Renewables in Japan have historically lagged behind other advanced economies. A mountainous island nation with densely populated cities, Japan is not blessed with swaths of land on which to build renewable energy projects.
Now, with east Asia set to become a leader in offshore wind, the Global Wind Energy Council expects 7.5GW of new installations in Japan. The international forum expects the Japanese offshore wind market to take off from the middle of this decade.
In July, the government nominated four offshore wind zones and launched the first offshore wind auction for a floating offshore wind farm off the coast of Goto City in the East China Sea.
Over the past decade, in the wake of the Fukushima disaster of 2011, the country has weaned itself off nuclear energy in favour of fossil fuels and started its cautious expansion into solar.
From solar to wind
While comparatively less attractive than other markets, the last nine years saw a dramatic surge in solar energy generation in Japan. By the end of 2019, generation capacity of solar photovoltaics in the land of the rising sun had increased 17-fold, from 3.6GW in 2010 to 62GW.
Yasushi Ninomiya, senior researcher in renewable energy at the Institute of Energy Economics Japan, predicts that solar energy will become less attractive for foreign companies in the 2020s. As the country’s FITs (feed-in tariffs) are replaced by competitive auctions, and available land becomes harder to find, the solar market will likely be characterised by utility rooftop solar for households and factories. This will be less attractive to foreign energy companies, he says.
"In my view, the only attractive renewable market in this country [for the] next decade will be offshore wind,” Mr Ninomiya affirms.
He cites the country’s untapped potential and the recent liberalisation of its electricity market. Its offshore wind potential is at least 300GW, according to Mr Ninomiya, while its electricity demand is thought to be roughly 1000TWh per year. Added to that is the government initiative to liberalise the market and bring in new laws allowing foreign developers — who typically have more knowledge and experience in harvesting energy in this way — to contribute to an offshore wind market.
If Japan’s renewables history has been marred by difficulties onshore, energy companies are betting on the potential of the country’s offshore capacity — and indeed, given Japan’s resource potential, relative lack of technological expertise and electricity demand, it would seem rightly so.
In September, Equinor, Jera and J-Power partnered up to submit a joint bid to Japan's first offshore wind auction. Macquarie’s Green Investment Group also announced a joint venture with energy giant Iberdrola to co-develop a 3.3GW portfolio of six offshore wind projects in Japan.
More than $100bn of investment in wind and solar power plants are expected to push the renewables share to 27% of Japan’s generation mix by 2030, according to consultancy Wood Mackenzie. Of the $100bn, 30% will be offshore wind.
The government has targeted a share of 22%–24% for its total power generation by 2030. Its renewable share stood at about 17% last year and around 23.1% in the first half of 2020, according to the latest International Energy Agency monthly statistics. But, as this is the result of lower electricity demand due to Covid-19, the latest on-target figure may relapse slightly.
According to data from greenfield investment monitor fDi Markets, Japan has attracted 18 inward FDI projects in the sector this year. Although none of these are for offshore wind, technology developer Principle Power has established a subsidiary in Tokyo to provide offshore wind sales to the domestic market.
Gero Farruggio, head of Australia and global renewables at Rystad Energy, remarks that international oil companies which had been withdrawing from east Asia for a while as a result of the oil slump, among other things, are now returning to the region, enticed by offshore wind.
No longer challenged by the onshore issues of the past, these companies’ renewed interest in the region will continue, he expects, especially following energy giant BP’s ambitious renewable energy targets: 50GW of renewables capacity by 2030 and 20GW by 2025.
Mr Farruggio said that, beyond the development of energy generation, there is growing interest in the role of hydrogen in Japan’s future.
He deems green hydrogen the “wild card” in all of this. Though still in its infancy, it is poised to establish itself as a multi-use pillar in the next stage of the energy transition, especially in east Asia and Australia.
Green hydrogen is produced by wind and solar power via electrolysis, and is therefore carbon neutral, making it instrumental in reducing a country’s carbon emissions. It can be used in the production of ammonia and most notably as a green alternative in gas-reliant industries, such as steel and transport.
If subsidies of the kind hitherto seen in offshore wind generation go into the global supply of hydrogen, and this becomes a “global solution post-Covid”, Japan is likely to be a major beneficiary, says Mr Farruggio.
Alex Whitworth, head of APAC power and renewables research at Wood Mackenzie, distinguishes between the power and non-power sectors, with green hydrogen in the latter category. He expects the economics of renewable power to be well underway by 2030, yet believes that 2040 will be a better time frame at which point to consider green hydrogen.
“For the non-power sector, it is going to be harder and more expensive to decarbonise than in the power sector … If [Japan] builds more solar, they can reduce their power costs by replacing gas, for example. But for heating and industrial energy demand, subsidies or carbon price signals are still needed to support green energy in the next decade or more,” he says.
As it emerges as an offshore wind player, Japan may, however, encounter some fresh geographical and meteorological problems before such a structural transition occurs — problems that its European investors might have overlooked.
“While offshore wind is certainly one aspect where progress could be made, the country is often hit by typhoons which could affect its energy production,” warns Waqas Adenwala, lead analyst for Japan and the Korean peninsula at The Economist Intelligence Unit.
He also cautions that “the sea floor drops away more steeply off Japan’s coasts than it does in places where offshore wind has boomed, such as the North Sea”.
This article first appeared in the October/November print edition of fDi Intelligence. View a digital edition of the magazine here.