February 21, 2025
TOKYO – A headwind is blowing against Japan’s offshore wind power projects, which have been seen as a promising source of renewable energy for the island nation. Soaring material prices and construction costs have forced some companies to review their projects.
With no clear prospects, the government is looking for ways to encourage companies to get into the business in line with its policy that offshore wind power is indispensable to decarbonizing the nation’s power supply.
Equivalent to 30 N-plants
In the Strategic Energy Plan approved Tuesday by the Cabinet, the government set a target of increasing the proportion of renewable energy across all power sources from the current 20% level to “40% to 50%” by fiscal 2040.
The plan specifically states that offshore wind is “a winning card for making renewable energy the main power source” because of the possibility of mass introduction as well as anticipated economic ripple effects.
The government has set a target of deciding on projects with wind capacity of 30 to 45 gigawatts by 2040, which is equivalent to more than 30 nuclear power plants. Since 2019, it has taken bids in three phases for projects mainly in the Tohoku region. The successful bidders are allowed to operate the facilities for 30 years, and so far, projects have been decided in 10 areas.
However, dark clouds are beginning to gather over this target.
Mitsubishi Corp., which won the first round of bidding for three areas in Akita and Chiba prefectures, posted a ¥52.2 billion impairment loss related to offshore wind power in its accounts for the period from April to December 2024. With the prospect of design costs and other expenses increasing, construction costs are expected to rise, leading Mitsubishi to deem it impossible to recover the costs even if the projects are completed. It is currently reviewing the business plans.
Mitsubishi also postponed the start of construction of a power transformer and transmission facility for the wind farm off the Chiba coast, which was scheduled for January. Although Mitsubishi has denied withdrawing from the project at this point, President Katsuya Nakanishi said at a financial results briefing on Feb. 6 that the company would “review the project from scratch.”
Hike in material costs
Offshore wind farms require tens of thousands of parts, including the blades and bases of the wind turbines and power transmission wires, with about 70% of project costs said to be for materials. The large investment and the sharp rise in material costs are directly linked to a deterioration in profits.
Europe and the United States have seen a succession of withdrawals from the field. In the United States, General Electric Co., which makes wind turbines, has fallen into a slump in profits and has decided to significantly raise prices.
Japan relies on imports for many of its parts, and the weak yen is also a burden. According to Electric Power Development Co., which won a project in the second round of bidding, the price of wind turbines has risen by about 50% over the past three years.
Masumi Kakinoki, president of Marubeni Corp., which won the bidding for a project off Yamagata Prefecture, hinted at a reevaluation of the project by saying on Feb. 5, “We have to take a step back from the excess momentum we have built up.”
Some companies have decided not to participate in the bidding, prompting the government to take new measures. In fact, the Economy, Trade and Industry Ministry will introduce a system for public tenders from 2025 onward that allows a portion of a hike in the material cost above the bid price to be reflected in power prices. The system is expected to be applied also to those who won previous bids, under certain conditions.
“We want to ensure that winning bidders can continue their business,” a ministry official said.