First Round in Offshore Wind to Mitsubishi, But All Still to Play For

At the tail end of last year, METI and MILT announced that Mitsubishi-led consortiums had won the first round of auctions for Japan’s fixed-bottom offshore wind projects. Mitsubishi`s bids of approximately 12 to 16.5 JPY per kWh across the three projects were way below the competing bids with differentials of a kind rarely seen in auctions in other major markets. 

The results meant a clean sweep for domestic firms and bids that were low enough to surprise much of the industry. Still these results don’t spell doom for the prospects of companies, including many from overseas (Mitsubishi is planning to use GE’s turbines for example)  in a sector set for sharp growth in Japan.

Limited information

There has been no suggestion of bid rigging and some of the size of these gaps can be explained by the fact that these were the first round of auctions and so there was little pricing information to work with beyond a cap of 29 yen ($0.25) per kWh. Nevertheless, the low winning bids have led some in the industry to question whether Mitsubishi can cover its costs at that price, and how difficult it will be for more economically viable bids to win future auctions.  

Amazon steps in

According to a Mitsubishi statement: “The consortium is partnering with companies including Amazon.com, Inc., NTT Anode Energy Corporation and Kirin Holdings Company, Limited, on a regional promotion strategy…”

The scope and nature of the promotion strategy hasn’t been announced, but in late 2021, Amazon signed a 10-year deal for Mitsubishi to provide electricity for its data centres from solar power farms. The agreement means Amazon – which is aiming to have all its operations powered by renewables by 2025 – will bypass power companies and buy direct from Mitsubishi in the largest deal of its kind in Japan. The two companies concluded a similar renewables deal in Europe last year.

Critical criteria

Ørsted Chief Commercial Officer Martin Neubert told trade publication Energy Watch shortly after the auction results were announced: “We think we submitted strong and economically viable bids alongside our partners which would have opened significant development of the local supply chain for offshore wind.”

Although the full criterion for decisions were not announced by the ministries, the bids were judged half on price and half on their implementation plan, including supply chain. The Ørsted-TEPCO bid scored 98 points for their implementation plan, compared to Mitsubishi’s 91.

What is coming

This was only the first round of auctions for fixed-bottom offshore wind, and Japan will need know-how, tech and experience, much of it from Europe, if it is to reach its goals of having 10GW online by 2030 and then 30 to 45GW by 2040.

And the real action will probably take place further offshore. Japan’s seabed deepens sharply from relatively close to the coastline, meaning that around 80% of its offshore wind potential is in water at least 100 metres deep. Fixed-bottom turbines aren’t practical at those depths – the current deepest project is at around 55 metres off the coast of Scotland – requiring floating structures instead.

Floating wind power tech is still in its early stages. A small 16.8MW demonstration project off Goto City, Nagasaki was announced last summer, but a few months earlier another trial project – off the coast of Fukushima and dubbed the first of its kind in the world – was ended after the central government withdrew its funding.

Nevertheless, new technology such as the TetraSpar floating foundation from Stiesdal Offshore Technologies promises to massively reduce the costs and workload required for floating offshore wind projects and so make them more economically viable.

And the results of the recent auction haven’t put the Dutch off the Japanese market. The Netherlands Enterprise Agency (RVO) announced on February 4 that it has commissioned the Dutch company BLIX Consultancy to perform a study on the potential market for floating wind in Japan.
“Floating offshore wind will be a very important part of the Renewable Energy base in Japan and there are quite a few solutions that likely fit well in the strategy of the Japanese government, but it is of utmost importance that there is a good general understanding of how the Japanese market functions and what the dos and don’ts are while entering this market”, said Willemijn van der Werf, BLIX’s head of business development for Asia.

In the meantime, the bid deadline for the auction for a fixed-bottom 356 MW project off Happo-Noshiro in Akita is June 10, with results expected in December. What is certain is that international firms will have to significantly improve their bids and will need the right personnel to achieve it.

By Gavin Blair

Current openings:

We are currently hiring for:
• Technical Project Managers
• Technical Project Engineers
• Service Managers
• Project Developers
• Commercial Managers

If you are interested in contributing to making Japan a greener place and looking for a new career opportunity, please contact us here or direct to Mark Takano.

Slate Consulting
Mark Takano
Head of Energy
E: mtakano@slate.co.jp
T: 070-1050-9244

To find out more about our latest positions click here