Japan: driving renewable energy in a complex marketplace
Japan: driving renewable energy in a complex marketplace
The renewable energy sector in Japan is showing active growth, with currently 16-18% of domestic energy production being generated from renewable energy sources, compared to 9% in 2010. The Ministry of Energy, Trade and Industry’s (METI) agency for Natural Resources and Energy forecasted as recently as September 2019 that this figure will increase to 22-24% by 2030.
Their main growth areas by 2030 are predicted to be in Solar (64 GW) and Wind Energy (10 GW) production, followed by Hydro and Biomass Energy as set out in Figure 1 below.
Mega Solar power shifting to rooftops
Further fuelled by the lack of large, open spaces in areas of Japan, there is a significant interest in the industry to shift its focus to smaller scale, rooftop panels for an off-grid production of energy.
Previously such movements were hindered by various risk elements such as cost, environmental and leasing contractual restrictions but the development of mass production methodologies of smaller panels have further opened up the market to developers. There is currently strong competition from international Original Equipment Manufacturers (OEMs) in the Japanese market, with many major Japanese panel makers branching out by developing and offering products such as fuel cells and storage batteries.
Insurance market conditions
The impact of Typhoon Faxai in September 2019 resulted in 934,000 households without electricity. The economic impact is estimated to be over US$8 billion and floating PVs were also affected in its course. A 13.7 MW floating project at the Yamakura dam was damaged by 120mph winds, which saw panels being torn off and stacking up causing the modules to overheat, resulting in fires. Such large-scale losses are also a factor for caution for the solar developers in Japan.
Offshore Wind: the deployment of fixed foundation turbines in Japan 2 .
The act sets uniform standards in certain sea areas designated by the authorities to be offered under public bid, with selected operators obtaining exclusive area use for a maximum of 30 years. This enables developers and operators to have certainty in land usage, driving a smoother introduction of offshore wind projects in Japan.
An additional catalyst for the offshore wind market in Japan is being driven by the development of Jack-up vessels by Japanese firms to increase availability locally. Many of the vessels are due to be completed in 2022 to prepare for the demand in Japan and the APAC territory.
There are currently over 20 offshore wind projects in the planning stage in Japan, with the projection that tenders for projects will accelerate in 2020 through to 2021.
What are the risks?
Typhoons Hagibis and Faxai were 2019’s costliest natural catastrophes, costing US$10 billion and US$8 billion to the insurance market respectively. The changing trend of cyclones noted by geoscientists is the extreme precipitation associated with the traditional wind forces. Recognition of these changes can form a basis for further preventive measures to reduce losses.
There are still large elements of uncertainty for this previously unforeseen risk exposure, but currently this has not diminished the overall interest in developing offshore projects in Japan.
Willis Towers Watson has worked on the Fukushima III project, the world’s largest floating wind turbine project at 344 feet, which is able to withstand 65-foot waves - and even tsunamis.
Insurance market and brokers
Conclusion: interesting developments in Japan’s renewable sector
There is still some uncertainty with regard to elements of natural catastrophe and its effects on this industry, but there are no signs of any deterrence from the developers to drive this movement forward.
In 2020 Japan’s renewable energy profile will change dramatically, with new project confirmations on large scale offshore wind projects.
Katsuyoshi Hoshino is Account Executive, Japan Global Practice Group in Willis Towers Watson London.
