Japan Renewable Energy Update - Offshore Wind Energy

by DLA Piper
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On March 9, 2018, the Japanese Cabinet submitted to the Diet a new bill designed to address several issues relating to offshore wind power projects in Japan. This new law, if enacted, is expected to help drive the Japanese government's renewable energy strategy by clarifying the rights of developers to long-term use of sea areas in the implementation of offshore wind projects.

After the Great East Japan Earthquake of 2011, the Japanese Cabinet approved a cabinet decision to promote, among other resources, ocean renewable energy resources. Japan is surrounded by open ocean and has sufficient potential sea areas for offshore wind power projects. Offshore wind power projects not only have less environmental impact than do projects that use fossil fuels, but by being large-scale development projects, they are also expected to have a beneficial effect on the local economy.

According to the Ministry of Economy, Trade and Industry (METI), however, as of March 2017, there were only six (6) offshore wind power projects in Japan, all of which were still in the test demonstration phase under the supervision of the Japanese government. In contrast, Europe has introduced 3,589 offshore wind projects in total as of 2016, all of which were in the implementing phrase. In addition, the power generation cost of wind power in Japan is much higher than that in Europe. According to METI, such cost in Japan is JPY 36/kWh (as of 2014) while the same cost in Europe is about JPY 6~12/kWh (as of 2015).

The goal of the Japanese government for onshore and offshore wind power in Japan is approximately 10 GW by Fiscal Year 2030. As of March 2017, however, only 3.39 GW of this goal had been achieved. The new legislation is expected to promote the introduction of offshore wind power projects in Japan. Set forth below is a comparison by METI of the merits of offshore wind power with those of onshore wind power:

 

Offshore wind power

Onshore wind power

Status of wind

Better than onshore generally

Less than offshore generally

Scale of plant

About 5 MW class

About 2 MW class

Amount of electric power generation per one plant

Equivalent to annual electricity consumption of 4,200 household

Equivalent to annual electricity consumption of 1,400 household

Transport limitation of plant construction materials

Some  (because of maritime transport) 

Significant (because of road transport)

Legal Background

Producers of energy from offshore wind projects need to ensure long-term usage of a sea area for a period that is at least equal to the applicable purchase period for the fixed feed-in-tariff price under the Act on Special Measures Concerning Procurement of Electricity from Renewable Energy-Sourced Electricity by Electricity Utilities (the Renewable Energy Act).

There has been no specific legislation in Japan, however, to secure such long-term usage for energy producers. In 2016, the Ports and Harbors Act was amended to grant the right of exclusive use of certain harbor areas and fishery port areas for up to 20 years, but there has been no legislation to allow exclusive use of sea areas other than harbor or fishery port areas. Implementation of offshore wind projects in Japan, therefore, requires clear rules and guidelines for long-term use of specific sea areas as well as a system to coordinate interests of relevant stakeholders (such as fishing cooperatives that may own rights to certain sea areas). The new bill aims to facilitate the implementation of offshore wind projects by allowing the long-term use of general sea areas (ippan kai-iki)1  in Japan.

Outline of the New Legislation

The proposed system to grant exclusive use of general sea areas under the bill is basically similar to the system under the Port and Harbor Act in terms of using a public subscription system. According to the proposed bill, the process for seeking the right to such use is as follow:

A ''Promoted Area'' is an area in respect of which business operators may apply for its exclusive use for wind power projects, as determined by METI and MLIT after considering various factors, such as physical conditions including atmospheric and hydrographic phenomena, potential impact on usage of harbors and sea routes, logistics of goods and manpower to build and maintain the power plant, possibility of interconnection between the offshore power plant and electric lines, and potential impact on fishery in the relevant area. The Japanese government intends to designate five (5) Promoted Areas by 2030. The occupancy period and the amount of the occupancy fee will be decided by a cabinet order. The occupancy period will not exceed 30 years (but is unlikely to be less than 20 years because the applicable purchase period of wind power under the Renewable Energy Act is 20 years).

It should be noted that a project developer applying for exclusive use will be required to submit its Plan for Exclusive Use (step (iii) above) which must include the proposed sales price for the power generated by the offshore wind project. The Japanese government is expected to grant the exclusive use of a Promoted Area on the basis of such plan, including the specified sales price. This would mean that the feed-in-tariff price for offshore wind projects effectively will be determined through the process of approval of the Plan of Exclusive Use, independently from the applicable process under the Renewable Energy Act. In this sense, the application and approval process under the new legislation effectively would function as a bidding system for offshore wind projects. If a business operator is designated as the operator with the most appropriate Plan of Exclusive Use (step (iv) above), the business plan of such operator would be approved for the purpose of both the new legislation and the Renewable Energy Act (steps (v) and (vi) above).

Conclusion

If the proposed legislation is passed by the Diet without substantial amendments, the Japanese government will be adopting Japan's basic policy to promote oceanic renewable energy projects. Although this new bill will not resolve all of the issues relating to offshore wind projects in Japan, such as high implementation costs resulting from environment assessment and shortage of capacity of interconnection lines with regional transmission operators, the bill will introduce a new legal system for offshore wind projects and address one of the more significant practical concerns for offshore wind project developers in relation to the right to long-term use of sea areas.


1Territorial waters and internal waters of Japan, excluding fishery port areas and harbor areas.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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