EnergyOMNI's Perspectives I Global Wind Energy Council Provides Recommendations on Japan's Offshore Wind Auction

Edited by EnergyOMNI

Japan has conducted three rounds of offshore wind auctions so far. However, in the first round, the Mitsubishi Corporation-led consortium, citing excessive costs, announced in August that it would withdraw from three projects totaling nearly 1.8 GW. The fourth round of tenders, originally scheduled for October, has been postponed.

The Global Wind Energy Council (GWEC) published a white paper in November titled "Unlocking Japan's Offshore Wind Potential: Strategic Pathways to Overcome Market Bottlenecks and Drive Industrial Growth." The paper offers several recommendations regarding Japan's offshore wind development, focusing on the auction framework, offtake mechanisms, and other market bottlenecks, aiming to improve the effectiveness and competitiveness of future tenders.

The recommendations are divided into short-term and long-term ones. Short-term recommendations focused improvements without law amendment, targeting the re-tendering of Round 1 and the upcoming Round 4. Long-term recommendations target strategic reforms envisioned for Round 5 and beyond to ensure sustainable market development and investor confidence.

Short-term recommendations include:

1. Establish a regular and frequent public-private dialogue platform
   The platform should include government agencies, developers, turbine manufacturers, contractors, and investors to facilitate early risk identification and proactive policy adjustments. The UK's Offshore Wind Industry Council (OWIC), established in 2013, can serve as a reference model.
   
   
2. Adjust price and non-price criteria
   For price-based evaluation, ensure that bid prices reflect cost levels and trends, including raising the price ceiling above typical profit levels and setting the price floor closer to the breakeven point. For non-price criteria, strengthen project feasibility reviews and reduce the risk of cost underestimation, such as incorporating developer financing capacity and HSE (Health, Safety, Environment) performance into eligibility assessments and increasing the weight of feasibility evaluations. Review committees should include members with practical offshore wind experience, such as developers, financial institutions, and contractors.
   
   
3. Reduce CPPA-related risks
   Developers bid at the zero-premium level in most Round 2 and Round 3 projects, meaning developers expected to sell the electricity produced through corporate power purchase agreements (CPPA). Increasing corporate participation in the market and supporting developers and buyers in transitioning to the CPPA market are key. One example is Taiwan's Green Power Credit Guarantee Mechanism, where buyers pay premiums to banks, and banks apply for financing guarantees from the national financing guarantee center.
   
   
4. Set granular COD-based targets
   The Japanese government has set a target of 5.7 GW of offshore wind capacity by 2030 and 30–45 GW by 2040. Although the government's stated intention to facilitate approximately 1 GW of new offshore wind projects annually, there are no specific operational timelines for each project. Setting a granular COD-based target helps to enhance the predictability of Japan's project pipeline and reduce risks such as supply chain disruption.
   
   
5. Introduce a compensation mechanism for technical curtailment
   Since 2020, the number of renewable energy curtailment events has steadily increased. By 2034, the projected curtailment rate due to supply-demand imbalance is highest in Hokkaido (30%), followed by Kyushu (22%) and Tohoku (16%). Curtailment risks can significantly impact projects, so a compensation mechanism—e.g., compensating for technical curtailments exceeding a certain number of hours—is recommended.

Long-term recommendations include:

1. Central model for development
   This aims to strengthen coordination between central and local governments and reduce developers' costs and risks in site surveys and obtaining grid connection capacity. Currently, developers conduct site surveys independently, though JOGMEC also conducts surveys, which could be improved in quality and detail to meet practical development needs and boost developer confidence. For transmission construction from the wind farm to the designated grid connection point, Japan could consider a TSO-led (Transmission System Operator-led) model.
   
   
2. Two-stage auction
   In the current system, seabed rights and revenue support (such as the current Feed-in Premium system) are awarded in a single auction. The success of a single auction heavily relies on the government completing key pre-development work, including site surveys, most permitting, and minimizing the time between award and construction start. Some markets adopt a two-stage tendering process, separating seabed rights and revenue support—like in the UK. In the first stage, developers obtain seabed rights and complete pre-development work, then receive revenue support through a Contracts for Difference (CfD).
   
   
3. Two-sided Contracts for Difference (CfD)
   Linked to two-stage auction, GWEC recommends shifting from FIP to CfD. Under the current FIP, the long reference period creates discrepancies between actual market revenue and the "reference price" used for compensation calculation. A two-sided CfD means that if market prices exceed the contract price, developers pay the difference back to the government; if market prices are below the contract price, the government compensates the difference, ensuring revenue meets the contract price. This system provides more predictable revenue and improves financing conditions, helping reduce project costs.
   
   
4. Clear and standardized wind farm certification process
   Japan's current regulatory framework for offshore wind, governed primarily by the Electricity Business Act, treats offshore wind facilities as electric utilities subject to conformity verification. However, the supporting structures – especially for offshore wind facilities – are implicitly required to comply with the Building Standards Act, making verification difficult to align with international standards. GWEC recommends revising regulations to establish a clear and standardized verification process.