Japanese offshore wind energy: 2022 update and outlook

II. Offshore Wind Developments in 2022

• The second-round auction process was delayed due to updates of auction rules. In December 2021, the Japanese Government annouced the results of the first-round auction of offshore wind capacity in Japan. Consortiums led by the same company won all three projects off the coasts of Akita (Noshiro/Mitane/Oga and Yurihonjo) and Chiba Prefectures totaling 1.7GW. The consortiums offered a lower bid price than their competitors, but this has led the market to question whether the consortiums can cover their costs. This reaction from the market resulted in the Government’s delay in hosting the second-round auction as the Government and the market spent a lot of time and effort updating the auction rules.
• The Japanese Government designated three additional Promotion Zones and one Promising Zone in September 2022. Under the Act on Promoting the Utilization of Sea Areas for the Development of Marine Renewable Energy Power Generation Facilities (Act No. 89 of 2018), the development of offshore wind projects in general sea areas is to be conducted by operators selected through a public bid process for Promotion Zones that are designated by the Government. The Government designated projects off the coasts of Akita (Oga/Katagami/Akita), Niigata and Nagasaki Prefectures as Promotion Zones and one project off the coast of Chiba Prefecture as a Promising Zone, which is one step before being designated as a Promotion Zone.
• The Japanese Government released revised auction rules in October 2022. The Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure, Transport and Tourism issued new rules to place more weight in the determination phase on project speed.
  • In the auction rules, bidders are judged on a 240-point scale that awards credit for pricing and operational feasibility. While the previous rules granted up to 20 points for the feasibility of a bidder’s plan for a project (project schedule was considered as just one factor contributing to a project’s feasibility), the new rules grant up to 20 points for how quickly the plan can be executed.
  • If any of the bidder’s proposed price is less than the price at a zero premium, an equal score (120 points) will be awarded to all bids below the zero premium.
  • The auction rules enable the Government to limit the number of the projects that a single bidder can win at once. Such restriction will only be in place during the early stages of the domestic offshore wind industry. In addition, the limitation will be examined for each application based on the power capacity of each auction process.
• Drafts of the guidelines for the second-round auction were released for public comment until December 8. The guidelines are based on the revised auction rules released in October 2022 and targeted four projects off the coasts of Akita (Happo/Noshiro and Oga/Katagami/Akita), Niigata and Nagasaki Prefectures. The price at a zero premium is designated as JPY 3/kWh for the projects.

III. Outlook

The final guidelines for the second-round auction will be finalized based on the public comments, and the second-round auction will proceed soon thereafter.

As some of the current Promising Zones will likely proceed to be designated as Promotion Zones, interest from developers in subsequent projects is increasing. Prioritizing local partnerships is key to the entry of international manufacturers in future projects. After the results of the first-round auction, developers are considering diversifying their supply lines, including more cost-competitive and time-efficient services, and working more closely with local operators to increase their chances of being successful in the auction process.