Is the sun finally rising on the Japanese offshore wind market?

As the cost of offshore wind falls dramatically in Europe, demonstrated recently with the zero subsidy result in the Netherlands auction earlier this week, developers are seeking new opportunities to build a healthy pipeline of projects internationally.

East Asia has caught their attention. Taiwan has already set a goal to develop 5.5GW of offshore wind capacity by 2025, which has sparked a surge in interest over the last year. Now Japan is preparing for its moment in the sun as the government announces a new bill to bring clarity to interested investors.

Japan has been pursuing offshore wind ambitions since 2011 when the closure of a large proportion of its nuclear plants created an essential refocus away from nuclear towards renewable energies. In the interim, Japan has relied on liquidified natural gas (LNG) to meet its energy needs. In fact, today Japan is the world’s largest LNG importer, which comes at a high price and has created an urgent need to build the countries renewable energy generation capabilities.

Japan has the seventh longest coastline in the world with nearly 30,000km, which coupled with good wind resource means increasing its offshore wind capacity is a practical solution to not only improve its energy security, but also reduce Japan’s exposure to expensive imported LNG.

However, as the European market has shown an offshore industry takes more than interest to get off the ground and the demonstration of political will is critical by establishing a supportive and consistent regulatory and policy environment.

The recent amendments to Japan's Port and Harbour Act, which aimed to promote offshore wind projects only applied to limited port areas around Japan's coast. Furthermore, various prefectural governments have implemented their own unaligned local development rules. The absence of clear national policies to encourage consistent decisions at the prefecture level has created considerable uncertainty and hampered investment into the sector.

However, good news is on the horizon. To facilitate the development of a local offshore wind market promoting investor confidence, the Japanese Government has drafted a new bill, which is currently under discussion in Japan’s Parliament. The bill will set nationwide rules for offshore wind developments in national waters, which could be a much-needed boost for the offshore wind industry.

The purpose of the Bill is ‘for the promotion of the use of marine areas in relation to the development of renewable energy power generation facilities’, which should help to overcome some market uncertainty and create a much-needed framework to drive investment into the offshore wind market. Government will be able to allocate zones for offshore wind development, in close consultation with local stakeholders, national ministries, local government bodies, fisheries groups and academic experts. Interested developers will bid for development zones, based on a detailed development plan and likely life cycle cost. Each proposal stage will then be part of a competitive evaluation and the most suitable developer selected.  Once selected, the developer will receive an agreed amount for the energy produced in the form of a feed-in-tariff, and the right to build and operate a wind farm for up to 30 years. 

Although the bill is a big step in the right direction, many aspects still require clarification. Currently there is no indication about the expected power capacity of the zones and the overall ambition and timeframe for the zone allocation. It is not clear how developers should undertake the required site surveys needed to create the development plan and life cycle cost estimate. The Government has also not indicated who will be responsible for the provision of grid connections so a question remains as to whether the investment for this will be borne by the developer or the grid operators. Within the Ministry of Economy, Trade and Industry (METI) a “Connect & Manage System” is currently under discussion. The relevant ministerial sub-committee is expected to report on its conclusions in spring this year.  METI is also currently reviewing the Strategic Energy Plan, first issued in 2014 and there are clear indications that renewables will play a more dominate role in Japan’s future energy policy.

It is clear that further discussions and negotiations will take place before we see the first commercial-scale wind farms going into the water. Nevertheless, establishing this initial framework sets the course of direction and demonstrates the Japanese Government’s commitment to drive the development of the offshore wind market. 

The Carbon Trust has been working closely with the Japanese government over the past few years, providing insight into the lessons learnt from the European offshore wind market and the proposed bill is a clear signal that Japan is open for business.