Japan Passes Offshore Wind Legislation

Japan just took a big step toward becoming one of the new offshore wind markets. The country passed legislation calling for implementation of a system of auctions for development rights in various wind zones. It also added other policies aimed at accelerating development of offshore wind, all reported in the Japanese Wind Power Association. 

Needs Following Disaster

Japan has long been an attractive target for offshore wind. This is due to its large electricity needs, lengthy coastline with good wind resources (located near city load centers), and the government's and public’s desire to reduce reliance on nuclear power. The latter is driven by the disaster at the country’s Fukushima reactor in 2011, when an earthquake and tsunami damaged the reactor and led to radiation releases. At the time, all remaining 50 nuclear reactors were shut down as a precaution. Three have been brought back online and another were two approved for restart, but many are likely not to be restarted due to low confidence from the Japanese public that nuclear energy is safe. The Fukushima disaster was a wake-up call that Japan should diversify its energy generation portfolio, including effective adoption of offshore wind. One challenge for offshore wind in Japan is its seabed depths, which drop off more quickly than other markets. There are, however, still substantial near-shore opportunities for offshore and floating offshore wind foundations that show promise. 

Specifics of the Legislation

Japan has, to date, lacked formal policies to accelerate the development of offshore wind. Onshore wind is capable of being deployed in countries without formal policies and subsidies because of major cost declines over the past decade. While costs for offshore wind are marching steadily downward, it still requires effective policies at the country level to give investors and other stakeholders confidence in pursuing such capital-intensive infrastructure projects. Even if levelized cost of energy for offshore wind is dropping, the markets need a regulatory environment for permitting, power contract price support, and competitive auctions or other market driven systems to reward cost-effective projects and backers. Ideally these will come to fruition from Japan’s recent legislation, which calls for the following: 

• Prime Minister Shinzo Abe is directed to prepare a basic policy regarding offshore wind.
• The national government’s ministries of economy, trade, and industry (METI) and land, infrastructure, and transport (MLIT) are required to work with regional prefecture governments to identify at least five appropriate offshore wind lease areas.
• Developers could then bid for development rights based on a range of criteria including suitability of a project proposal, financially supported under the country’s already established Feed-in Tariff (FIT) program.
• FIT rates have been in place for 2 years; however, a lack of effective formal permitting procedure and other uncertainties has stifled commercial development. The offshore wind-specific FIT rate is JPY 36/kWh ($0.319/kWh) for 15 years. This rate is a top-up payment paid on top of wholesale electricity prices. It is unclear at this stage whether this FIT rate would be adjusted in any direction.
• Winners for development rights under an auction system will also concurrently win grid-connection rights for an additional fee. It is so far unclear if the full grid connection and transmission cost will be borne by the developer of a project.
• New provisions provide protections for Japan’s fishing industry.
• New regulations require a developer to prove enough funding will be in place over the long-term for eventual decommissioning costs, which is commonplace in other markets.
• The new law will be enforced beginning as early as first half of 2019, with a range of details finalized between now and then.