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Impact Webinar:
Japan Offshore Wind Updates 2022

[IMPACT Livestream] Japan Offshore Wind Market Updates

Date & Time: 11:00-12:10 GMT+9, April 28 Thursday

Format: Digital Conference

Japan offshore wind industry is set for sharp growth as the government targets to award 10GW of OW capacity by 2030 and possibly another 20GW-35GW capacity by 2040, spurring a contest for project build-out. The webinar deep dives into the current market state and a forecast into the future through conversation with 6 top-tier stakeholders.

Market Background:

  • The Mitsubishi-led consortium sweeps the first-round auction, winning all three projects totaling 1.7GW. However, the low bid price has led the industry to question whether Mitsubishi can cover its costs in a market just starting, and how difficult it will be for more economically viable bids to win future auctions.

  • The Round 2 and 3 are expected to open in late 2022.

Our Key Takeaways:

Revision in auction rules is in need and ongoing

Following the announcement of Round 1 winner, the Japan Wind Power Association submitted a request letter to METI to discuss the issues seen in Round 1, which results in METI’s delay in hosting the Round 2. Currently the discussion about rule changes is ongoing mainly around the scoring system, with developers asking for more equal distribution of points between quantitative and qualitative scores, and more open disclosure of scoring results.

A Japanese style centralized auction system could be the new norm

To fast track the offshore wind development, the Japan government is putting out a Centralized Auction System for test in northern part of the country, in which the government undertakes initial surveys and disclose them to potential bidders for making business plan. However, as the scope does not include dialogue building with the local stakeholders especially fishery, developers remain unsured about its actual impact in timeline and cost optimization.

Presenters:

Mr. Yukinobu Uchida

Country Manager - Japan

DNV

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Mr. Masahiro Tanabe

Counsel

Baker McKenzie

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Ms. Kanna Mihara

Associate Director

Macquarie Capital

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Mr. Hiroaki Nakagawa

Head of Procurement

Renova

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Mr. Pelayo Rodríguez Alonso

Senior Business Development Manager

OW Ocean Winds

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Mr. Hiroshi Iwao

Associate General Manager

Sumitomo Mitsui Trust Bank

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Grid access continues to be the biggest bottleneck

The transmission grid in Japan is operated in different frequencies (50 Hz in East Japan and 60 Hz in West Japan) where a large power interconnection between the grids is not possible. The weak power grid has become a hindrance to not only the growth of offshore wind in Japan but the renewable market in general. Currently, METI is considering a master plan to revamp the electricity grid on a national level, including the construction of a new Hokkaido-Tokyo HVDC link to benefit the offshore wind operators and other transmission line upgrades.

FIP opens the door for CPPA market, but there’s still a long way to go

The auction scheme is likely to transfer from FIT to FIP in Round 3, under which the developer will have to find an offtake themselves to sell the electricity to (it can be either a retailer or a corporate buyer), then get premium from the OCCTO. The challenges here are two, 1) the calculation formula of the premium in Japan is slightly different from that in CfD; 2) the target offtake/corporate usually gets very competitive price for electricity, hence it can be difficult for OW developer to squeeze out profits between the price gap. Developers and financiers are looking into the CPPA market, but think it will take 2-3 years to mature and start with smaller-scale solar project.

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Floating wind may stumble over regulatory failings, if no change

Japan is a huge market for floating wind, but currently there are no specific mention on the floating wind objectives and there’s no regulation for projects farther away the coast. (the current act applies to general territorial waters only, in which there’s a 12 nautical miles limit). In the context, Ocean Winds, along with Shell, Equinor, and three Japan partners, launches a dedicated Floating Offshore Wind Group to actively promote FOW and related regulations in the country, including setting the FOW target of 2-3GW by 2030 and allow offshore wind in EEZ (extend to 200 nautical miles from the baseline)

Prioritizing local partnership is the key for international manufacturers to enter the market

Based on the results of the first-round auction, developers are considering diversifying its supply line to include more cost-competitive solutions/services. Currently, Japan does not have regulations restricting the entry of overseas suppliers, but what needs to be considered is the scoring of local content in the tender (60% local content – the recent successful example is the partnership between GE and Toshiba).