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Policy and regulation mean Japanese market is approaching a tipping point

Thu 01 Nov 2018 by David Foxwell

Policy and regulation mean Japanese market is approaching a tipping point
With water depths exceeding 50 m in 80% of potential locations, Japan is seen primarily as a floating wind market

Long seen as a potentially significant market for offshore wind – and for floating offshore wind in particular – policy developments in Japan could mean it is about to reach the point where projects can actually get underway

The emerging offshore wind market in Asia – particularly in Japan, South Korea and Taiwan – is drawing significant interest from international and domestic developers, investors and financiers. Regulatory and policy developments as outlined in a report from Linklaters*, Japan offshore wind: approaching a tipping point, suggest that changes are being watched very closely by the international offshore wind community.

As Linklaters noted, Japan has an ambition of decarbonising its economy by 2050 and offshore wind power is expected to play a key role. However, historically wind power developers faced challenges such as geography, climate conditions and legal/regulatory issues.

Now however, the combination of new technology – primarily in the form of floating wind turbines – availability of insurance coverage and strong regulatory and policy support in recent months has the potential to unlock the offshore wind market in Japan. “The industry is gaining momentum and we genuinely believe it is approaching a tipping point,” said the law firm.

Linklaters noted that 10 GW of offshore wind power capacity is required to meet the Japanese Government’s 2030 target (although that appears to be based on a conservative cost assumption). The Japan Wind Power Association predicts 6 GW of fixed turbine windfarms and 4 GW floating turbine windfarms by FY2030 (4.3 GW was already planned as at the end of 2017).

Japan has the seventh longest coastline in the world and 1,600 GW of offshore wind potential. 80% of that offshore wind resource is in deep water, of in excess of 50 m, hence the focus on floating offshore wind. As highlighted elsewhere by OWJ, the good news for Japan is that floating wind technology is becoming commercially feasible, alongside which regulatory and policy changes have been made in Japan in 2018 to address the cost concerns, legal uncertainties and grid availability.

Among the policy and regulatory developments set to ease adoption of offshore wind energy in the country, are amendments to the Port & Harbour Act to allow for offshore wind development in port and harbour areas; a bill on promoting the use of sea areas to develop marine renewable energy facilities; and developing new auction guidelines. Measures to stabilise the grid from intermittency of renewable energy is starting to be addressed.

As Linklaters also reported, another piece of legislation is waiting for approval at the Diet and the Japanese version of ‘connect and manage’ has freed up significant grid availability since it was implemented in April 2018. At the same time, the government is planning to halve the time required for environmental impact assessment, which was said to be taking at least four years.

“Entrepreneurs, industry bodies and the government have made significant efforts to overcome such challenges in recent years,” said Linklaters, noting that 3.8 GW of fixed-turbine projects are under development and waiting for the environmental impact assessment to be completed and that the 2-MW prototype floating turbine off the coast of Fukushima has demonstrated it is commercially viable – and has withstood sometimes severe conditions.

“As Japan catches up, in many ways the issues faced are similar to countries in Europe. Japan is learning from the success experienced in Europe but a very steep learning curve is expected,” said the authors of Linklaters’ report. “The whole industry is gaining momentum and we believe it is about to reach a tipping point.

“10 GW of new offshore wind power capacity by FY2030 is what would be required to achieve the government’s 2030 energy mix target for wind, and yet, this is a modest target that would require wind (offshore and onshore combined) to be only 1.7% of the nation’s expected power generation capacity at that point in time.”

The law firm reported the government’s 2030 energy mix target is intended to be realistic and is based on the notion that, as it currently stands, there is no single energy source that satisfies all four of the underlying principles of Japan’s strategic energy policy – energy security, cost efficiency, environmental impact and, the overarching principle, safety (3E+S).

“The government would need to maintain all options available and consider the optimal mix based on certain assumptions,” said Linklaters. “There is recognition that offshore wind power can be cost competitive on an individual project basis if it benefits from economies of scale, but there remain concerns around the overall cost to end consumers due to the combination of the feed-in tariff and, given the intermittency, costs associated with back-up generation capacity and energy storage. “However, what if the cost assumptions change?”

Japan’s Government unveiled its 5th Strategic Energy Plan in July 2018, and the following points are worth noting in relation to renewable energy. Firstly, the government reaffirmed its commitment to achieve its 2030 energy target, under which renewable sources will account for 22% to 24% of the total energy mix. The government also pledged to work towards making renewable energy the main power source.

Among the renewable energy sources, the government’s key observations on wind power include that, if deployed on a larger scale, its cost could become comparable to that of thermal power. It has challenges in relation to the grid and would benefit from better power grid integration and developing energy storage solutions. The government will also support the technology development required to promote floating offshore wind.

As Linklaters noted, it is the Japanese Government’s ambition to become a global leader in floating wind technology. It recognises the leading position of European countries in bottom-fixed technology, based on their long experience in the North Sea, but feels there is room for Japan to become a global leader in floating technology, not least because it has a limited number of suitable sites in sufficiently shallow water for economically viable fixed foundations to be deployed.

While floating technologies are still in a nascent state, numerous countries are investing to commercialise the technology and develop floating wind turbines at scale. The opportunity is significant, although as Linklaters also highlighted, the challenges are evident when reviewing the performance to date of the Fukushima Forward floating test site where, reports suggest, the three turbines at the test site (2 MW, 5 MW and 7 MW) are currently producing less electricity than initially anticipated.

“While the capacity factor – the ratio of actual to maximum possible output – for new wind turbines should be around 30%, only one of the three turbines has actually reached this value: the 2-MW turbine even achieved a slightly higher result of 34% in the past two years. The 5-MW turbine, which was commissioned in February 2017, only managed 12%, the 7-MW turbine just 2%,” Linklaters said, although it noted the performance of the Hywind Scotland windfarm in the UK has exceeded expectations, achieving an average capacity factor of 65% at times.

“Wind energy, in particular offshore wind energy, plays a key role in the Japanese Government’s 5th Energy Strategy,” said Linklaters. “Looking at the developments in 2018, we think the government is mobilising all sources to achieve the 2030 target. Given the scale of potential development, there is broad consensus that the potential benefits of offshore wind power development to the wider economy are huge.

“The political concern is cost. If the cost concern is addressed – following the recent rapid tariff reductions in the UK, albeit for bottom-mounted offshore wind – there is a possibility the Japanese Government target could, in the end, be exceeded.


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