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Business Trends

Global wind power companies gear up for business in Japan

A sea change is underway in one of the world's last unexplored markets

Offshore wind power is generated by a facility operated by Toda in Nagasaki Prefecture. (Courtesy of the company)

TOKYO -- With Japan recently saying for the first time that renewable energy will be a "major" source of its electricity supply, big international wind power companies are gearing up to get into the potentially lucrative market.

Such foreign players have mostly stayed away thus far, deterred by high installation costs and red tape. But some are now rethinking the situation, given the emphasis on renewable energy in the government's new Basic Energy Plan. Surrounded by oceans, Japan is an inviting market for renewable energy companies that can bring considerable technological and financial resources to bear.

Along with Russia, Japan is said to be "the last unexplored market" for wind power generation, according to an official with the Japan Wind Power Association. Wind power accounts for less 1% of the country's electric power generation, compared with 10% in Europe.

The world's largest offshore wind power generating company, Denmark's Orsted, which accounts for around 30% of the world's offshore wind power generation capacity, plans to establish a Japanese subsidiary in 2018. Orsted plans to start out by setting up turbines on bases fixed into the seabed, as it has done in Europe.

Norway's Equinor, the biggest oil company in northern Europe, will begin a marketing campaign in Japan in September. The company recently changed its name from Statoil, dropping "oil" from its name to emphasize the shift to renewable energy.

Equinor built the world's first floating wind farm in Scotland, and will apply its technology for pumping oil from underwater oil fields to offshore wind power generation. It plans to raise its wind power generation capacity in Japan to 750,000 kilowatts, the same as in Britain.

German wind power company E.ON recently began research into whether to enter the Japanese market, aiming to make a decision by the end of 2018. 

E.ON has expertise in addressing the kind of natural hazards that occur frequently in Japan, gleaned from experience in places such as Texas, which is prone to hurricanes, and Italy, which has frequent seismic activity. Should E.ON decide to get into the market, it would likely build onshore wind power facilities.

The world's largest offshore wind turbine company, Denmark's MHI Vestas Offshore Wind, also recently founded a Japanese subsidiary. Spain's Siemens Gamesa Renewable Energy has developed a wind turbine about 20% more powerful than conventional models. It stresses the turbine's efficiency and ability to handle especially strong winds.

Offshore wind power generation produces electricity through wind turbines erected at the sea. It can generate power more efficiently than onshore because the wind is stronger at sea than over land.

There are basically two ways of installing wind turbines. One fixes turbines to the seabed, a common method in Europe due to the presence of many offshore areas with shoals, making it possible to introduce large-scale wind power farms there.

The other method involves floating turbines, a method likely to be favored in Japan, which is surrounded by deep waters.

Legal and other institutional changes are making it easier for foreign companies to enter the market. The government is preparing a new law, for example, to set rules for using wind at sea aimed at promoting offshore wind power generation.

Regulatory improvements would be a boon to offshore wind power, said Matthias Bausenwein, the company's Asia-Pacific general manager for power generation. Clear government targets encourage investment, although factors other than numbers are also important, he said.

The growing international attention to the Japanese market makes good business sense, given that Japan's wind power generation is set to roughly triple by 2030 from the current level, according to one estimate.

On July 3, the Cabinet approved its new energy plan, which includes a policy shift for the first time toward making renewable energy a major electricity source, while calling for support for the development of offshore wind power capacity.

As the presence of foreign companies grows in the market, Japanese companies may be encouraged to seek tie-ups.

"We are considering tying up with European and U.S. companies going ahead in development and management," said Kunihiko Shoda, managing director of Eco Power,  which is affiliated with Cosmo Energy Holdings. He noted that the scale of development for offshore wind power generation is larger than for onshore. 

Eco Power, which plans to start generating electricity from wind power in the fiscal year from 2021, hopes to manage four or five offshore wind power farms by the mid-2020s by acquiring expertise and know-how from foreign partners.

But many challenges remain to the development of wind power generation in Japan. Among them is a lack of suitable seabed locations for fixing turbines, making them more costly to install because of the greater amount of steel required.

As well, procedures for establishing floating wind farms are not well defined, including a framework for negotiating with fisheries cooperatives.

To expand operations in Japan, Equinor needs local partners, said Karsten Stoltenberg, the company's representative for the country. European firms face difficulties winning approval from fishermen and working with local entities, he said.

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