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Multinationals in Asia

Global wind power players see Japan as next money-spinner

Asia to blow past Europe and amass over 60% of offshore capacity

TOKYO -- The city of Choshi lies to the east of Tokyo, right where the elbow of the Boso Peninsula juts out into the Pacific. It is known for two things -- seafood and soy sauce -- and was devastated by B-29 air raids in World War II. Now, off its rugged coastline, a Japanese utility and a European powerhouse are trying to spark a national energy revolution.

Last year, Tokyo Electric Power Co. Holdings switched on its first commercial offshore wind plant there, with turbines fixed to the seabed and towering 126 meters above the waves. The installation has a maximum output of 2.4 megawatts, but for Tepco this is only the beginning.

The company forever linked to the meltdowns at the Fukushima Daiichi nuclear plant aims to generate 2 to 3 gigawatts of domestic offshore wind power -- equivalent to the motor output of up to 27,272 Nissan Leaf electric cars. To do that, it has teamed up with Denmark's Orsted, the world's largest offshore energy developer. The partners are working on a far bigger 370 MW project off Choshi, scheduled to come online after 2024.

They are not alone.

Multinational energy companies are quickly putting down stakes around Japan. The country is considered one of the final frontiers for wind power in an Asian region expected to account for over 60% of the world's offshore capacity by 2050. Opportunities are there for the taking: Nuclear power has become almost anathema since the earthquake-triggered disaster in 2011, while the government is keen to reduce its heavy dependence on fossil fuels from the Middle East.

The attack on a Japanese oil tanker near the Strait of Hormuz in June only added impetus.

"Growth is very fast in Asia," said Matthias Bausenwein, Orsted's president for the Asia-Pacific. After building more than 25 offshore wind farms mainly in Europe, the company is working on a project in Taiwan, which Bausenwein called the "center" of its activity in this part of the world. "But the next market is Japan," he said.

Orsted and Tepco hope to capitalize as the government rebalances the country's energy sources. By 2030, renewables are to meet 22% to 24% of total energy demand, up from 16% now. Nuclear power is to account for 20% to 22%, versus the current 3%, while coal will cover around 26%, down from 32%. Liquefied natural gas is to provide another 27%.

Wind power is expected to make up a relatively small portion -- 1.7%, versus as much as 9.2% from hydropower and 7.0% from solar. But there may be a bigger gap to fill than the government expects.

"Nuclear will be difficult, because Japan still hasn't resolved the issue of restarting idle reactors," said Jin Kato, president of the Japan Wind Power Association, or JWPA. "Coal will be tough due to [environmental] pressure from the international community. If it goes on like this, we'll lose our power sources. Offshore wind power is the last ace up our sleeve."

To meet the targets, which assume total demand for 1,065 billion kilowatt-hours, Japan will need to run about 30 nuclear reactors. Since all the country's nuclear facilities were suspended after the Fukushima disaster, only nine have been restarted as of early December, due to slow safety upgrades and opposition from surrounding communities.

A protest against atomic energy in Tokyo: Years after the Fukushima disaster, anti-nuclear sentiment still runs deep.   © Reuters

As things stand, the JWPA expects 5 trillion to 6 trillion yen ($46 billion to $55 billion) worth of direct investment in 10 gigawatts of offshore wind infrastructure by 2030. The economic ripple effects, it says, could exceed 13 trillion yen, based on economy ministry price calculations.

Tepco, for its part, is set to spin off a renewables subsidiary in April 2020 and aims to turn a 100 billion yen profit on the business by fiscal 2030.

German multinational RWE Renewables, the No. 2 offshore player, is also moving in now that Japanese policymakers have paved the way.

In April, the government enforced a new offshore wind law, which allows wind farms to operate in the country's territorial waters for up to 30 years. Then, in the summer, the economy ministry picked 11 candidate zones for offshore power projects, including Nagasaki Prefecture in the southwest and Chiba Prefecture, which encompasses Choshi.

"The promotional zones selected by the Japanese government are definitely candidates for our projects, and we consider to participate in the respective auctions," said Sven Utermohlen, RWE Renewables' chief operating officer for global offshore wind.

The RWE group has been branded one of Europe's biggest carbon dioxide emitters by research company Carbon Market Data, but it is working to clean up its reputation. This effort includes its acquisition of the renewables businesses of two companies, Innogy and E.ON. It aims to snag anywhere from 10% to 30% of the Japanese offshore market by 2030.

Last year, the German company partnered with Kyuden Mirai Energy, a unit of utility Kyushu Electric Power, to install bottom-fixed turbines off Japan's southernmost main island. Bigger prizes may come later.

Swedish climate activist Greta Thunberg stands at the edge of an RWE brown coal mine in Germany in August. The utility has drawn criticism over emissions but is working to clean up its reputation.   © Reuters

Turbines rooted in seabed foundations are currently the mainstream. But the world's first floating wind farm started producing electricity in Scotland in 2017, with turbines only held in place by ropes connected to the seabed.

While the JWPA estimates Japan has about 91 GW worth of fixed-to-the-bottom potential, floating farms could be built in much deeper waters and far more locations. "We see considerable potential for bottom-fixed offshore wind in Japan, but further down the line, we obviously consider floating wind farms, for which Japan has one of the largest [potential] markets," Utermohlen said.

RWE will have competition from the company behind the Scottish floating farm -- Norway's Equinor.

Northern Europe's largest oil company, formerly known as Statoil, opened an office in Japan in 2018. It wants to build multiple floating farms by 2030, each with 300 to 500 MW of capacity. It has already found a local partner and is scouting several potential sites.

"Offshore wind is key, because onshore development is difficult in places like Japan as it is densely populated," said Karsten Stoltenberg, Equinor's representative in Japan. The floating technology, meanwhile, suits Japan well because its territorial waters -- the world's sixth-most expansive -- are deep.

French oil major Total is also weighing floating wind farms in Japan. Canada's Northland Power has formed a joint venture to develop projects off Chiba.

"Japan's offshore potential is huge and the size of the market could be like Europe in next 15 to 20 years," Stoltenberg said. Europe had 19 GW of offshore installed capacity as of 2018, the most in the world, according to the International Renewable Energy Agency (IRENA).

Some are skeptical of the influx of foreign companies into the Japanese offshore market. Takeshi Kaneda, CEO of Tokyo-based consulting firm Universal Energy Research Institute, worries Japan will not reap much profit because "most of the projects in development and turbine manufacturing are led by European companies."

Kaneda also cautioned that "Japan has various natural disasters such as typhoons, tsunamis and earthquakes, which European waters do not have."

But in one way, at least, the market seems to be a natural fit for companies from the Continent. Europe has a long history with "feed-in tariff" systems, which Japan has been using since 2012 to promote renewables.

Under the system, renewable power producers are guaranteed that their electricity will be purchased at a predetermined rate for a fixed period, depending on the type of energy. Offshore wind fetches a higher price -- 36 yen per kilowatt-hour for 20 years, more than double the price for solar and far exceeding the 19 yen for onshore wind farms.

"Japan provides a clear regulatory framework now with secured revenue for 20 years," Orsted's Bausenwein noted.

Matthias Bausenwein, Orsted's president for the Asia-Pacific, is bullish on the region.

While feed-in tariffs have been reduced or scrapped in many countries, Japan's remain high, and early entrants can lock in the rates.

That will soon change, as Tokyo intends to overhaul the system this year to reduce the burden on consumers. Midsize and large operators will have to sell on the wholesale market for prices negotiated according to market conditions. But again, Germany and other European countries have already taken similar paths.

"The Japanese power market is at least five years behind Europe in terms of structural development and the sustainability agenda in the context of energy transition," said Yoon Jian Chong, head of Asia strategic client advisory at Aquila Capital, a German asset management company. "Europe is now in a better position to apply and share its technological know-how, commercial and engineering capabilities through teaming up with Japanese companies."

There is room for offshore turbines across Asia -- not just Japan.

IRENA predicts the wind power industry will make a "prominent shift" toward Asian waters, with the region coming to "dominate global offshore wind power installations." Asia will blow past Europe and North America in terms of its share of global installations by 2050, exceeding 60% versus 22% and 16%, respectively.

From China and Taiwan to South Korea and India, IRENA expects Asia's offshore capacity to reach 613 GW in 2050, excluding Oceania. That would mark a huge increase from just 5 GW in 2018.

"Growth potential is the highest in Asia, definitely," Equinor's Stoltenberg said. His company recently opened an office in New Delhi, after the Indian government said it aims to bring 30 GW of offshore wind power to the grid by 2030.

Then there is China, which IRENA projects will have around 56 GW of offshore wind power by 2030 and 382 GW by 2050. The agency says China's installations will outpace Europe's in less than two decades -- one reason Equinor joined forces with state-owned China Power International Holding in September.

But while India and China both offer plenty of space and huge energy demand, Orsted's Bausenwein suggested that neither country is an easy place to do business.

Russia is also a voracious energy consumer and has little existing wind power. But Yoshinori Ueda, a JWPA official, said Moscow has "low motivation to develop offshore farms because of its rich oil and gas resources." At the same time, Western companies are leery of political risks.

That, Ueda said, leaves Japan as the "last" big market to explore. Judging from the inrush of multinationals, it will not be unexplored for long.

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