International energy companies, from Germany's RWE to Spain's Iberdrola, are urging Japan to beef up offshore wind power auctions and make investments more attractive, amid soaring installation costs as competition for suppliers grows worldwide.
Although desperate to ease its heavy dependence on energy imports from the Middle East and Russia, Japan is coming late to offshore wind, but some industry players say it is taking a more cautious approach that puts it at a disadvantage.
"It's a global race and we can't look at it in isolation," Jens Orfelt, president for offshore wind development for Asia-Pacific at RWE Renewables, told a recent conference.
The remarks came amid surging prices and fierce competition for equipment, from nacelles and towers to installation ships, with some major global projects, particularly in the United States, having recently been scrapped or facing delays.
From turbine selection to the start of operations, Japan's development process takes much longer than in Europe, said a spokesperson for Vestas, a top global supplier.
"The longer the project timeline, the more uncertainty and risk arise," they told Reuters, saying industry and government could work more closely to shorten such periods.
That view is echoed by global players such as Orsted and Iberdrola, among others.
Japan's ministry of economy, trade and industry (METI) did not reply to a request for a comment.
With less than 500MW of installed offshore wind capacity now, Japan aims for projects of 10GW by 2030.
So far, it has auctioned 1.7GW of offshore wind capacity contracts, all won by Mitsubishi-led consortiums in 2021, and will choose winners for four more wind farms with total capacity of 1.8GW by the end of March.
A third round, yet to be announced, is expected to offer 1.05GW more in two projects, METI says.
But foreign players involved in some of the world's biggest offshore farms consider that scale and speed to be too modest, adding that bigger auctions allow better planning of supply chains and cost control.
"We would say continue with the auctions but consider 1GW per project instead of 1GW per auction," Orfelt added.
In this area, Japan is well behind Taiwan, which is offering 3GW in its auctions, and South Korea, which is expanding in floating wind, a technology yet to be commercially launched in Japan.
"If you want to create appetite from investors you need to propose larger plants," Begona Diaz, Asia-Pacific area manager for offshore wind at Spain's Iberdrola Renewables, told the conference.
"You are not able to generate scale economies from just 300MW, you need to go for huge plants."
Japan needs about $18 billion to develop offshore wind farms by 2030, including already invested funds, and $250 billion by 2050, which includes hard-to-predict floating offshore wind costs, said Chris Wilkinson, a senior analyst at Rystad Energy.
Orsted's country manager for Japan, Henriette Holm, called on Japan to tender "10GW to 15GW in one go".
MYSTERY BIDDERS
In the wake of the emissions-fighting U.S. Inflation Reduction Act (IRA), Japan adopted a law in March to promote green investment by selling government debt of about 20 trillion yen ($136 billion) to lure private capital of 150 trillion yen over the next decade.
Japan's auction rules bar companies from commenting on the second-round process or saying whether they are bidding.
But Japanese government documents show Germany's RWE, in consortiums with Japanese companies, was making environment assessments - an indication of a bid - for two areas in the second round in the regions of Akita and Niigata.
Other foreign companies making such assessments included Singapore's Vena Energy, SSE Pacifico co-owned by UK-listed energy group SSE and Canada's Northland Power.
RWE and SSE Pacifico declined to comment. Vena Energy and Northland Power did not reply to Reuters requests for comment.
bp is seeking partners for offshore wind projects in Japan, a market it has identified for growth, an executive told Reuters in November. The company did not reply to request for a comment.
Norway's Equinor did not bid in the second round but is "positioning together with local partners for upcoming licensing rounds", spokesperson Magnus Frantzen Eidsvold said.
SUPPLY CHAIN
METI is pushing for domestic suppliers to make up at least 60% of offshore wind projects by 2040, to help Japan grow its expertise, and foreign players will probably have to join forces with Japanese companies to win jobs and localize production.
GE Renewable Energy has teamed with Toshiba Energy Systems & Solutions to make GE's Haliade-X offshore wind turbines near Tokyo.
Toshiba Energy Systems plans to build a domestic supply chain for offshore wind turbines and will start nacelle production from 2026, to gradually phase out foreign parts, said Yuji Shimada, an official at Toshiba Energy Systems & Solutions.
Vestas, which produces nacelles and blades in India and China, is pushing for a strong regional supply chain, rather than factories in individual countries, its spokesperson said.
"We think establishing a supply chain in one country for one country will only lead to increased costs and increased risks," the spokesperson added.
(Reuters - Reporting by Katya Golubkova and Yuka Obayashi in Tokyo, Christoph Steitz in Frankfurt, Nerijus Adomaitis in Oslo, Ron Bousso in London and Benjamit Mallet in Paris; Editing by Tony Munroe and Clarence Fernandez)