Japan prepares new offshore wind auctions in 2019

The Japanese government is clearing hurdles to start auctioning new offshore wind projects in the next few months, as the country aims to develop at least 10GW of wind capacity by 2030.

“Given land constraints, the majority of facilities installed will be offshore wind,” Hirofumi Taba, a partner at the law firm Linklaters told Infrastructure Investor. “We are expecting a huge growth of the industry in the country,” he adds.

The country’s legislature, the National Diet of Japan, passed a new law to promote offshore wind energy at the end of November, and the government is in the process of designating candidate areas for new projects in the country.

A spokesman from the Ministry of Economy, Trade, and Industry declined to provide details either on a timeline for the first auction or estimates regarding the grid capacity that will be tendered.

However, the Japan Wind Power Association expects the first auctions to be held “in early summer.”

According to Taba, the government will determine the feed-in-tariff regime of each project through the auction process, as the tariffs have become a “political concern.” The FiT for offshore wind in 2018 stood at ¥36 ($0.28; €0.24) per kilowatt, a report from Linklaters said.

Japan currently has seven offshore wind sites in operation with a total generating capacity of 64.6MW. At the end of 2018, the country’s total wind capacity – including both offshore and onshore wind – stood at 3.5GW, according to data from the Japan Wind Power Association.

During the last few months, international investors and developers have ramped up efforts to strengthen their presence in this market.

“Foreign developers, such as Ørsted, Equinor, Windpal, wpd and CIP, established branch offices in Japan,” said Yoshinori Ueda, a spokesman for the JPWA.

Earlier this month, Danish developer Ørsted and Japanese power company TEPCO signed a memorandum of understanding to work together on offshore wind projects.

“This MoU is the first step in Ørsted and TEPCO’s aspirations to deliver on Japan’s ambitions for domestic renewable power generation at a large scale and contribute to making Japan a leading offshore wind market in the Asia-Pacific,” Ørsted’s CEO and president, Henrik Poulsen, said in a statement at the time.

Business insiders expect more partnerships between international and Japanese companies to be announced in the coming months.

“It is difficult to realise business by oneself in Japan. The [legal] system and business manner in Japan is unique, and most Japanese local residents [don’t speak] English,” said JWPA’s Ueda.

Investing in offshore wind offshore

In the meantime, some of Japan’s biggest conglomerates have been investing in well-established and emerging offshore wind markets. Sumitomo announced the acquisition of a 29.5 percent stake in two offshore wind projects in France last December. Similarly, Mitsui & Co made its maiden offshore wind investment last May, acquiring a 50 percent stake in the Yushan Energy project in Taiwan.

“Japanese trading houses and utilities have been buying stakes in offshore wind projects in Europe and Taiwan, in order to achieve the necessary know-how to participate in the offshore wind domestic market,” says Taba of Linklaters.

A report from the law firm underlines that Japan, with the seventh largest coastline in the world, has an offshore wind potential of 1,600GW.

Despite this, analysts quote opposition from fisheries, long delays in the completion of environmental impact assessments, insufficient grid capacity, the frequency of natural disasters and a deep seabed relatively close to the coast as some of the challenges that might hamper the development of the sector.

“Considering the characteristics of the ocean surface topography, the floating type [of offshore wind turbines] has higher potential, but it is currently difficult to install this type of turbines at a low cost due to high construction costs,” Susumo Horio, manager of PwC Sustainability, remarks.

“Projects for experimental floating offshore wind turbines are being carried out to seek how to reduce costs, among other objectives, and it is expected that the cost of this kind of power generation will decrease as a result of the progressive development of this technology,” he adds.

After the Fukushima nuclear disaster in 2011, Japan decided to quickly develop renewables in the country. Tokyo is aiming to reduce its emission of greenhouse gases by 26 percent by 2030, and to achieve full decarbonisation by 2050.