On 11 March 2011, a magnitude 9 earthquake – the worst ever to hit Japan – brought a series of massive tsunamis that wrecked a nuclear plant and claimed more than 18,000 lives.
The Fukushima nuclear disaster marked a turning point in the overall energy policy in the world’s third-largest economy as it forced Japan to shy away from atomic sources and encourage investments in renewable power.
Seven years on, how has the Japanese renewables market evolved?
From 2009 to 2016, the share of the country’s total generated electric power accounted for by renewable energy grew from 9 percent to 15.3 percent, according to Japan’s Agency of Natural Resources and Energy.
There had been renewables development since the 1990s with a primary focus on hydropower generation. However, it wasn’t until 2012 that there was accelerated growth in the sector following the introduction of the feed-in tariff scheme – part of the Japanese government’s efforts to promote renewable energy sources after many nuclear facilities were shut down due to safety concerns. Although nuclear power generation dropped from nearly 30 percent in 2009 to 1.7 percent in 2016, it is set to come back and contribute 20-22 percent in the energy mix by 2030 as the government agency said that “nuclear power generation is indispensable power,” in its White Paper 2017.
From 2012 to 2015, the annual average growth rate of renewable energy facility installation stood at 26 percent, it said.
The solar sector, given its ease of installation, lower entry barriers and attractive tariff levels compared with other renewables sources, has been the key driving force of this energy transformation – attracting many domestic and international investors.
According to Infrastructure Investor data, $3.12 billion was raised by funds that had either directly targeted Japanese renewables or had partial exposure to the sector over the past seven years. The fundraising peaked in 2014 at more than $1.3 billion, which included $720 million raised for Japan Solar, a then joint venture between Partners Group and Equis Group and now owned by a Global Infrastructure Partners-owned consortium, following its purchase of Equis Energy.
In 2017, two dedicated Japan-focused renewables funds with a combined target size of more than $1 billion were launched – GE Energy Finance Services’ Japan Investment Fund and SPARX Asset Management’s Renewable Energy Brownfield Fund. The two funds have collected a combined $538 million for their first closes.
In addition to funds, investors are actively taking a direct approach. Key transactions over the past 12 months included Macquarie Capital’s takeover of RES Japan, Aquila Capital’s exit from two solar projects, selling to an unnamed domestic pension.
Elsewhere, Singapore’s sovereign wealth fund GIC debuted last October with the acquisition of a stake in Japan Renewable Energy Corporation, partnering with Goldman Sachs to develop projects in Japan. While in February 2017, domestic insurers Dai-ichi Life and Japan Post Insurance co-financed two solar projects in Japan with more than 10 billion yen ($93.3 million; €75.6 million) of joint investments.
Despite strong interest, investing in Japan’s renewables market is not without challenges. Minako Wakabayashi, a Tokyo-based partner at law firm Orrick, notes the confusion that abounds from consistent amendments to the regulatory framework and the issue of interconnection restrictions between projects and grids, during an interview with Infrastructure Investor.
New solar developments have slowed, she observed, with the industry being more active in secondary transactions on projects that are in progress or have already been completed. She also noted that the wind sector is expecting new development in the offshore space, following the recent cabinet approval of a bill promoting the use of territorial waters for offshore renewable projects.
When asked what lessons Japan has learnt from the past seven years, Wakabayashi says: “One challenge has been finding balance between the pressing domestic need for renewable energy and the burdens that are placed on the public and the environment.
“These efforts to strike a balance in Japan has resulted in the shift that we are seeing from solar, which is more easily implemented, to wind and offshore in particular, which is more suited to the lie of the land, so to speak.”