Japan offshore
These auction results demonstrate the Japanese government’s success in diversifying the consortia of developers that are awarded offshore wind projects in its waters and procuring European investment. The third tender round is anticipated to require bid submissions by the end of July 2024 for two areas: Sea of Japan (600 MW) and Yuza (450 MW).
Offshore wind in the EEZ A government panel recommended in 2023 that legislation be enacted to allow development of offshore wind in Japan’s EEZ. So, this is a space to watch moving forward. It will involve a revision to the Marine Renewable Energy Act and the government of Japan is planning to enact the revision before the end of 2024. This is anticipated to include allowing bidders to hold exclusive rights to an area for an offshore wind project in the EEZ for up to 30 years.
The development of wind farms in the EEZ is anticipated to follow a “two-stage formula”: 1. the government will first design a “zone for taking applications” and issue a provisional permit; and
2. prospective developers will form a council with local parties (including fishermen and academic experts) and, if an agreement is reached for the applicable zone, the developer will be provided with a formal permit.
Floating demo projects Connected to the viability of the EEZ for offshore wind projects in Japan will be the ability to develop, and scale, floating offshore wind in a cost-effective way, given that all projects in the EEZ will need to be floating. To facilitate progress in the floating
sector, the government of Japan: ■ is preparing a new roadmap for floating offshore wind power, and
■ has started accepting applications for companies to run projects for floating wind turbine demonstration projects. The four candidate areas include: two in the northernmost prefecture of Hokkaido, one in the Akita prefecture and one in the Aichi prefecture. These demonstration projects range from 8 – 30 km from the shore, in depths between 70 and 400 m and projected installed capacities in the range 10 – 90 MW.
World Wind Technology
Issues for the offshore wind investor ■ Japanese partnership – under the Marine Renewable Energy Act, a foreign investor may be a sole shareholder of a BidCo. However, given the auction guidelines provide that assessment criteria include “ability to co-ordinate with local administrative authorities”, “co-ordination and coexistence with surrounding shipping routes, fisheries, etc” and “ripple effects on the local economy”, it is practically necessary to work with a Japanese partner to be successful. This is because having a Japanese partner ensures the appropriate strong relationship with local municipalities and residents can be appropriately managed. This certainly reflects the standard approach that consortia are taking.
■ Changes of control – per the auction’s guidelines released for the first, second and third rounds, share transfers in the Bidco are possible, but the relevant authority retains the right to approve all changes to the project plan (kobo-senyo- keikaku), which includes changes of control in the Bidco. The guidelines state that the relevant authority will certify a change in parties if the share transfer (i) has a low impact on the certainty of the project’s implementation and (ii) does not significantly change the composition of the consortium members.
The guidelines clarify that the relevant authority’s judgment will require particularly careful consideration if the share transfer results: (A) before commercial operations date, in the shares of the consortium members falling below 2/3 of the total shares in the Bidco and (B) after commercial operations date, in the shares of consortium members falling below 1/2 of the total shares in the Bidco.
■ Local stakeholders – an investor will need to have a good level of in-person support in Japan to interact with local stakeholders to progress any offshore wind project, not least in connection with the active fishing industry.
■ Local content – 40 of the 240 points in the Japanese official bidding rules are apportioned for local contribution. On a relative scale compared to other jurisdictions, this is a low proportion. But investors still need to consider the existence of the expertise, know-how
and functionality for scaling wind farms at pace in Japan.
■ Availability of long term PPAs – a key consideration for any offshore wind project in Japan is its ability to find suitable offtaker(s) willing to commit over the long term. This is compounded when considering the amount of power generated by offshore wind projects, which will usually require the developer to arrange PPAs with several offtakers. Balancing the competing interests of each offtaker is likely to represent a challenging aspect of achieving a bankable PPA structure in the Japanese offshore wind market. Also, note the importance of this construct in the context of the feed-in-premium system.
■ Competition with other jurisdictions – in a world in which many jurisdictions are opening up their waters for offshore wind development, offshore wind investors have to consider the relative merits of different markets and opportunities. Accordingly, such investors will weigh up the issues/considerations listed above (together with others) to consider whether the Japanese offshore wind market represents the opportunity they are looking for in their portfolio of offshore wind assets.
■ Consenting timelines – consenting can be one of the most time-consuming stages of offshore wind development, taking three to five years on average, and there may be challenges and delays in consenting early large projects in Japan whilst mitigating for potential environmental and social impacts.
■ Technical challenges to offshore wind development in Japan – installations in Japan to date have been small, pre- commercial, scale. Japan poses some technical challenges moving to large commercial projects. These challenges include the occurrence of earthquakes and typhoons, and potential grid integration issues.
■ Supply chain development – whilst Japan has an extensive pipeline of offshore wind projects, the national supply chain is relatively inexperienced compared to mature markets, and there is no domestic wind turbine manufacturer. It is expected that Japan will work to increase local capabilities to capture the economic benefits available from offshore wind development. ●
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