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Rise of Chinese AI Start-Up DeepSeek Challenges Japan’s Energy Projections

TOKYO, Jan 31 (Reuters) – Just weeks after Japan unveiled a landmark energy plan anticipating a surge in artificial intelligence (AI) demand, the unexpected rise of Chinese start-up DeepSeek has prompted a reevaluation of future power needs.

In 2024, Tokyo shifted its long-held forecasts, projecting electricity generation to rise between 10% and 20% by 2040, driven by increased AI-driven usage from data centres and microchip makers. However, DeepSeek’s energy-efficient AI models have sparked a broad rethink among analysts.

“It would be risky (for Japan) not to take this seriously,” said Professor Andrew DeWit from Rikkyo University’s Department of Economic Policy Studies in Tokyo.

DeepSeek launched a free AI assistant last week that uses less data at a fraction of the cost of incumbent services. By Jan 27, it had overtaken US rival ChatGPT in downloads from Apple’s App Store, causing a global sell-off in tech shares. Power producers also faced setbacks as investors weighed DeepSeek’s energy-efficient models.

While analysts debate DeepSeek’s impact, an alternative view suggests its success could lower the barrier to entry in a sector dominated by Silicon Valley giants, potentially increasing overall electricity demand from new AI entrants.

This presents a challenge for Japan, which produces just 13% of its energy domestically. If AI proves cheaper to develop, it could accelerate its mass introduction, leading to higher power demand, according to Yuriy Humber, chief executive of K.K. Yuri Group, an energy research firm in Tokyo.

“Japanese officials have taken their time to adjust power demand forecasts even though the AI boom was apparent two years ago. I expect they will monitor the new developments carefully,” he said.

The Trade Ministry, which oversees long-term energy planning, did not immediately respond to requests for comment. Tepco, Japan’s largest power company by sales, is monitoring DeepSeek’s impact but has yet to assess its full effects.

Japan’s grid monitor revised its outlook in 2024, predicting an overall increase in electricity demand, largely driven by new power needs from data centres and chip plants. Senior officials have cited AI-related energy needs as a reason to restart nuclear reactors, a sensitive topic in a country still haunted by the 2011 Fukushima disaster.

Ms. Mika Ohbayashi, director at Renewable Energy Institute in Tokyo, indicated DeepSeek’s emergence suggests AI may demand less power. She criticized the government’s linkage of AI energy needs to nuclear power promotion, advocating for more renewable energy development instead.

Professor DeWit highlighted Japan’s historical missteps in energy preparation, urging policymakers to take this issue seriously.

“Japan was a chip leader at the time and they figured they were going to become No. 1, and they built out the power system. And, of course, as they entered the 90s as the bubble collapsed, that power demand did not eventuate,” DeWit said. “They’ve had a bitter learning. So it behoves the policymakers to take this seriously.”

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