Analyzing the condition of Japanese electricity cost linkages by fossil fuel sources after the Fukushima disaster

Abstract

This study analyzes the dynamics of the linkages among costs of electricity generation via crude oil, natural gas, and coal for the periods before and after the Fukushima accident. We find that Markov regime switching in the cost spreads between the fossil fuels has become more frequent after the Fukushima accident. Johansen and Bierens–Martins cointegration tests also indicate that since the accident, the oil and gas relationship has become more evident, while the cost relationships between coal and other fossil fuels have weakened. These results might reflect changes in Japanese energy policy since the accident to promote LNG and compensate for the reduced energy supply from closing the nuclear power plants, while concurrently coping to meet the requirements of the Paris Agreement to reduce CO 2 emissions.