Singapore (Platts)--18Jun2012/533 am EDT/933 GMT

Moody's Japan said Monday that Japan's decision to allow the restart of two nuclear reactors was supportive of the financial profile of the country's utilities sector, although many uncertainties remain.

Prime Minister Yoshihiko Noda on Saturday gave the go ahead to Kansai Electric Power Co. (Kepco) to restart the No. 3 and No. 4 reactors at its Oi plant in Fukui prefecture in an effort to prevent a summer power shortage.

Kepco took the No. 3 unit offline about one year and three months ago for routine maintenance, and the No. 4 unit about a year ago, according to a Kyodo news agency story carried on Nikkei.com Monday.

The plants have been idled much longer than the four months it usually takes for maintenance, amid the increased public concern over the safety of nuclear power after last year's earthquake and subsequent meltdown at Tokyo Electric Power Co.'s Fukushima nuclear power plant.

Kepco has to remove rust from pipes and make other preparations before bringing the reactors back into operation, Kyodo reported. Industry minister Yukio Edano on Monday urged Kepco President Makoto Yagi to make the utility do its utmost to ensure safety while reactivating the two reactors.

At least one of the reactors is expected to be back online and generating power as soon as July 4, AFP reported over the weekend.

"The decision indicates that the authorities are beginning to develop a new long-term -- although still emerging -- approach to regulating the power industry in Japan, following the problems encountered after the March 11, 2011 earthquake," Moody's said.

The shutdown of all nuclear plants in Japan after the incident at Tepco's Fukushima Daiichi nuclear power station resulted in financial losses at almost all nuclear-dependent utilities in the fiscal year ended March 31, 2012.

"The decision to restart the two reactors, although very limited in itself, is an indication of an emerging consensus, at least for the short term...[and] is important to returning the industry to profitability," the ratings agency said.

Prime Minister Noda's decision to allow Kepco to restart the No. 3 and No. 4 Oi reactors also reflects the recognition that without nuclear power, Kepco's customer area -- which includes Central Osaka, the second largest business district in Japan -- would suffer energy shortages equal to about 15% of demand during the peak summer demand season, Moody's said.

"Such shortages could lead to significant social and economic difficulties," it said.

However, the government still has not laid out a path for other utilities to restart their nuclear power plants, depriving them of a clear view of their future energy mix and cost structure, Moody's said.

It is also not clear how the decision will affect Kepco's own profitability, Moody's said, pointing out that for one, it was not certain how long the No. 3 and No. 4 Oi reactors would be allowed to operate.

"If the reactors are taken offline after the peak season, their contribution to Kepco's overall profitability would be limited," Moody's said.

In addition, Moody's said the restart of Kepco's reactors could be an exception as the potential power shortages in its customer regions were seen as the largest in Japan.

Third, the overall costs for operating nuclear plants after the March 11 earthquake were expected to increase substantially due to new regulations, and additional and expensive safety-related changes.

"These may include new safety equipment and longer shutdowns for maintenance. Such changes could substantially erode or even eliminate the economic benefits of nuclear power," Moody's said.

None of the Japan's 46.15 GW of nuclear capacity, spread over 50 reactors, is currently on line. That capacity represents 20% of Japan's total installed power generation capacity of 225.667 GW.

Without that power capacity -- or the greater majority of it since March last year -- Japanese utilities have seen their purchases of fossil fuels soar as they try to make up for the shortfall, and that has damaged their profits.

This summer's peak power demand season -- which normally runs July-September -- for crude and fuel oil demand for power generation is estimated to be about 700,000-800,000 b/d, probably the highest level in at least 10 years, industry sources and analysts told Platts earlier this month.

Japan's purchases of LNG have also raced ahead, with Japan's 10 major power utilities consuming 4.41 million mt of LNG in May, a record for the month and up 22.2% year on year, according to data released last week by the Federation of Electric Power Companies showed.

The estimates for this summer's crude and fuel oil consumption compiled by Platts are based on expectations that a majority of nuclear plants would remain offline during summer this year.

The restart of the two nuclear reactors would have minimal impact on reducing overall oil consumption by Japanese power utilities during the summer as their capacity only accounts for 1.3% of the total installed capacity in Japan excluding nuclear reactors, according to industry sources.

--Thomas Hogue, thomas_hogue@platts.com
--Edited by Martin O'Rourke, martin_orourke@platts.com

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