Japan proposes incentives for renewable energy to help reduce nuclear dependence

Analyst Commentary, Matthew Bovencamp: Japan produced approximately 30% of their electrical needs through nuclear reactors before the Fukushima crisis. Since the crisis, Japan has been placing its 50 nuclear reactors offline for maintenance, with the last scheduled for shutdown next month. The reactors will remain offline pending safety tests and government approval for restarts. To help fill the electrical shortage and reduce Japan’s reliance on nuclear power, a government panel proposed incentives for renewable energy such as biomass, solar, and wind power. Most forms of renewable energy require subsidies to be profitable and draw investors as the technologies are still in the early stages. 

Although the proposed incentives must be approved by Japan’s Industry Minister, a number of other countries have similar programs in place such as Canada, Spain, France, and Germany. Solar power generation and other renewables have increased significantly in these countries as a result. The incentives in these countries were highest in the initial years but as construction surged the incentives were reduced. We would expect a similar pattern in Japan with initial incentives high to attract development and reduced in later years. The approval would definitely generate growth in Japan’s renewable energy sector, currently at 9% of total electrical production, and would also generate investment opportunities which capitalize on the government incentives. 

In addition, we believe even with the development of renewable energy Japan will only be able to displace a small portion of the total energy demand in Japan. We see the move as a sign that Japan is desperately and actively searching for alternative sources of energy. In the medium to long-run, we see strong potential for the North American natural gas to be exported to Japan and other Asian countries given the current divergence in global natural gas price, improving technology to liquefy natural gas and shortage of energy supply.

Source: Financial Post (Apr 26)

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