Are forecasts for wind in Japan too bold?

Japan is a major player in energy. It is the world’s third-largest oil importer, and is a leader in the power technology sector. Despite this, it has struggled to grow a strong wind industry – even though wider political shifts should be in wind’s favour.

For six years, Japan’s energy policy has been dominated by efforts to overcome the impact of the 2011 Tohoku earthquake and tsunami, and the resulting Fukushima nuclear disaster. This prompted Japan to abandon plans to expand nuclear power.

That left the nation with an energy gap and forced the Japanese government to look at renewables. However, building wind farms in Japan is challenging. The country’s high population and density, and mountainous geography, have constrained land for onshore wind, though the country has great offshore potential.

A major turning point for renewables was the introduction of feed-in-tariffs in 2012, which allowed the government to establish incentives in favour of wind and solar. But, unfortunately, the system worked better for solar than for wind and, as a result, the growth in wind has been relatively disappointing.

The Global Wind Energy Council has reported that 700MW of wind capacity was installed in Japan in the five years to the end of 2016 to take total capacity to 3.2GW. Of that, 300MW was last year.

In comparison, nearby South Korea has seen new wind capacity of around 630MW over five years, but with a significantly smaller population – 50million people versus Japan’s 127million – and a far smaller land mass. The pace may be picking up in Japan, but it is nothing special compared to other countries nearby.

Despite this, the Japan Wind Power Association has not lost its optimism. A JWPA study from January forecast that Japanese policies would enable wind to grow at a far faster pace until 2030. According to its projections, installed wind capacity should triple to 10GW by 2020 and grow twelvefold to 36.2GW by 2030.

But there is a catch: these forecasts rely on favourable conditions for environmental assessments and grid capacity.

The government is still publicly taking a positive view on wind. Last May, it relaxed its rules for building turbines offshore nearby harbours and ports, for example. Also, the Ministry of Economy, Trade & Industry (METI) and Environment Ministry have joined up to reduce the time it takes for environmental assessments for wind projects. This is a longstanding issue for developers and investors in Japan, where environmental impact studies for wind projects can take as long as five years to complete.

This means the JWPA’s ambitious forecasts rely on the government to speed up environmental assessments and to further ease rules in favour of wind farms. However, we know governments often fail to cut bureaucracy, so we would not base any investment forecasts purely on that. Should investors trust Japan's leaders?

We are sceptical. We have seen slow growth in wind since 2011, despite the rise last year. Right after Fukushima, Japan’s leaders said they would incentivise growth of the renewable energy sector, but made slow progress until now – and things may get worse.

For example, the METI has decided to cut the feed-in-tariff for large wind farms to ¥21/kWh ($0.18/kWh) from 1 October, from the current ¥22/kWh ($0.19/kWh). This may not represent a massive cut to the subsidies but the wind industry is struggling already and a cut in feed-in tariffs could be off-putting for wind investors. This would be a shame because there is private sector interest.

Last month, utility Kyushu Electric Power announced it would lead a group of Japanese firms to build the 229MW Hibikinada scheme, which is set to be Japan’s largest offshore wind project.

And, in January, US firm Pattern Energy reached financial close on a 33MW project, due to completion in March 2018, and it is also planning another 126MW scheme.

Investors are interested in Japan’s wind sector, but we remain to be convinced that the government’s plans will be enough to allow them to follow up their interest and actually build projects. Fukushima didn't make fast growth happen, so will this?