Japan's Rolling Blackouts Dim Prospects for Recovery

Japanese manufacturers face $60 billion in lost production from power disruptions

Customers shop in semi-darkness inside a Tokyo store Kyodo/Reuters

By Drake Bennett

Even as the world's attention remains fixed on the radiation leaking from the Fukushima Dai-Ichi nuclear reactor complex, many Japanese companies are beginning to reconcile themselves to another legacy of the Great Tohoku earthquake: lack of power. Along with thousands of lives and billions of dollars in property, the Mar. 11 quake and tsunami destroyed 21,000 megawatts of electrical generating capacity—roughly 10 Hoover Dams' worth.

The energy drought is being felt most severely not in the relatively rural Tohoku region, where the tsunami did its greatest damage, but in Kanto just to the south of it. It's the nation's most populous region, with Tokyo at its heart, and the six now-infamous reactors of Fukushima Dai-Ichi generated a little under a tenth of its energy. Tokyo Electric Power has put most of the Kanto region under a schedule of rolling blackouts. When people turn on their air conditioners come summer—a season that usually taxes the region's power grid—the gap between electricity demand and supply is only going to widen. Dealing with that won't be easy: Japan is already among the world's most energy-efficient countries.

Uncertainty worsens the situation. Some days, Tepco has enough power to meet demand; other times it schedules blackouts on extremely short notice. Affected companies are still figuring out how to respond, but the longer the situation continues, the greater the consequences. Analysts at Barclays Capital (BCS) estimate that planned blackouts and other energy conservation measures will end up shrinking Japanese manufacturing gross domestic product by $60 billion in 2011. "Right now, it's situation by situation," says Tadashi Hisanaga, a spokesman for Hitachi (HIT). Much of the electronics giant's production facilities are located near Japan's east coast, in regions just north enough to have been hit by the earthquake and just south enough to depend on Tepco for electricity. As Hitachi repairs the damage from the earthquake, power is becoming the bigger problem. "It's something we're going to be thinking about for a long time," he says.

Nissan Motor (NSANY) has two vehicle plants in the blackout region, producing Infiniti sports cars, the Cube subcompact, and the new Juke crossover. According to Nissan Senior Vice-President Andy Palmer, the carmaker so far has been able to work around the blackouts by rescheduling its shifts. "The reality is, today all of our vehicle factories are capable of producing cars," he says. Reports in Japanese media say the country's car companies have even raised the possibility of coordinating production among themselves, though nothing has been decided. According to Koji Endo, an auto industry analyst at the equity research firm Advanced Research Japan, painting a car requires extremely high heat, and getting the painting "oven" hot after a loss of power can take hours—lost time when cars aren't being made.

Computer chip fabrication needs a steady power source to keep the delicate procedure at the right temperature, to maintain the proper air pressure in clean rooms, and to provide enough water. Losing power in the middle of the process can destroy a whole batch of chips. The chip giant Renesas has two of its main fabrication plants in Kanto, and together with a third plant they make up nearly a third of the company's global capacity. In recent weeks, Renesas has suspended production at its Kanto plants for the entire day when there is a scheduled blackout.

Then there are Japan's beermakers. Brewing a bottle of Asahi requires 40 days of steady power to boil and cool the wort and regulate the temperature. Asahi's Kanto brewery hasn't been making any beer since the earthquake, and the company has had to boost production at its other breweries in Japan.

Japan's western regions still have plenty of power, but as a legacy of regional rivalry, their electricity grid runs on an incompatible frequency: 60 hertz, vs. 50 elsewhere. Bloomberg News reported that Japanese government officials are in talks with utilities to lay new transmission lines and build massive transformers that could convert the energy and deliver it to the darkened Kanto area.

Meanwhile, millions of residents of Kanto are voluntarily cutting back. In central Tokyo, which hasn't yet been hit by the blackouts, many buildings have turned off elevators and escalators, and stores and restaurants are closing early. The famed Tokyo Tower, bent by the earthquake, is unlit, and the riotous marquees of the electronics and anime shops of the Akihabara retail district are dimmed. The Emperor and Empress have put the Imperial Palace on the blackout schedule, and its lights go dark three hours a day. Measures such as these have saved enough energy that Tepco has been able to spare the whole Kanto region from blackouts for much of the past week. However, Japan's bout of energy scarcity seems likely to linger for months to come.

The bottom line: Japan's manufacturers are shifting production outside of the Tokyo area and rearranging some work schedules to deal with rolling blackouts.

With Naoko Fujimura and Ganesh Nagarajan. Bennett is a staff writer for Bloomberg Businessweek.