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Could one judge kill off Japan's nuclear industry?

Kevin Winter | Getty Images

Prime Minister Shinzo Abe's strategy to defy public opposition and plug Japan's nuclear power industry back into the national grid has hit a roadblock.

All of Japan's nuclear reactors have remained offline since 2011, when the Fukushima Dai-ichi nuclear power plant came close to core meltdown after an earthquake and tsunami hit the complex in northeastern Japan.

Since then, the majority of Japanese people remain opposed to any re-starts. However, Abe has been pledging to put the reactors back online since his re-election in 2012, backing calls from big industry to turn back on a third of the country's electricity supply.

Forced to buy fuel at spot prices on the international markets to make up for the shortfall in supply, utilities have raised prices by around 30 percent since 2011.

Earlier this week, the push to get nuclear power up and running was dealt a blow when a district court judge in western Japan ruled Tuesday in favor of a residents' group to prevent the re-start of two reactors in western Japan that had already been approved as safe by a government agency.

Still on track

While the ruling did not come as a surprise -- the same judge has ruled against a reactor restart in the same region last year, nuclear industry hopes are now all pinned on a similar court ruling scheduled for next week for two reactors operated in southwestern Japan by Kyushu Electric.

Another ruling against re-starting a nuclear power plant would seriously stymie the Abe government plans, according to Daiwa chief credit analyst Toshiyasu Ohashi, and even change the outlook for the entire industry.

"It would be worrying if the court in Kyushu blocks the re-starts. In that case, we would need to review our fundamental assumptions for the industry's outlook," said Ohashi.

Coddled companies

Still, the companies themselves may not have much to worry about their bottom lines. Under Japanese law, providing they get government approval, power companies can adjust their prices to reflect the cost of imported fuel.

As a result, even KEPCO, the most nuclear dependent of Japan's electricity companies, should be able to turn a profit, analysts said.

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"We think that KEPCO will be able to remain in profit by hiking its electricity rates again [even if the local district court rules against the company]," Nomura analyst Shigeki Matsumoto said in an April 10 note.

And in the unlikely event that the electricity companies cannot ever re-start any of their nuclear reactors, they can count on the government to bail them out, analysts said.

"There are other ways of improving their balance sheets," said Daiwa's Ohashi, citing the precedents for others such as Hokkaido and Kyushu Electric, which raised capital by issuing preference shares to the government-owned Development Bank of Japan.