Offshore wind developers and investors looking to enter Japanese waters must demonstrate what they bring to the table

Offshore wind has truly spread around the world in recent years, with Asian markets such as Japan taking a prominent role by rapidly developing their offshore capabilities. International investors and developers are starting to get involved in Japanese offshore wind, but to capitalize on opportunities in this growing market, they must show that they can work with domestic partners, leverage current Japanese partnerships from shared projects in other regions – in addition to demonstrating their experience.

Growth of renewables
Japan’s energy policy has undergone a number of changes in the last 10 years. Following the nuclear accident at Fukushima in 2011, a review of regulatory standards resulted in the decommission of multiple nuclear reactors and a power generation shortfall. To compensate for this, the Japanese government undertook measures to increase the role of renewables in the country’s energy mix. In 2012, Feed-in-Tariffs (FiT) were introduced to support the development of Japan’s renewable energy capacity, leading to utility-scale solar soaring from 370MW in 2010 to over 43GW in 2018.

In 2015, Japan’s Ministry of Economy, Trade and Industry (METI) indicated in their energy plan that renewables would make up 24% of Japan’s energy mix, representing 10GW of offshore wind capacity, by 2030. As the transition to clean energy continues to gain momentum in Japan - particularly in offshore wind - the market is quickly getting on the radars of both domestic and international developers such as Marubeni and RWE Renewables. To support the 2030 target, the Japanese government has implemented a number of further initiatives to accelerate the growth of offshore wind, including:

• A new legal framework for the use of Japan’s ‘general territorial waters’,
• Identification of 11 potential areas for offshore wind development
• Competitive auctions granting 30-year leases for offshore renewables installations

Operating and development landscape
Unlike European markets with established offshore wind sectors, Japan still faces multiple barriers which could limit the growth of offshore wind - notably physical infrastructure and supply chain constraints. These must be overcome to spread risk and avoid bottlenecks which could otherwise constrain project construction and lead to delays.

In particular, developing both specialist vessels and port infrastructure capable of turbine pre-assembly, construction and maintenance is key. International developers who can add value in these areas through financial investment and leverage Japanese industrial capability by adapting production facilities for offshore wind will therefore come out ahead in Japan’s offshore industry.

With multiple domestic industries competing for Japanese marine space, the government is keen to support both the local economy and the growth of offshore wind. International developers looking to enter the space should therefore take government objectives into consideration and look to deliver a net positive impact on the local economy - for example by providing solutions for stakeholders such as fishing and shipping industries as well as local communities, who may be adversely affected.

The scope of Japan’s offshore wind sector - which has 12.9GW of offshore wind projects under Environmental Impact Assessment (EIA) - along with a generous FiT scheme - has attracted a sophisticated and well-supported network of banks and developers, with banks now willing to finance large amounts of capital as seen in the Akita Port and Noshiro Port projects.

To unlock this capital and encourage domestic players to invest in projects, international developers need to reduce uncertainty stemming from their lack of experience operating in Japan by forming partnerships with their domestic counterparts, leveraging their current Japanese relationships from shared projects in other regions and demonstrating their experience in offshore project development.

Form partnerships
With the Japanese market still in the early stages of development, the lack of opportunities to merge with or acquire local businesses will require foreign offshore wind developers to be more flexible in their development approach. To mitigate some of their inexperience in dealing with specificities to Japan’s geographical setting such as seismicity and extreme weather conditions like typhoons and tsunamis, international players would benefit from working with local businesses with high levels of expertise in these areas to conform to Japanese design standards and obtain ClassNK certification.

For example, Ørsted has formed a partnership with TEPCO, the Japanese power company. By combining expertise in large-scale offshore project development and local market conditions, partnerships give international players a strong position to compete in 2020 auctions tenders. Forming those partnership, ahead of one’s competitors, should be a key goal of early relationship building for aspiring foreign market entrants.

Leverage relationships
Many Japanese players have gained offshore wind experience by acquiring stakes in projects in Taiwan and Europe where the 857MW Triton Knoll project off the coast of the UK is a prominent example. Offering participation in an offshore wind project abroad to a Japanese partner can be a pathway to development collaboration and access to opportunities in Japan.

This is a significant opportunity for established international offshore wind developers looking to enter Japan’s offshore wind space. Even in early stages of development, organisations would benefit from developing strong ties in order to leverage the relationship later on when their counterparts secure opportunities in Japan.

Demonstrate your experience
Utility-scale offshore wind farms have only begun to emerge in Japan within the last few years, and the domestic market has relatively little experience compared to Europe. This has left an experience gap which international developers can fill. To take advantage of this, international developers and investors need to identify where they can be of most benefit to Japanese offshore wind developers and then demonstrate how they can help develop the industry in these areas.

For example, due to Japan’s challenging bathymetry - where nearly 80% of the market’s offshore wind resource are located in areas with water depths greater than 100 meters - international developers can demonstrate their floating offshore wind capabilities and introduce domestic developers to international investors and manufacturers who are keen to invest in this technology.

Conclusion
International developers looking to get involved in Japan’s offshore wind market must take into account the operating and development landscape of the sector and seek to benefit the local economy as well as the offshore wind industry. By sharing lessons learned and providing clear direction to the market’s domestic developers and investors, international players can help establish best practices - paving the way for future offshore project development.