TOKYO, Feb 28 (Reuters) - Where public anti-nuclear protests fail, industry deregulation could succeed.

 Analysts say Japan's nuclear industry is facing competitive threats from rival power suppliers that could slow down construction of new nuclear plants, a spinoff of deregulation aimed at slashing Japan's high energy prices.

 As a result, nuclear companies are grappling with deep questions about how to grow as the economy stagnates and as a new wave of cost-conscious power companies eye cheaper fuels.

 "They must think carefully about costs," said Takahiro Morita, senior vice president at Moody's Japan K.K., a unit of credit ratings agency Moody's Investors Service.

 "I think that will lead to a slowdown in the development of nuclear power plants," he said.

 This -- combined with public anxiety over the nuclear industry's safety record after recent accidents -- is making privately-run utilities that operate all of Japan's 51 commercial reactors hesitant to commit to major new development plans.

 The timing couldn't be worse for a government that puts nuclear power at the core of its energy programme, viewing it as a crucial fuel source in a country with few natural resources.

 Long-term investment plans announced by Japan's major utilities last March showed that only 13 nuclear reactors are due to begin operating over the next 10 years, far short of the government's target of 16 to 20.

 Adding to the government's woes are growing concerns about the environment and whether a possible rise in dirty fossil fuels at the expense of nuclear power will wreak havoc on its clean-air targets.

 Japan's goal for new nuclear reactors was designed to help the country meet a 1997 global pledge to make an average six percent cut in harmful emissions of carbon dioxide and other greenhouse gases by 2008-2012 from 1990 levels.

LOSING A COMPETITIVE EDGE

 Many analysts link the industry's problems directly to deregulation and deeper structural changes in the economy that are forcing Japan's power companies to become cost conscious.

 Japan's 10 leading utilities held regional monopolies on electricity supplies until last March when the government broke with tradition and allowed non-power firms to begin selling electricity to large-lot consumers such as commercial centres.

 This change, aimed at helping revive Japan's fragile economy by slashing energy prices and opening the door to competition, led seven new companies into Japan's power supply industry.

 Analysts say these companies are likely to turn to cheaper fuels like coal, forcing down prices and preventing nuclear companies from passing the buck on extra costs needed to build new reactors through to electricity rates.

 "I think there's a big risk that (the nuclear programme) will become a financial burden for the industry," Tadatoshi Utaka, senior analyst at Tokyo-Mitsubishi Securities said.

 Nuclear power plants have traditionally enjoyed a competitive edge, using relatively cheap uranium and running reactors at low overheads once the initial high costs of building them are complete.

 But predicting what Japan's energy market will look like in 10-20 years when the full benefits of any reactor built now would materialise is harder than ever.

 The power industry is also facing growing local opposition following recent accidents at nuclear facilities, such as Japan's worst ever in September 1999 when three plant workers in Tokaimura were exposed to radiation. Two later died.

 TEPCO TO PUSH AHEAD

 An example of just how difficult it is for major power firms to commit to new projects can be seen in the position of Tokyo Electric Power Co Inc (TEPCO), Japan's largest power company, on building new plants.

 This month, TEPCO announced it would freeze construction of new power plants, including nuclear facilities, for three to five years. But a day later it made a dramatic revision to the decision, giving a green light for continuing construction plans for nuclear plants.

 Yet analysts see the move as motivated more by politics than economics.

 Two prefectures had been counting on a new nuclear power plant or an expansion of an existing plant to help bolster their local economies, and analysts see TEPCO's reversal as a concession to their interests.

 Although some regions shy away from nuclear plants for health or environmental reasons, others see them as key sources of revenue since they bring in subsidies and increase employment.

 But because of competitive pressures it remains uncertain whether TEPCO will actually push ahead with its plans to build new nuclear reactors without postponing them given the current business climate and slowing power demand, the analysts said.

 Tokyo-Mitsubishi's Utaka said the operation of nuclear power plants may not be entirely compatible with deregulation and competition, and wondered how much of a role the private sector could play in the nation's nuclear power plans for the future.

 "I think nuclear power should be separated from the operations of private companies, and that the electric power industry should ask the government to take over the task," he said.

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