The answer to Japan’s energy needs

Japan relies on nuclear energy and fossil fuels to fulfil its energy needs. But the Fukushima disaster and a falling yen are causing it to rethink its policy. Given that it sits on huge reserves of virtually free geothermal energy, it shouldn’t have to think too hard.

One of the many things to worry about now that Japan is finally doing what we have been waiting for it to do (devaluing the yen and so pushing up the stock market at speed) is the effect the falling currency will have on the price of its energy imports.

With that in mind it is worth reading this report of a talk given by Stefan Larus Stafansson, the ambassador of Iceland to Japan, at the United Nations University Headquarters in Tokyo late last year.

In it he notes that geothermal has become the backbone of the Icelandic economy some 66% of its energy comes from domestic geothermal sources (which must have been useful when the krona collapsed in 2008).

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However, he also notes that Japan has the world's third greatest geothermal potential (something that won't surprise anyone who has ever been on an onsen trip in Japan) and that, were they to use it, the energy produced could replace 25 nuclear reactors.

Yet back in the late 1990s, Japan, under the LDP, made a decision to focus on nuclear power at the expense of all other types. The last geothermal plant in Japan was built in 1999, and all research support from the government was suspended in 2003.

Just as interesting is the fact that nearly all the geothermal turbines used in Iceland are made in Japan the market is controlled by Mitsubishi Heavy Industries, Toshiba and Fuji.

There is talk about new plants, including one in Fukushima itself, but things aren't exactly moving very fast.

Perhaps the fall in the yen they have now orchestrated so brilliantly might focus the minds of the LDP a little more on Japan's long term energy prices and their effect on the current account: last month's trade deficit came in at yet another new record thanks almost entirely to rising energy costs.

PS: Heating prices in Iceland are the lowest in northern Europe, thanks to the use of naturally hot water to heat homes. Iceland also uses its hot water to farm tropical fish.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.