Goldman in Japan

Sometimes, when Governments make bold policy decisions, they are swiftly rewarded with the investment they are looking for.

This certainly seems to be the case for Japan, as Goldman Sachs announced on Monday that it would be investing $487million in Japanese renewable energy through a unit it created last August – the Japan Renewable Energy Company.

Now, Goldman didn’t get to be one of the most successful investment banks by making bad decisions, so it’s probably done the maths on the market and judges it to be a sound investment.

Certainly, Japan’s policy regime of generous support mechanisms for renewables has helped make the case. Under the Government’s feed in tariff system, introduced last July, utilities may be required to buy power produced by offshore wind, for example, at up to Y42 per kilowatt hour – a rate that its double that of onshore wind, and one of the highest support structures in the world.

Contrast this with Poland, once one of the doyens of Easter European wind energy, but now a shaky market with investors nervously awaiting the decision of a proposed green law governing support for clean energy technologies.

What’s even more surprising about Goldman’s decision, is that outside of Japan’s push for green energy supplies, following the Fukushima disaster 2 years ago, the wider case for investment in Japan’s economy is still less than clear cut.

Abenomics - the largely Keynesian spending mechanism created by Prime Minister Shinzo Abe, by which the country seeks to exit over a decade of low growth – is still an embryonic response and unproven in the long term.

And whilst there is a market assumption that excellence in Japanese industrial engineering will provide Tier 1 equipment, the pace of development, coupled with some of the pioneering technology that is slated for use – such as floating offshore wind turbines – could still conspire to cause a bumpy ride for some investors.

But, that aside, there is another incentive that should also keep the Japanese clean energy market buoyant; as the Yen weakens as Japan looks for export lead growth, energy imports will become commensurately more expensive. Japan needs a secure, affordable domestic energy supply if its long-term economic aims are to be achieved.

As in many economies, clean energy often finds itself merely a spoke in a wider infrastructure hub. But given the potential for investment, the opportunities to recover growth that Governments are chasing so single-mindedly, Japan, at least, teaches us that consistent, firm policies can start to pay dividends.