Japan offshore wind remains viable as reforms strengthen project bankability: report

IEEFA also pointed to legislative changes enabling offshore wind development in Japan’s exclusive economic zone.

Japan’s offshore wind sector has suffered notable setbacks, but it remains viable despite current pressures, according to a new briefing note from the Institute for Energy Economics and Financial Analysis (IEEFA).

IEEFA highlighted the withdrawal of Mitsubishi from three Round-1 projects as a key flashpoint. The firm said project costs had more than doubled to above ¥1t in total, resulting in a ¥52.2b impairment and revealing thin buffers created by aggressive 2021 auction bids and limited inflation protection.

According to IEEFA, developers continue to face structural headwinds: high EPC and shipping costs, a weak yen, rising interest rates, and long permit-to-COD timelines of six to eight years, compared with two years or less in parts of Europe.

Developers must also fund grid connections and seabed surveys, operate with limited corporate PPA options, and absorb curtailment risk without compensation. Port and vessel shortages and uneven offshore-transmission planning add further constraints.

IEEFA said Japan’s 2025 auction reforms significantly improve bankability. The new rules allow bids to index up to 40% of inflation before construction, double bid bonds to ¥24,000 per kilowatt, broaden scoring to include feasibility and local-contribution metrics, and provide 20-year capacity revenue for zero-premium Round-2 and Round-3 projects.

Supply-chain localisation is another central pillar, IEEFA noted. Japan targets more than 65% local content by 2040, with growing opportunities across balance-of-plant components, which account for around 70% of project capex.

IEEFA also pointed to legislative changes enabling offshore wind development in Japan’s exclusive economic zone, opening deeper and windier sites that can lift capacity factors.

On project momentum, IEEFA said several Round-2 developments continue to advance, including Mitsui’s EPC selection and Tohoku Electric’s 615-megawatt Aomori project.