Japan: Momentum starts building offshore

• Bids are due next month in Japan's 1.8GW offshore wind tender
• This process was delayed by a year after reforms to bidding rules
• Japan must show more urgency as its slipping behind in the G7

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Next month, developers are due to finalise their bids in the Japanese government’s second tender for utility-scale offshore wind. This 1.8GW tender will give us a good indication of investor interest in the country after changes to bidding rules last year.

Japan launched this tender in December and is looking for developers in four areas: two sites off the coast of Akita Prefecture (356MW Happo-Noshiro and 336MW Oga-Katakgami); one in waters off Niigata Prefecture (700MW Murakami-Tainai); and one off Nagasaki Prefecture (424MW Saikai). It is due to reveal winners in March 2024.

We have seen strong interest in Japanese offshore wind, both from local companies such as Mitsubishi, Marubeni and Tepco, and overseas utilities including Ørsted and RWE. But analysts have warned Japan should do a lot more to stimulate investment because its clean energy plans are slipping behind other developed nations.

Delayed tender

Japan’s latest offshore wind tender faced a one-year delay because the government changed the tender rules following the first utility-scale offshore wind tender, for three sites totalling 1.7GW, where the results were announced in December 2021.

The government faced criticism after that tender because all three sites were won by groups led by Mitsubishi: the 819MW Yurijono and 479MW Noshiro Mitane Oga sites off Akita Prefecture; and the 391MW Choshi off Chiba Prefecture. Rival bidders were unhappy that Mitsubishi was able to dominate a tender focused on price alone.

In response, the government delayed the second utility-scale tender so that it could change the rules – but bidders don’t seem to be much happier with the new system.

The revised tender rules include the ability for companies to secure higher scores if they can commit to earlier start-up dates for their project; and there is a limit of 1GW that any single bidder or consortium could win across the four bidding zones. This is a sensible move that addresses the concern about a single company dominating, but bidders are now complaining that the new rules would stop them taking advantage of large economies of scale in their bids. The rule-makers are damned either way.

Our view is that the revised rules should enable more utilities, including international companies, to gain a foothold in Japan’s offshore wind market. This should be good for long-term competition. But we will only know that when the winners are revealed. 

Building momentum

The delays to the second utility-scale auction round also hint at a broader malaise in the renewable energy sector in Japan. Momentum for offshore wind may be building now, but investment in the sector has also been held back by unambitious targets.

Japan is aiming for 5.7GW installed offshore wind in its waters by 2030, according to a target in its 6^th Strategic Energy Plan, but this is a reduction from the previous goal of 10GW installed by 2030. Japan’s target now is for 10GW of offshore wind projects approved in its waters by 2030, rather than built. This is a big change and does little to help improve the share of renewables in the Japanese electricity mix, which is the lowest in the G7 according to research by think tank Ember published last week.

In addition, the target of between 30GW and 45GW installed offshore wind by 2040 does not give a clear message to investors. It is so broad that companies across the offshore wind value chain will not know how much to prioritise Japan in their plans. It is not easy for the Japanese government to make such a commitment, as unlocking offshore wind in Japan’s waters relies on floating wind reaching commercial maturity, but the government should show its ambition and trust the technology will catch up.

Even so, the momentum for offshore wind in Japan has built in the last six months.

In December, Japanese conglomerate Marubeni commissioned the country’s first large offshore wind complex: a 140MW pair of projects off the coast of Noshiro in Akita Prefecture. This has taken the amount of operational offshore wind in Japan’s waters to 190MW, with 344MW under construction and due to be commissioned by the end of 2025; and a further 1.9GW of projects with off-take agreements in place.

In addition, Hibiki Wind Energy last month ordered Vestas turbines for the 238MW Kitakyushu-Hibikinada wind farm off the coast of Fukuoka Prefecture, which is set to be commissioned in 2025. Hibiki is a joint venture of five firms: Hokutaku, Kyuden Mirai Energy, Kyudenko Corporation, J-Power, and Saibu Gas.

These deals show that the Japanese offshore wind sector is moving. After a decade of delay, that is no small feat. But now the country must do what it can to unleash its full potential. Failing to do so would be a huge missed opportunity.