Japan’s Offshore Wind Sector Expands as Foreign Firms Boost Investments and Workforce

Japan’s offshore wind industry is gaining momentum as foreign energy companies increase investments and expand their workforce. With new public tenders and government support, the sector is poised for growth, though profitability concerns and infrastructure challenges remain significant hurdles.

Foreign Firms Boost Investments in Japan’s Offshore Wind Industry, Aiming to Strengthen Local Supply Chain Despite Profitability Challenges

Foreign energy companies are increasing the procurement of personnel and materials in Japan's offshore wind power industry, which has the potential to bolster the local supply chain. However, profitability concerns persist.

After two public tenders for large-scale offshore wind projects were completed, the Japanese government selected developers for seven sea areas with a combined capacity of 3,500 or 3.5 gigawatts. By 2040, the Ministry of Economy, Trade, and Industry intends to implement offshore wind power capacities of up to 45 GW.

According to Nikkei Asia, in 2020, Tokyo developed a strategy to position Japan as the third-largest offshore wind power producer globally by 2040, following China and Europe.

A revised Japanese law regarding the use of marine renewable energy sources also provides impetus. The country's exclusive economic zone could be extended beyond territorial waters to encompass areas suitable for development.

Japan's combined territorial waters and EEZ, the sixth-largest globally, span 4.5 million square kilometers. The country's market is anticipated to expand further upon the completion of the technology for floating wind turbines.

The Japanese base of German company RWE intends to increase its workforce to 100 employees this year. It will primarily recruit personnel in Japan and other regions of Asia to assist in developing and operating offshore wind power.

The entire operating offshore wind capacity of RWE is 3.3 gigawatts. In collaboration with trading house Mitsui & Co. and Osaka Gas, RWE acquired the rights to the waters off the Sea of Japan coast of Niigata prefecture during the second round of Japan's public tenders, announced in fiscal 2023.

Power plant operations, public tenders, and development require specialized personnel. RWE intends to acquire additional Japanese rights in the future.

Iberdrola Expands in Japan's Offshore Wind Market, Aiming to Strengthen Local Supply Chains Amid Industry Challenges

Iberdrola, a Spanish company, is also contemplating increasing its personnel in Japan. In 2020, the company acquired Acacia Renewables, a renewable energy developer, to enter the Japanese market. In the second round of auctions, the company, along with Tohoku Electric Power and a subsidiary of oil giant Eneos Holdings, won the bid for the waters off Akita prefecture in the nation's northern region.

"We want to decide on the division of roles with the companies we will be co-developing with and gather the necessary personnel," said Chikako Nakayama, president of Iberdrola's Japanese subsidiary.

The offshore wind power industry in Japan may benefit from the presence of foreign companies. From development to operation and decommissioning, offshore enterprises have a cycle that exceeds 20 years. They necessitate the procurement and manufacturing of parts and the provision of maintenance personnel near the development sites.

Foreign companies' assistance and expertise will facilitate the establishment of local supply networks, thereby enhancing the pace and stability of business growth.

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

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

Procuring parts in Japan is challenging, and maintenance expenses are typically high due to the withdrawal of domestic manufacturers, such as Mitsubishi Heavy Industries and Hitachi, from wind turbine manufacturing.

Taiwan, a pioneer in offshore wind power, has experienced a decline in profitability due to the high cost of resources and stringent domestic production standards. This has resulted in the withdrawal of foreign companies and delays in development.

Orsted, a Danish renewable energy company, and Northland Power, a Canadian renewable energy company, have recently announced that they will reduce their focus on Japan's development.

"Efforts to reduce risks to development like deregulation and insufficient transmission capacity are essential,"said Mika Ohbayashi, a director at Japan's Renewable Energy Institute.