peak summer season by the end of April, the official said.

With the Tokyo area and regions further north, served mainly by Tokyo Electric, accounting for half of Japan's economic activity, analysts believe power blackouts could become the greatest source of economic damage to Japan from last month's disaster, disrupting production and global supply chains.

"There is no denying that the output lost due to the energy deficiency in Japan will have a negative impact on growth and earnings there, in Asia and around the world," said Kirby Daley, senior strategist at Newedge Group in Hong Kong.

"I am concerned this has not been properly factored into many markets outside of Japan, and it is questionable to me whether or not it has been fully discounted there."

Nomura recently estimated that power shortfalls in the Tokyo area and to the north could slice about 5 percent off recurring profits this business year for the 400 biggest firms it tracks.

Business groups, including the influential Japan Business Federation (Keidanren), are consulting with members on a coping strategy that includes using in-house power generators and coordinating production schedules.

"If the schedule for capping peak power demand is clear, then we can manage somehow," a senior aluminum industry executive said.

"But the bigger issue is the indirect impact from other stages of the supply chain. If a lack of electricity prevents processing of raw materials, then it could hit our manufacturing or other parts makers. That's a separate issue."

Tokyo Electric had rolling blackouts last month after the March 11 earthquake and tsunami, although it has since restarted some damaged thermal power plants and has been able to avoid blackouts since March 28, helped also by warmer weather.

The giant Fukushima nuclear complex remains offline in a protracted safety crisis, however, and the trade ministry estimates a potential shortfall of 10,000 to 15,000 megawatts when air-conditioner use kicks in over the summer, if unusually hot temperatures push demand up to 60,000 MW.

But Tokyo Electric has estimated that it can rush enough thermal plants online, including mothballed facilities, to close the gap to about 5,000 MW.

Electricity rate hikes have also been floated to curb household consumption but the idea has been facing strong political resistance, the ministry official said.

He also rejected media reports that the Tokyo utility would rule out use of rolling blackouts after April, saying they may become necessary to ensure there are no unexpected outages that would take down power for Tokyo Electric's entire service area.

"Rolling blackouts would remain as a last resort," he said.

Additional reporting by James Topham, Chang-Ran Kim, and David Dolan; Editing by Clarence Fernandez

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