Japan’s offshore wind sector grows as foreign firms increase investment and workforce

Japan’s offshore wind industry is gaining momentum as foreign power companies increase investment and expand their workforces. With new public tenders and government support, the sector is poised for growth, although profitability concerns and infrastructure challenges remain significant headwinds.

Foreign firms step up investment in Japan’s offshore wind industry, seeking to strengthen local supply chain despite profitability challenges

Foreign energy companies are increasing purchases of personnel and materials from Japan’s offshore wind industry, a move that has the potential to strengthen the local supply chain. But profitability concerns remain.

After completing two public tenders for large offshore wind projects, the Japanese government has selected developers for seven offshore areas with a total capacity of 3,500 or 3.5 gigawatts. By 2040, the Ministry of Economy, Trade and Industry aims to deploy offshore wind power capacity of up to 45 GW.

In 2020, Tokyo developed a strategy that aims to make Japan the world’s third-largest offshore wind producer by 2040, after China and Europe, according to Nikkei Asia.

Japan’s revised law on offshore renewable energy is also providing a boost. The country’s exclusive economic zone could be expanded beyond territorial waters to include areas ripe for development.

Japan’s combined territorial waters and EEZ, the world’s sixth largest, cover 4.5 million square kilometers. The country’s market is expected to expand further once it completes its floating wind turbine technology.

The Japanese base of German company RWE intends to increase its workforce to 100 this year. It will recruit primarily in Japan and other Asian regions to help develop and operate offshore wind energy.

RWE’s total operational offshore wind capacity is 3.3 gigawatts. Working with trading house Mitsui & Co. and Osaka Gas, RWE acquired the rights to the waters off the Sea of ​​Japan coast in Niigata Prefecture during Japan’s second round of public tenders, announced in fiscal year 2023.

Plant operation, public tenders and development require specialized personnel. RWE intends to acquire additional Japanese rights in the future.

Iberdrola expands in Japanese offshore wind market, seeking to strengthen local supply chains in the face of industry challenges

Iberdrola, a Spanish company, is also considering adding staff in Japan. In 2020, the company acquired renewable energy developer Acacia Renewables to enter the Japanese market. In a second round of auctions, the company, along with Tohoku Electric Power and a subsidiary of oil giant Eneos Holdings, won the bid for waters off Akita Prefecture in the country’s northern region.

“We want to establish a division of roles with the companies with which we will jointly develop the business and gather the necessary personnel,” said Chikako Nakayama, president of Iberdrola’s Japanese subsidiary.

The offshore wind industry in Japan could benefit from the presence of foreign companies. Offshore companies have a cycle that exceeds 20 years from development to operation and decommissioning. They require the purchase and production of parts and the provision of maintenance personnel near development sites.

The assistance and knowledge of foreign companies will facilitate the creation of local supply networks, which will translate into faster and more stable business development.

Wind turbine manufacturers are also interested in expanding their operations in Japan. Vestas, a Danish company, will work with Japanese companies to acquire wind turbine towers and nacelle components. Michael Balvers, senior vice president, expressed optimism that Japanese suppliers will also export to international markets.

However, Japan’s offshore wind market still faces obstacles, including profitability. Large-scale development and cost reduction are difficult in Japan due to the country’s relatively limited coastal areas compared to Europe and other regions.

Sourcing spare parts in Japan is difficult, and maintenance costs tend to be high due to the withdrawal of domestic manufacturers such as Mitsubishi Heavy Industries and Hitachi from wind turbine production.

Taiwan, a pioneer in offshore wind, has seen its profitability slashed by high resource costs and strict domestic production standards, prompting foreign companies to pull out and delay development.

Ørsted, a Danish renewable energy company, and Northland Power, a Canadian renewable energy company, recently announced they would scale back their involvement in Japan.

“Actions are needed to address risks to development, such as deregulation and insufficient transmission capacity,” said Mika Ohbayashi, director of Japan’s Renewable Energy Institute.