Power firms must ensure stability of electricity supply despite declining business performance

With the prices of fuel for thermal power generation soaring, the business performance of electric power companies has been deteriorating. Each company needs to make every possible effort to ensure that the stable supply of electricity is not affected.

Of the 10 major electric power companies, six, including Tokyo Electric Power Company Holdings Inc. and Chubu Electric Power Co., are expected to post net losses in their consolidated results for the business year ending March 2022. The net losses of TEPCO and Tohoku Electric Power Co. are estimated at ¥41 billion and ¥45 billion, respectively.

Under a government program, major power utilities are allowed to pass on the rising costs of fuel such as crude oil and liquefied natural gas (LNG) in electricity bills. However, it takes several months to pass on the rising costs in bills, and the earnings of the companies are pushed down in the interim period.

In addition, the prices the firms charge consumers can only be a maximum of 1.5 times the predetermined base fuel price. The excess amount is to be borne by the power companies. Hokuriku Electric Power Co., Kansai Electric Power Co. and Chugoku Electric Power Co. have already reached the threshold.

Soaring fuel prices are expected to be prolonged. Each power utility needs to take immediate measures, such as reviewing fuel procurement methods and reducing power generation costs.

If their earning strength declines, electric power companies will lose the capacity to invest in power generation facilities. Partly because of intensifying competition following the liberalization of the electricity market, the investment of major power utilities in power generation facilities was ¥1.3 trillion in 2019, down about 30% from 1995 when liberalization began.

As a result of companies’ efforts to abolish aging thermal power plants, which were inefficient and unprofitable, their power generation capacity has declined, causing a tightening of the supply-demand balance for electricity.

A situation must be avoided in which power supply shortages will occur due to further deterioration in the performance of each company.

The government’s role will also become important to control fuel prices. The price of benchmark U.S. crude oil futures temporarily reached $93 per barrel on Feb. 4, the highest level in seven years and four months.

However, OPEC+, which comprises the members of the Organization of the Petroleum Exporting Countries and oil-producing nonmembers such as Russia, has not responded to requests from oil-consuming countries, including the United States, to increase the pace of production.

The Japanese government should continue to call for increased production in close cooperation with other oil-consuming countries.

The use of nuclear power is effective in improving the financial situation of electric power companies. Nuclear power generation is less susceptible to rising fuel prices. It is said that the restart of nuclear reactors is expected to boost the annual earnings of electric power companies by tens of billions of yen per unit.

Earlier this month, the European Commission, the European Union’s executive body, acknowledged that nuclear power was necessary for both the stability of the electricity supply and decarbonization. As nuclear power plants do not emit carbon dioxide and provide stable output, the benefits of utilizing them are significant. In Japan as well, it is essential for the government to support the restart of nuclear reactors.

— The original Japanese article appeared in The Yomiuri Shimbun on Feb. 9, 2022.