Japan’s offshore wind sector remains commercially viable despite recent project withdrawals and rising cost pressures, supported by regulatory reforms and legislative changes that improve project bankability, according to a new briefing note from the Institute for Energy Economics and Financial Analysis (IEEFA).
Mitsubishi Exit Highlights Early Auction Risks
IEEFA pointed to Mitsubishi’s withdrawal from three Round-1 offshore wind projects as a key pressure point for the sector. The institute said total project costs more than doubled to above ¥1tn, resulting in a ¥52.2bn impairment for Mitsubishi.
The setback exposed thin financial buffers created by aggressive bids submitted during the 2021 auctions, combined with limited protection against inflation.
Structural Challenges Persist for Developers
Despite regulatory support, developers continue to face several structural headwinds. IEEFA cited high engineering, procurement, and construction costs, elevated shipping expenses, a weak yen, and rising interest rates as ongoing pressures.
Japan’s lengthy six- to eight-year permit-to-commercial-operation timelines also remain a constraint, compared with two years or less in some European markets.
Developers are further required to fund grid connections and seabed surveys, operate with limited access to corporate power purchase agreements, and assume curtailment risk without compensation. Port and vessel shortages and uneven offshore transmission planning add additional operational constraints, IEEFA said.
Auction Reforms Improve Bankability
IEEFA said Japan’s 2025 offshore wind auction reforms materially strengthen project bankability. Under the revised framework, developers can index up to 40% of inflation prior to construction.
Bid bonds have been doubled to ¥24,000 per kilowatt, while scoring criteria have been expanded to include project feasibility and local contribution metrics. The reforms also introduce 20-year capacity revenue for zero-premium projects awarded under Round-2 and Round-3 auctions.
Supply Chain Localisation and Legislative Support
Supply chain localisation remains a central policy objective. Japan is targeting more than 65% local content by 2040, with growing opportunities across balance-of-plant components, which account for about 70% of total project capital expenditure.
IEEFA also highlighted legislative changes that now permit offshore wind development in Japan’s exclusive economic zone. The change enables access to deeper and windier sites, which can improve turbine capacity factors.
Ongoing Project Activity
On project momentum, IEEFA said several Round-2 projects continue to progress. These include Mitsui’s selection of an engineering, procurement, and construction contractor and Tohoku Electric’s 615-megawatt Aomori offshore wind project.
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