Household costs set to rise after Japan announces phase out of Russian coal

The government’s plan to phase out coal imports from Russia is likely to lift household electricity bills, with coal procurement costs set to rise.

The government will “take responsibility for securing alternative (sources),” industry minister Koichi Hagiuda has said.

But it will take time to find other suppliers.

Japan announced the coal import termination to stay in step with other members of the Group of Seven industrialized democracies, which has vowed to impose additional sanctions on Russia for its alleged atrocities in Ukraine.

Japan imports almost all of its coal, with Russia accounting for about 10% of the imports.

Russia’s share stands at 13% for thermal coal mainly for power generation and 8% for coking coal chiefly for steel-making.

Thermal coal, which accounts for around 60% of the world’s total coal supplies, has drawn more criticism than other types as the world moves to decarbonize.

Major Japanese trading houses have let go of their interests in thermal coal production projects. “Investments are on the decline,” a senior official at one trading company said.

As a result, “global coal supplies are tight, and prices remain elevated,” an industry ministry official said.

Nevertheless, Japan continues to rely on coal-fired power plants because they are a low-priced source of electricity and also useful when power supply adjustment becomes necessary.

Electric Power Development Co. , or J-Power, relied on Russian coal for 8% of its thermal plant fuel coal in fiscal 2021. The figure stood at 9% in April-December 2021 for Chugoku Electric Power Co. and slightly over 10% in fiscal 2020 for Jera Co., a joint venture between the Tokyo Electric Power Company Holdings Inc. group and Chubu Electric Power Co. .

Japan must secure alternative supplies from Australia or Indonesia if it is to reduce Russian imports, but both have incurred production drops due to heavy rain, a trading house official said.

“Supplies will get even tighter, sending procurement costs for alternatives spiking” if Russian coal is shut out of the market, said an official of a major power company.

Higher coal procurement costs are likely to intensify upward pressure on electricity bills.