Japan took an important step on its journey to adoption of renewable energy earlier this year when legislation was introduced that will identify wind energy development zones and some of the issues developers need to address
Recent events in Japan, most importantly the Fukushima nuclear power plant disaster and the high cost of importing gas for domestic use, mean that Japan’s historic focus on nuclear energy and on imports to meet domestic energy demand has shifted to renewable energy, particularly offshore wind.
The closure of nuclear plants has accelerated the need to identify alternatives. Onshore wind is one such alternative but it faces geographical constraints and social issues, so its contribution to the renewables mix is expected to be constrained and to peak shortly after 2030. Offshore wind is not affected by these issues and is therefore expected to be a major benefactor of these trends, and new policies that set out ambitious targets for offshore wind energy in the country.
A major milestone on Japan’s roadmap towards adoption of offshore wind on a commercial scale occurred in early March 2018 when a new bill for the use of Japanese waters for offshore wind projects was approved by the Japanese Cabinet and submitted to the Japanese Diet.
The long-awaited bill to facilitate offshore wind development in Japan was expected to pass the Diet as early as May 2018, with the new legislation potentially taking effect four months after its promulgation.
As partners at law firm Baker McKenzie* explained, although the legislation, with the title ‘Bill on promotion of use of territorial waters for offshore renewable energy generation facilities,’ had been anticipated for some time, details were not available to the public until the Japanese Ministry of Land, Infrastructure, Transport and Tourism (MLIT) and Ministry of Economy, Trade and Industry (METI) released the draft provisions of the new bill on 9 March 2018. It appears to be generally in line with previously reported details and the predictions in our previous update.
Baker McKenzie’s experts said the general scheme for offshore wind development introduced under the bill provides for the Japanese Government to identify appropriate areas in Japan for offshore wind development.
It will do this by working with relevant local prefectural governments and newly established bodies in each prospective development area known as councils.
Each council will include relevant stakeholders including national ministries, local government bodies, fisheries groups and academic experts. The key role of each council is to identify issues of local and national concern for offshore wind development in the development area for which it is responsible.
Following completion of this process, developers must then lodge competitive bids for use of the relevant offshore zone, with the bids setting out the proposed project details, including the bid price for electricity supply from the project.
Once bids have been submitted, the government will review them and select bid winners based on both the proposed price and the project development plan. The bid winner will not be assessed on price alone, but on both price and how well the overall development plan meets the development criteria.
The bid winner (or winners) will then have the right to occupy and use the specified general waters area for an offshore wind project for a maximum of 30 years.
This means that, while the new bill will grant a longer occupancy period than the current prefectural rules, developers are required to compete on both price and the suitability of their development plans to secure the rights to specific offshore areas.
Baker McKenzie’s experts explained that the main purpose of the bill is to establish procedures for Japanese general waters to be used on a long-term basis for offshore wind power generation. The key steps in such procedures are as follows:
- The cabinet draws up a basic policy to promote the use of Japan's territorial waters for offshore renewable energy generation facilities, the Prime Minister prepares a draft of such policy and Cabinet approves the policy.
- METI and MLIT designate certain areas as ‘promotion zones’ after discussing with the Ministry of Agriculture, Fisheries and Food (MAFF) and the Ministry of the Environment (MOE) and considering the views of the governor of the prefecture and the relevant council, draw up tender guidelines.
- Each developer conducts local investigations to identify relevant development issues based on the tender guidelines and submits an occupancy plan that outlines operation and construction details, measures to address environmental and other concerns and the bid price to supply electricity from the project to the utility to METI and MLIT.
- METI and MLIT choose a developer with the most suitable occupancy plan in terms of supply price and other factors and grant an approval for the project to the successful developer.
- The chosen developer applies to receive a feed-in tariff (FIT) approval in accordance with the approved occupancy plan and METI grants approval under FIT law.
- The chosen developer applies for a right to occupy the promotion zones in accordance with the approved occupancy plan and MLIT grants such a right to occupy, up to a maximum of 30 years including the construction and decommissioning periods.
Once the developer receives the FIT approval, it will be considered to be in the same position as a bid winner under the FIT law. This means that the FIT price (based on the developer's bid price) and FIT period will be governed in accordance with the FIT Law.
Assuming that the FIT period for offshore wind power is the same as under the current rules, the PPA period for offshore projects will be set at 20 years, so there may be a period after the PPA has expired in which the developer will continue to sell electricity into the market under a new PPA or on a merchant basis.
The new bill also sets out the procedure for how promotion zones are designated. One of the key features of the procedure is the strong preference by the national government for using councils to set the framework for tenders for offshore areas.
Each council will be a body consisting of the members from METI, MLIT, MAFF, the relevant prefectural governor, relevant local town mayors, and other groups or individuals such as local fishery groups and academic experts. The bill sets out various additional requirements in relation to such councils including for example, that:
- Prefectural governors are entitled to request METI and MLIT to establish a council, and if such request is made, METI and MLIT must follow the request.
- Prior to designating promotion zones, METI and MLIT must first consult with the council.
- If discussion is settled – that is, if a consensus is reached – for certain items at the council, then the members of the council are required to respect the outcome of such discussion.
Each council is therefore likely to have strong influence over the designation of promotion zones and the requirements for offshore wind development in their specific zone.
METI’s documents released with the bill indicate that the Japanese government intends to designate five promotions zones by FY2030.
However, the Japanese Liberal Democratic Party’s Renewable Energy Promotion Member of Houses Meeting confirmed on 22 February 2018 that this is not the maximum number of zones.
Currently there is no limitation on how muchcapacity will be included in these zones. The Japan Wind Power Association has requested a commitment from the Japanese government to develop 10 GW of offshore wind power by 2030 but the Japanese Government has been silent so far on such commitments. The actual Japanese target capacity for offshore wind is therefore not clear.
Baker McKenzie’s partners highlighted the fact that although the bill has set out the key concepts for the procedures to designate promotion zones and select developers, it does not answer several important questions relating to the operation of offshore projects. Some of the key issues we see with the new bill are as follows, they explained:
- The new bill does not state whether the cost of transmission lines will be borne by the national government or the utility.
- There is a possibility that the MLIT rules or the tender guidelines will set an occupancy period of less than 30 years.
- It is possible that the complete removal of the turbine and its foundations by the developer (extraction of the foundation pile rather than cutting it off at seabed level) will be included as one of the conditions when granting approval.
- It is possible that fishing vessels will not be restricted from operating in areas between the turbines.
- The criteria for assignment of project approvals to be approved by METI and MLIT are unclear.
Baker McKenzie noted that the way METI and MLIT handle these issues – particularly relating to occupancy periods and fishery vessels – will be important in terms of facilitating project development and operation and ensuring that offshore projects obtain adequate project finance. Therefore, participants in the offshore wind power industry may wish to consider lobbying METI and MLIT to establish rules or tender guidelines or to adopt actual practices similar to European countries that would avoid or mitigate the above risks.
Overall, said Baker McKenzie, the new bill has revealed the key concepts of how Japan will develop offshore wind project in general waters. “We believe the new bill is a substantial first step to pave the way for offshore wind projects in Japan. However, further details will need to be drawn up in the METI and MLIT rules and regulations or be adopted in actual practice in order for the industry to have a clearer view of the path towards development of significant-scale offshore wind projects.”
*This article is based on information provided by Baker McKenzie’s partners Naoaki Eguchi, Toshio Sasaki, Masahiro Tanabe, Takehito Sekiguchi and Ean Mac Pherson