Japan’s new era for offshore wind / Youzyou Furyoku

Japan was put in the spotlight late last year when new legislation to introduce a national framework for offshore wind development in “General Water” areas (that is, outside of ports and harbours) was passed. The Act for the Promotion of Use of Marine Areas for Development of Marine Renewable Energy Generation Facilities (the Act) was approved by the Diet (Japanese parliament) on 30th November 2018.

Until now, a framework only existed for offshore wind development in ports and harbours, which only comprise 1.5% of Japan’s territorial waters and are therefore unsuitable for the large-scale developments the industry is ultimately seeking. A few projects have also been developed outside of ports and harbours jurisdiction, under prefectural oversight; however, these have followed ad-hoc processes different for each prefecture, and ultimately resulting in short-term occupancy rights, leaving significant risks to the developers.

This is why the national government has sought to harmonize the development process with the Act.

A council, comprised of members of relevant government authorities (including governors, mayors, fishermen, industry stakeholders and relevant ministers) was formed to tackle this process and ensure all interests are being fairly represented in the process. The council is in the process of:

1.  Setting out the procedure by which “Promotion Zones”, or areas where offshore wind development can be undertaken, will be designated;

2.  Providing guidelines for the process by which long-term occupancy rights over the “Promotion Zones” will be granted (public tender process) including the selection criteria that will be used to select the winners.

Draft documents addressing the above were published by METI and MLIT on 22nd April. Public comments were solicited until 5th May.

Promotion Zones Designation

The first step in selecting the “Promotion Zones” has involved inviting prefectures to express their interest in becoming a Promotion Zone to METI. The deadline for this was set to 16th April. The council is not expected to review the information provided, consult with relevant stakeholders including the fisheries (general consensus from fisheries will be required), before issuing an initial draft of the Promotion Zones (“Promising Areas”). As part of this process, developers were invited to submit any information in their possession about the areas that could help inform the selection of the zone (before 13th May). Before final designation of the Promotion Zones, a two-month consultation with prefectural governors and stakeholders is expected to take place. This will involve the creation of Councils for each Promotion Zone that will include representatives from fisheries organizations, local government representatives and marine transportation organization representative. The final areas are therefore expected to be made publicly available some time in Q4 this year, with an auction in early 2020.

Draft guidelines released on 22nd April [1] provide additional information on the criteria used to select the Promotion Zones:

1.  Weather, oceanographic and other natural conditions are appropriate and sufficient for the power output of the plant to be considerable.

2.  Ensure areas are appropriately located and large enough to ensure no interference with shipping in and around the area.

3.  A port for the transportation of personnel and goods is available and capable to support offshore wind development.

4.  Ensure availability of grid capacity.

5.  Ensure areas are located so as to not interfere with fishery areas.

6.  Ensure areas are located so as to not overlap with port areas, coastal conservation areas and other protected areas.

In order to confirm the suitability of the final Promotion Zones, for points 1-3 above, promising areas will be subject to various studies and surveys including a literature and field survey (see government provided data section below) to assess conditions in the areas including wind conditions, lightning conditions and wave and tidal data, AIS data analysis to understand shipping traffic in the areas, and a study of ground strength and space availability at ports. These analyses will be coupled with the information provided by the prefectures and developers in the early stages of the selection.

Auction Guidelines

As per the draft document published recently [2], there will be three key conditions to the obtention of an occupancy permit:

1.  Consent from fishing representatives that were appointed to the Council of a Promotion Zone is obtained by the winning bidder. This will be the responsibility of the winning bidder to obtain and will therefore require bidders to pay close attention to the views and concerns of fisheries groups, as an offshore wind project will not be able to proceed without their consensus. This raises risks of fisheries groups amending their position after the auction process or raising new concerns at that time that must be addressed before the project can proceed. Consent of fisheries groups that have declined to participate in the Council process, will not be required for the project.

2.  Winning bidder accepts the possible temporary suspension of wind farm operations without compensation where debris or wrecked ships have to be removed.

3.  Compliance with technical standards and performance criteria for foundations and transition pieces as set out in Ports Act is ensured.

The auction documentation will also include amongst other things, the following elements:

  • Classification of the facility
  • Promotion Zone area
  • Commencement of construction (likely to be required within six years of accreditation)
  • Output of the power plant
  • Criteria for eligibility of participants
  • Amount of the deposit to be provided and the method and expiration date of the offer
  • Maximum supply price
  • Method of determining the strike price
  • Deadline for applying for accreditation
  • Requirements with respect to ports, decommissioning and coordination with local authorities
  • Validity of the period of accreditation
  • Criteria for selection

The Occupancy term is expected to be up to 30 years, accounting for 4-5 years for the EIA process, 2-3 years for construction, 20 years of operation and about two years for decommissioning. 20 years of operational lifetime are assumed based on the current feed in tariff term.

There is also a possibility that a “Last Call” method (i.e., similar to what is done in Germany) is implemented, where a developer that has done a detailed research on a specific site and provides it to the government, may be given the right to match the lowest auction price to secure rights to such site.

Selection Criteria

As of the latest discussions, operators for the “Promotion Zones” are expected to be selected based on a 50/50 split between price and project feasibility (120 points each), as follows:

 

Government provided data

The government has committed to provide data at the time of public offering to inform developers bids. This includes:

  • Wind resource measurements: Given the lack of measured data, so as to not delay the auction, the government will provide all data that can be collected by the time public offering and supplement that with simulated wind conditions for a one-year period. Once one-year worth of data is gathered, after the auction, this will also be made available. This will include average wind speed, wind speed distribution, wind direction distribution, turbulent flow strength, and extreme wind speed data.
  • Geological and geophysical data: Surveys will be commissioned by the government and all data provided to the applicants. This will aim to identify submarine shapes, soil conditions and layer structure, and submarine artifacts.

Application requirements

The Occupancy plan is expected to require the following key documentation:

  • Proposed area of development: If only a subset of the entire Promotion Zone is utilized, an explanation shall be provided explaining why the rest hasn’t been included.
  • Life of the power plant: this should take into account the certification validity period
  • Technology type
  • Structural/design characteristics
  • Construction plan and period
  • Proposed power output
  • Supply price
  • O&M plan
  • Decommissioning plan
  • Local authorities engagement plan
  • Financial information

In addition, supplementary information will be required to assess the proposals based on the selection criteria. This will include for instance a supply chain plan to count towards the stable supply of electricity criteria.

Finally, all applicants will be signing written oaths guaranteeing no contact with local parties from the start to the end of the auction process.

Modification of the Occupancy plan post-certification

It is required that the modified occupancy plan meets the criteria listed in Article 15 paragraph 1 items 1 to 3 of this Act, or it is deemed that its modification of the occupancy plan can contribute to the further enhancement of the public interest such as technological advancement in offshore wind, or due to compelling reason.

Other considerations

  • Grid capacity: Developers having secured grid capacity for projects falling within Promotion Zones will be required to surrender the entire capacity and sell it to the winner of the auction. The capacity and the cost for the transfer of grid connection rights from the right holder to the winning bidder of the auction will be specified in the auction documentation. The price will be a fair price calculated so as to ensure the successor does not gain undue profit or suffer unfair disadvantage. This will lower the risks for developers as it should make the cost of the grid connection right clear before the auction and so allow all developers to build the correct price assumptions into their bids.
  • Fishery compensation: The government understands the need for clarity with respect to fishery compensation however it is still unclear whether a method to calculate compensation will be derived by the government and included in the auction documentation.
  • Boundaries between local governments and general sea area: In general sea areas, boundaries between local governments are often not clear, which has been an issue in the past. The council will make it a priority to determine the boundaries between local governments in the general sea area prior to designating Promotion Zones.

 

Sources:

[1]  海洋再生可能エネルギー発電設備整備促進区域指定  (http://search.e-gov.go.jp/servlet/PcmFileDownload?seqNo=0000186433)

[2]  一般海域における 占用公募制度の運用指針 (http://search.e-gov.go.jp/servlet/PcmFileDownload?seqNo=0000186434)

From offices in Tokyo, RCG offers a full range of in-country support relating to the Japan offshore wind market.

Akio Hasegawa

Director

Gareth Lewis

Managing Director; Asia Pacific