Renewable Energy as Substitute of Nuclear Energy Supply: A Strategic Policy Decision for Japan

In UNU-IAS Seminar Series 2011 Series: 2011-04

The conventional pricing mechanism used for electricity systematically hides huge investment and other safety risks which are embedded in the overall cost of production. Especially in the case of nuclear energy, safety risks are often ignored when making an overall cost estimation which keeps it cost competitive. Although consumers are often unaware of these risks, they present a large financial burden on the economy. Renewable energy investment can compensate for the risks associated with the total input costs; such costs being external volatilities of fossil fuel prices, capital costs, operating and maintenance costs, carbon costs and even safety precaution costs which can run into trillions of dollars. Japan could in theory obtain up to 9% of its electricity supply from green sources, as compared to the present 1.37%, based on the utilization of a portfolio risk-analysis evaluation. Explicit comparison of the monetary values of the investment risks of conventional and renewable energy sources shows that renewable energies have high market competitiveness. Based on the findings of our research, we recommend that, as a business objective, investors would benefit by focusing on electricity supply portfolio risk minimization instead of cost. This could also inherently increase the supply of renewable energy onto the market and can obviously reduce the dependence on nuclear energy which has proved to be unsafe and extremely damaging in the event of large-scale natural disaster.