Foreign Policy Research Institute A Nation Must Think Before it Acts Winds of Change: Comparative Energy Security Policies

Winds of Change: Comparative Energy Security Policies

The meltdown of three reactors at Japan’s Fukushima Dai-Ichi nuclear power plant, following the Tōhoku earthquake and tsunami on March 11, 2011 (3/11), was a terrible event.  But for some renewable energy advocates, it also created an opportunity.  There was an immediate revulsion toward nuclear power around the world.  Even in France where three-quarters of the country’s electricity comes from nuclear power, popular opinion unambiguously swung against its continued use.  Across the border, Germany abruptly declared that it would abandon nuclear power and hasten its transition to renewable energy sources such as wind and solar.

How countries change their reliance from one energy source to another is often a hotly debated issue.  Nuclear power was once heralded as a low-cost and environmentally-friendly energy source—a way to end the need for dirty coal and oil.  But after Three Mile Island’s partial meltdown in 1979 and Chernobyl’s catastrophic meltdown in 1986, nuclear power fell out of favor.  But by then, many countries, including Japan and Germany, had already integrated nuclear power as part of their national energy mix and change would entail costs.  But what those costs would be were uncertain.

Until the Fukushima Dai-Ichi meltdown, Japan operated 50 nuclear power plants, generating 30 percent of the country’s electricity.  In fact, in 2002 the Japanese government sought to increase the share of nuclear power in the country’s energy mix to 40 percent by 2017.  Similarly, Germany operated 17 nuclear power plants, providing almost 20 percent of the country’s electricity.   For years, conventional energy supporters and renewable energy advocates clashed over just how quickly and how painful a transition from nuclear power to renewable energy sources would be.  Conventional energy supporters warned of a major economic shock if such a transition was not done gradually.  Meanwhile, renewable energy advocates played down the potential for economic pain after a transition was made.

But after Japan’s 3/11 disaster, both sets of advocates were proven wrong (and right).  The warning from conventional energy supporters was disproved first.  Within two months, Japan shut down 33 nuclear power plants, and two years later only two remained in operation.  Meanwhile, in Germany, eight nuclear power plants that were offline for testing or repair were kept shuddered.  A combination of increased use of coal-fired power plants and renewable energy sources and energy conservation measures—particularly stringent ones in Japan—made up for much of the electricity shortfall.  The economies of both countries muddled through 2011; no economic calamity ensued.

However, renewable energy advocates were also shown to be off the mark.  Two years on, the sudden change from nuclear energy to other energy sources has gradually eroded both countries’ economic competitiveness through higher electricity prices.  As a result, Japan has begun to look to imported natural gas, shipped to the country as liquefied natural gas (LNG).  Japanese electric utilities now seek LNG sources for new gas-fired power plants.  But despite long-term LNG contracts, such plants do expose the country to natural gas price and currency fluctuations over time.  For example, the recent 10 percent decline in the Japanese yen vs. the U.S. dollar pushed up natural gas prices roughly the same amount because natural gas is priced in U.S. dollars.  Japanese industry has long worried about the impact of higher energy costs and has begun to lobby its government to restart idle nuclear power plants.  And with the Japanese economy trapped in multi-decade stagnation, Tokyo seems willing to try, not only to help Japanese industry, but also raise consumer consumption.

Similarly, electricity prices in Germany are now 15 percent higher than the average in the rest of the European Union.  German consumers already pay more for electricity than most other Europeans and have seen their electricity bills climb 40 percent over the last five years to pay for renewable energy subsidies.  Hence, some in Germany have come to wonder whether its Energiewende [energy transition] will lead to lower future economic growth as businesses—particularly those in energy intensive sectors such as machinery and steel—have shown signs of disinvesting in Germany and locating elsewhere.

Moreover, Germany’s shift to renewable energy sources has made the country’s electrical grid more difficult to manage.  The amount of electricity put on a gird must precisely match the amount that is consumed; otherwise variations in voltage could cause rolling blackouts.  Unfortunately, wind and solar energy sources can only generate electricity intermittently.  So even as these sources have become a larger part of Germany’s energy mix, the country’s electrical grid needs a way to smooth out their unpredictability.  That can only be done with conventional energy sources.  And since Germany is committed to phasing out its coal-fired power plants, it is now reconsidering the potential of fracking to fuel gas-fired power plants.

Thus, while it is possible to quickly change from one energy source to another without major mishap, the process cannot escape market fundamentals altogether.  Japan and Germany still need reliable and cost-effective energy sources to remain industrially competitive in the world.  Otherwise some industries will migrate to comparable countries, like the United States where fracking has contributed to a revival of American industrial production.  Renewable energy sources have demonstrated that they can meet a substantial share of modern electricity demands, but certainly not all or even the bulk of it—at least not until an innovator creates the better battery.

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