Wind Power Increase Could Drive Japanese Rare Earth Metals Demand

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Researched by Industrial Info Resources East Asia (Kofu-shi, Japan)--Between Between March 11's earthquake and tsunami and the subsequent nuclear situation at Fukushima Daiichi, Japan is in the midst of a power crisis. Two of eastern Japan's utility providers, Tokyo Electric Power Company Incorporated (TYO:9501) (TEPCO) (Tokyo), owner and operator of Fukushima Daiichi nuclear power station, and Tohoku Electric Power Company Incorporated (TYO:9506 ) (Tokuden) (Sendai, Japan), are currently expected to be short by approximately 12 gigawatts (GW) come summer. Summers in Japan typically begin in July, with temperatures peaking during the month of August. Last year saw one of the hottest summers on record in 113 years, and this summer is not expected to be much better. Both utilities are working to quickly increase capacity before the summer, but the implications of long-term shortages are forcing Japanese companies to rethink electricity generation as nuclear energy comes under international scrutiny.

While TEPCO and Tokuden are working to avoid short-term shortages, wind power could prove to be long-term investment worthy of more attention in Japan. Despite the recent environmental conservation, or ECO, trend in Japan, renewable energy only accounts for approximately 10% of the country's total installed generation capacity. Wind power development has been plagued by the scarcity of available land and issues with aesthetics, however recent public opinion of nuclear energy could bolster development support and boost innovation.

Wind power seems steady and safe in the event of natural disaster as well. One of Japan's two offshore wind stations is located just 50 meters of the shore of Kamisu, Ibaraki, one of the areas hit hardest by the tsunami. It survived and is currently providing power to TEPCO. TEPCO is currently planning an offshore wind project that was originally scheduled to undergo a testing phase starting next year, however plans could be accelerated in light of current events. The Tokyo-based company eventually hopes to construct an offshore wind farm capable of 1 GW, while the Japanese government aims for at least 10 GW by the same time. Tokyo Gas Company Limited (TYO:9531) (Tokyo) is also venturing into wind power. Last week, Japan's largest gas provider announced that it had bought into a generation company in the Tohoku region that provides power to Tokuden. This decision was in direct response to recent events.

New wind power technologies depend heavily on magnets made from rare earth metals (REM) such as neodymium and samarium. These magnets aid in increasing conversion efficiency; this is the ratio between the useful output of a machine, which would be the wind turbine in this case, and the input, in the wind. Wind turbines can utilize non-REM magnets, but conversion efficiency is significantly diminished, making a wind farm less effective. Japan currently has four major wind turbine manufacturers including Mitsubishi Heavy Industries Limited (TYO:7011) (MHI ) (Tokyo) and Fuji Heavy Industries Limited (TYO:7270) (FHI) (Tokyo), which manufacture a combined total of 4.4 megawatts worth in turbines each year.

The Global Wind Energy Council estimates that in order to boost global wind power capacity to 400 GW by 2014, approximately 160,000 tons of REM will have to be utilized. More than 93% of the world's REM deposits are located in China. Last year, China announced that it would be cutting REM exports by 35% during the first half of 2011.

Japan itself has little in the way of natural resources and must import the majority of its needs, including energy sources, from abroad. Until now, the Unites States and China have served as steady sources of REM, but due China's policy shift and political trouble with the country, Japan has been forced to look elsewhere for stable supplies. If wind power gains significant ground, Japan will require more REM, which are already essential to electronics and battery manufacturing. Toyota Tsusho Corporation (TYO:8015) (Nagoya, Japan) is leading the development of REM processing plants in both India and Vietnam for a combined investment of approximately $82 million. By the end of 2012, Japan will have a stable supply of at least 10,000 additional tons of REM per year.

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