Financial Sector Reactions to the Fukushima Crisis

This post is excerpted from an upcoming Worldwatch report on nuclear power in a post-Fukushima world.

With the crisis at Fukushima still unfolding as of early April 2011, the long-term impact of the disaster remains highly uncertain. In mid-March, however, London-based bank HSBC undertook a first analysis of some of the areas where the nuclear sector has been and might be affected. These include:

  • Safety reviews of reactors in several countries (e.g., Germany, Spain, Switzerland, the U.K., and the United States);• Immediate shutdown of older reactors (e.g., Germany);
  • Limited or no further lifetime extensions for aging reactors (e.g., Germany, the U.K., the United States);• Suspension of new plant approvals (including in China, which was expected to account for 40 percent of new installations over the next decade);
  • Review of reactors under construction in seismically active zones;
  • Higher safety and other costs (as yet hard to quantify) for new and existing nuclear facilities that would render nuclear power less economic or uneconomic; and
  • Re-evaluation of planned energy policy in all nuclear countries, with a greater focus on energy efficiency measures and natural gas and renewables installations.

Nuclear and Clean Energy IndexThe HSBC report concluded that, “overall, we expect a number of impacts from the public and political backlash against nuclear, which could mean the focus switches to renewables.”

Trends in Standard and Poor’s nuclear and clean energy indexes also clearly illustrate the changing fortunes of these two sectors during the first quarter of 2011.  Although the two indexes had been tracking closely early in the year, after the Fukushima crisis in early March the valuation of clean energy companies rose 17 percent on average, while that of nuclear companies fell 8.7 percent.

Analysts anticipate more specific implications for Japanese companies, and not just for TEPCO, the utility that owns the troubled Fukushima reactors. In April, credit rating agency Moody’s suggested that the nuclear crisis could significantly impact Japan’s electric utility sector, resulting in “a fundamental reassessment of the use of nuclear power in Japan, perhaps resulting in earlier than anticipated decommissioning of some nuclear plants and the potential cancellation or indefinite postponement of some new nuclear generation.” These developments,according to Moody’s, “are likely to result in accelerated decommissioning costs, increased capital expenditures for higher cost replacement generation, lower reserve margins, and higher operating costs at existing nuclear plants as a result of increased scrutiny, more stringent safety procedures, and longer required maintenance outages.”

Japan’s nuclear builders will be affected severely as well. In early April, Deutsche Bank’s Takeo Miyamoto stated that “any plans to export all-Japan nuclear reactor projects will be delayed,” and Yuichi Ishida with Mizuho Investors Securities Co. in Tokyo commented that “the myth of Japan’s nuclear safety is dying.” Such fears have led to a dramatic decline in the share prices of reactor manufacturers Hitachi and Toshiba.

Analysts at Swiss-based investment bank UBS summarized the likely global impact of Fukushima in a report dated April 4, 2011: “At Fukushima, four reactors have been out of control for weeks—casting doubt on whether even an advanced economy can master nuclear safety…. We believe the Fukushima accident was the most serious ever for the credibility of nuclear power.”

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