The year 2022 marks the beginning of the development of Japan’s offshore wind industry. Commercial wind farms in Port of Akita and Port of Noshiro were commissioned as scheduled. Meantime, policy trajectory clears up as the government designated three promotion zones, five promising zones, and 11 preparation zones. The second round of tender will begin in 2023 after procedures are settled, allocating 1-1.5 GW of capacity every year.
As of 2022, Japan has cumulated 204 MW of installed offshore wind capacity. The figure will reach 513 MW, provided that all wind farms currently under construction are completed during 2025 and 2026. As the first round of tender did not focus on grid-connection schedule, and given the lengthy process of assessing environmental impacts, Mitsubishi is still conducting the assessment for its three wind farms, of which construction are expected to be completed during 2028 and 2030. In the neutral and optimistic scenario, there will be 6.7 GW and 7.2 GW of cumulative installed capacity by 2030, respectively, as the Japanese government streamlines process of the assessment and adjusts the entire tender system to ramp up grid-connection, so the Noshiro wind farm in Happo will be completed in 2026, with 1-2 GW of annual increases from 2027 onwards.
In the pessimistic scenario, where Japan fails to improve the above-mentioned issues, the Happo-Noshiro wind farm will be completed in 2027, with three to four other wind farms entering operation every year afterwards. Cumulative installed capacity will not close to 5 GW until 2030. Unlike other markets, Japan does not have clear goals to attain and only approves 10 GW of cumulative installed capacity for 2030. Given its conservative development strategies, InfoLink does not see Japan making significant progress until after 2026.
Round 1 tender: Price-oriented
In December 2021, Japan announced the results of the first round of tender, in which Mitsubishi won bids for three wind farms at low prices. The lowest bid-winning price was 11.99 yen per kWh ($ 0.0072) for the Yurihonjo wind farm.
This bidding has caused many controversies that the pricing has covered up other priorities, especially how to speed up the progress of offshore wind power in Japan, and price should not be the main determinant of the bidding. Therefore, the Japanese government decided to suspend the second bidding and adjust the bidding rules. In the draft plan announced recently, some regulations are somewhat similar to Taiwan’s zonal development.
It can be seen that Japan also has restrictions such as the range of bidding prices and the upper limit of allocated capacity. In response to the disadvantages found in the first round of bidding, Japan intends to reduce the impact of prices on bidding through setting a floor price. If the bidding price is lower than the floor price, it can only get the upper limit of 120 points. Japan has set an upper limit of allocated capacity of 1 GW. Compared with Taiwan, it can create economies of scale. In particular, the Asia-Pacific market will be highly competitive in the next few years. The scale of the project site that is sufficient to attract investment from foreign developers will be crucial. In addition, Japan intends to pay more attention to the grid connection speed of wind farms among the 120 points of operational feasibility.
Japan is expected to release revised bidding rules in late 2022 and resume bidding in 2023. Although the second round of bidding has been postponed for seven months, the new rules could speed up the construction of wind farms.
Belabored environmental impact assessment (EIA) process
The second challenge is the lengthy environmental impact assessment. In Japan's current planning, after the wind farm developer is selected, it will enter the environmental impact assessment process. The review process is divided into four stages (allocation book, method book, preparation book and evaluation book). And at each stage, the general residents, the Ministry of Economy, Trade and Industry, the Ministry of the Environment, and local self-government groups need to be notified, and finally the developer compiles a report based on the opinions of all parties before proceeding to the next stage.
The preliminary review alone takes up to two years, and the actual investigation is a time-consuming project that takes a lot of time and cost. It is estimated that the entire EIA stage will take 4-6 years to complete. If current procedures are followed, Japan may not be able to complete all approved 10 GW wind farms until 2038–2040.
Japan’s offshore wind targets include:
- Reduce generation cost of fixed-foundation wind farms to 8-9 yen per kWh ($ 1.7-2/kWh) during 2030 and 2035.
- Achieve 60% of supply chain localization.
- Achieve rapid growth of 10 GW in 2023 and 30-45 GW in 2045.
In terms of cost reduction, Japan can raise the upper limit of wind farm capacity to ensure the scale of the wind farm and create economies of scale, an incentive for local developers to invest in the offshore wind power industry. At the same time, Japan needs to speed up the legislative process of localization policies to support the local supply chain. Naturally, more efficient EIA process will accelerate the development of offshore wind power in Japan. However, it is very difficult for an emerging market to achieve the three goals at one time.
InfoLink believes that under the pressure of carbon neutrality, Japan should focus on development first. As for the establishment of a local supply chain, it is possible to maintain a certain degree of flexibility through the introduction of market mechanisms, and developers can evaluate suitable projects for localization, which is similar to the concept of "bonus item" under Taiwan's Industrial Relevance Program. This could increase the enthusiasm of developers to cooperate with local supply chains, and prevent them from quibbling about overly difficult projects and delaying market development due to the learning curve.