Bid Template  Month&Year 0 Japan Offshore Wind: Approaching a Tipping Point October 2018 Contents 1 2 Japan Offshore Wind: Approaching a Tipping Point With increasingly rapid technological advancement, it seems inevitable that clean energy will achieve grid parity in many previously unimaginable places in the world. John Maxwell, Managing Partner, Tokyo 2 3 Japan Offshore Wind: Approaching a Tipping Point Executive summary 7th longest coastline in the world, 1,600GW of offshore wind potential, 80% of offshore wind source in deep water 10GW of new offshore wind power capacity by 2030 Decarbonisation by 2050 > The emerging offshore wind market in Asia (particularly in Japan, South Korea and Taiwan) is drawing very significant interest from both international and domestic developers, investors and financiers and the regulatory and policy developments outlined in this note and any further changes are likely to be watched very closely by the international offshore wind community. > 10GW of offshore wind power capacity is required to meet the Government’s 2030 target (although that appears to be based on a conservative cost assumption). The Japan Wind Power Association predicts 6GW of fixed turbine wind farms and 4GW floating turbine wind farms by FY2030 (4.3GW is already planned as at the end of 2017). > Japan has the 7th longest coastline in the world and 1,600GW of offshore wind potential. 80% of offshore wind source in deep water (>50m depth). > Offshore wind development has been slow compared to European countries due to technological challenges (arising as a result of the topography and climate surrounding Japan), cost concerns, legal uncertainties, grid availability and time for the environmental impact assessment. > Floating wind technology is becoming commercially feasible. A final report on the prototype Fukushima Floating Offshore Windfarm Demonstration (Forward) was published in August 2018. Globally, 13 floating wind projects have been announced and 2 floating wind farms are in commercial operation. > A number of regulatory and policy changes have been made in 2018 to address the cost concerns, legal uncertainties and grid availability. A new piece of legislation is waiting for approval at the Diet and the Japanese version of “connect and manage” has freed up 374MW of grid availability since it was implemented in April 2018. > The Government has been making constant efforts to halve the time required for environmental impact assessment since 2016 (which was said to be taking at least 4 years). > Decarbonisation of the economy by 2050 is the ambition. Executive summary 3 4 Japan Offshore Wind: Approaching a Tipping Point Background 10GW of new offshore wind power capacity by FY2030 – this is what would be required to achieve the Government’s 2030 energy mix target for wind, and yet, this is a modest target that would require wind (offshore and onshore combined) to be only 1.7% of the nation’s expected power generation capacity in FY2030. 1 The Government’s 2030 energy mix target is intended to be realistic and is based on the notion that, as it currently stands, there is no single energy source that satisfies all four of the underlying principles of Japan’s strategic energy policy – energy security, cost efficiency, environmental impact and, the overarching principle, safety (“3E+S”). The Government would need to maintain all options available and consider the optimal mix based on certain assumptions. There is recognition that offshore wind power can be cost competitive on an individualproject basis (if it benefits from economies of scale), but there remain concerns around the overall cost to end consumers due to the combination of the feed-intariff and, given the intermittency, costs associated with back-up generation capacity and energy storage.2 However, what if the cost assumptions change? While expectations for offshore wind energy has been very high in Japan in recent years, the speed of development of offshore wind power generation has been slow comparatively (in the meantime, installed capacity of offshore wind in Europe has surged). There appears to be multiple reasons for the delay: 1 See http://www.enecho.meti.go.jp/en/category/brochures/pdf/energy_plan_2015.pdf 2 See http://www.meti.go.jp/english/press/2018/pdf/0703_002c.pdf 1. Topography Japan has very challenging bathymetry, with very deep waters relatively close to its shores and there are limited areas where fixed turbines can be installed (most of which are along the western coast in the north (Tohoku)); 2. Seismic and climate conditions Japan is an earthquake prone country and also exposed to extreme climate conditions including tropical storms / typhoons; 1 See http://www.enecho.meti.go.jp/en/category/brochures/pdf/energy_plan_2015.pdf 2 See http://www.meti.go.jp/english/press/2018/pdf/0703_002c.pdf Background 4 5 Japan Offshore Wind: Approaching a Tipping Point 3 See http://www.meti.go.jp/committee/sougouenergy/shoene_shinene/shin_ene/keitou_wg/pdf/011_03_00.pdf ?3  '4<   9:@9A / >D #* 4 See http://www.enecho.meti.go.jp/category/saving_and_new/new/information/180824a/pdf/report_2018.pdf 7$0 2)1E5B"=68.;,!%+30&(7$0 2)1E5 B"=68.;,! -19C 4. Cost The Government has been under substantial political pressure to reduce the cost of power generation while the feed-in-tariff for offshore wind has remained one of the most expensive feed-in-tariffs among different power generation methods (feed-in-tariff for offshore wind in FY2018 is ¥36/kW (approximately US31 cents)); 5. Grid availability The existing grid is not suitable for transmitting renewable energy. In particular, locations suitable for fixed offshore wind (Tohoku) is reported to have serious grid capacity constraints (in 2017, it was reported that the remaining grid capacity in Tohoku was zero)3; and 6. Environmental impact assessment Since October 2012 wind farms with generation capacity of 10MW or more have been required to comply with the Environmental Impact Assessment Act. The process has taken at least 4 years in each case. 3. Lack of long-term permits and space conflicts with stakeholders Municipal governments have the ability to grant permits with respect to certain areas in the sea, but such permits are subject to renewal every 3-5 years and there are no formal procedures to build consensus with existing stakeholders (e.g. fisheries); Entrepreneurs, industry bodies and the Government have made significant efforts to overcome such challenges in the recent years. 3.8GW of fixed-turbine projects are under development and waiting for the environmental impact assessment to be completed (see page 12). The 2MW prototype floating turbine off the cost of Fukushima has demonstrated that it is commercially viable4 (and is withstanding the severe climate conditions) and, globally, there are offshore floating wind farms that have reached commercial operation (see page 15). There is strong policy and regulatory support to address challenges 3 to 6, notably a piece of legislation waiting for approval of the Diet (see pages 16 to 22). As Japan catches up, in many ways the issues faced are similar to countries in Europe. Japan is learning from the success experienced in Europe but a very steep learning curve is expected. The whole industry is gaining momentum and we believe it is about to reach a tipping point. 3 See http://www.meti.go.jp/committee/sougouenergy/shoene_shinene/shin_ene/keitou_wg/pdf/011_03_00.pdf資源エネルギー庁「再生可能エネルギーの系統連系に関する地 域毎の課題への対応について」 4 See http://www.enecho.meti.go.jp/category/saving_and_new/new/information/180824a/pdf/report_2018.pdf 福島沖での浮体式洋上風力発電システム実証研究事業総括委員会「平成30年度福島沖での浮体式洋上風力発 電システム実証研究事業総括委員会報告書」19頁 Background 5 Growth potential of wind power 6 7 Japan Offshore Wind: Approaching a Tipping Point Stage is set for renewable energy growth in Japan Amongst the renewable energy sources, the government’s key observations on wind power include: > If deployed on a larger scale, its cost could become comparable to that of thermal power. > It has challenges in relation to the grid to account for the disparity between where the power is generated and where it is consumed. > In addition, as with other renewable sources, it would benefit from better power grid integration and the development of energy storage solutions, such as more efficient batteries. > The government will support the development of world-leading technology required to promote floating offshore wind power generation. > According to the OCCTO, FY2017 saw 932.4GWh of electricity generated in Japan, of which, renewable sources accounted for 7.9% or 73.2GWh. > Wind power generated 6.5GWh or 0.7% of the total. > Assuming that Japan achieves the 1.7% target for wind power under the 2030 target against the 1,065GWh of electricity projected to be generated, wind power (onshore and offshore) will need to generate 18.1GWh in FY2030, up from 6.5GWh generated in FY2017. This represents a compounded annual growth rate of 8.2%. The government unveiled its fifth strategic energy plan in July 2018. The following points are worth noting in relation to renewable energy: > The government reaffirmed its commitment to achieve its 2030 energy target, under which renewable sources will account for 22% to 24% of the total energy mix. > The government has pledged to work towards making renewable energy the main power source. Hydro Thermal Nuclear Renewables Others Sources of electricity generated in FY2017 Composition of Power Source FY 2030 (Total amount) About 1,065 billion kWh Renewable 22~24% Nuclear 22~20% LNG 27% Coal 26% Oil 3% Hydroelectric 8.8~9.2% Solar 7.0% Wind 1.7% Biomass 3.7~4.6% 9.0% Geothermal 1.0~1.1% 79.2% 3.5% 7.9% 0.4% (Source: OCCTO FY2018 Annual Report, March (Source: Japan’s Energy 2017 Edition, METI/ANRE) 2018/Analysis by Linklaters) Stage is set for renewable energy growth in Japan Growth potential of wind power 7 8 Japan Offshore Wind: Approaching a Tipping Point JWPA’s projection > The Japan Wind Power Association has ambitious plans to increase wind power installed capacity from approx. 3.6GW in FY2017 to 36GW in FY2030, or a compounded annual growth rate of 19.4%. > 36GW in FY2030 consists of: 27GW onshore, 6GW fixed offshore, and 4GW floating offshore. (Source: Japan Wind Power Association) 8 Japan Offshore Wind: Approaching a Tipping Point JWPA’s projection > The Japan Wind Power Association has ambitious plans to increase wind power installed capacity from approx. 3.6GW in FY2017 to 36GW in FY2030, or a compounded annual growth rate of 19.4%. > 36GW in FY2030 consists of: 27GW onshore, 6GW fixed offshore, and 4GW floating offshore. (Source: Japan Wind Power Association) JWPA's projection 8 Growth potential of wind power 9 Japan Offshore Wind: Approaching a Tipping Point Offshore wind potential > In March 2011, the MOE announced the results of its comprehensive study of the potential capacity of a variety of renewable sources of energy. > The introduction potential is defined as “the amount of energy resources which take various limiting factors for energy collection and utilization into consideration.” and therefore broadly measures the renewable energy resource available without considering the commercial viability of such resource. > The limiting factors include areas prohibited under zoning regulations, national parks and other areas. > For onshore wind, the MOE calculated its introduction potential using a set of assumptions including an annual average wind speed of 5.5m/s or more at a height of 80m. > For offshore wind, the ANRE assumed an average annual wind speed of 6.5m/s or more at a height of 80m above sea level, covering an area within 30km from the shoreline at a depth of less than 200m. > Solar power includes non-residential power only. > Although the introduction potential does not give consideration to commercial viability, it is nonetheless fair to say that wind power, especially offshore wind power, holds much potential for future development. Source: MOE March 2011, Linklaters Analysis 0 200 400 600 800 1000 1200 1400 1600 1800 Solar Onshore wind Offshore wind Small/Medium Hydro Geothermal Renewable Energy Potential, GW 33 17 1600 280 150 (Source: MOE March 2011, Linklaters Analysis) Offshore wind potential 9 Growth potential of wind power 10 Japan Offshore Wind: Approaching a Tipping Point Geographical breakdown (Source: MOE March 2011, Linklaters Analysis) Hokkaido 49% Tohoku 26% Others 25% Others 31% Tohoku 14% Hokkaido 26% Kyushu 29% Onshore Geographical Breakdown Offshore Geographical Breakdown Offshore wind potential (cont’d) For onshore wind power, better locations (marked in green and yellow) tend to cluster around Hokkaido and Tohoku areas whilst offshore locations (with the best sites marked in yellow and red) are more widely spread to include Kanto and Kyushu areas in addition to Hokkaido and Tohoku. Onshore wind power introduction potential Offshore wind power introduction potential (Source: MOE March 2011) Looking at the previous map more closely, we note: > For onshore locations, the geographical breakdown is skewed heavily towards Hokkaido (49%) and Tohoku (26%). > For offshore locations, the results are more widely spread than the ones for onshore, with Kyushu at 29%, Hokkaido at 26% and Tohoku at 14%. Offshore wind potential 10 Growth potential of wind power 11 Japan Offshore Wind: Approaching a Tipping Point > For offshore wind, the ANRE assumed an average annual wind speed of 6.5m/s or more at a height of 80m above sea level, covering an area within 30km from the shoreline at a depth of less than 200m. > It also assumed that fixed-turbine technology is feasible up to 50m in depth whilst floating-turbine technology is suited for a depth between 50m and 200m. > The above table is based on a variety of commercial assumptions, including a different level of FIT for 15 years. It is interesting to observe that the commercially viable capacity for offshore drops off quickly once we take into account such factors (although note that it is based on data in 2012). For example: at the FIT purchase price of ¥25/kWh: Onshore wind power capacity is 179.14GW or 63.3% of the introduction potential. In contrast, at the same level, offshore wind power totals 31.37GW or 2% of the introduction potential. This goes to show the extent to which offshore wind power requires an aggressive reduction in its overall cost, including through technological advancement. > In fact, the government’s ambition is to become a global leader in the floating technology. The government recognises the leading position of European countries in the fixed technology based on their long experience of North Sea exploration, but feels that there is room for Japan to become a global leader in the floating technology. Evaluation Period FIT Purchase Price Onshore Wind Power (million kW) Offshore Wind Power Fixed Technology (million kW) Offshore Wind Floating Type (million kW) 15 years ¥15.0/kWh 17.68 Not calculated Not calculated ¥17.05/kWh 53.60 Not calculated Not calculated ¥20.0/kWh 86.07 0.13 0 ¥22.5/kWh 133.41 2.63 0 ¥25.0/kWh 179.14 19.02 12.45 ¥27.5/kWh 202.41 49.63 42.50 ¥30.0/kWh 207.56 92.21 135.77 ¥32.5/kWh Not calculated 137.56 300.46 ¥35.0/kWh Not calculated 178.62 300.46 Reference: Introduction Potential in FY2010 Potential Study 282.94 1,572.62 Commercially viable capacity (Source: MOE June 2012) Commercially viable capacity 11 Growth potential of wind power Evaluation Period FIT Purchase Price Onshore Wind Power (million kW) Offshore Wind Power Fixed Technology (million kW) Offshore Wind Floating Type (million kW) 15 years ¥15.0/kWh 17.68 Not calculated Not calculated ¥17.05/kWh 53.60 Not calculated Not calculated ¥20.0/kWh 86.07 0.13 0 ¥22.5/kWh 133.41 2.63 0 ¥25.0/kWh 179.14 19.02 12.45 ¥27.5/kWh 202.41 49.63 42.50 ¥30.0/kWh 207.56 92.21 135.77 ¥32.5/kWh Not calculated 137.56 300.46 ¥35.0/kWh Not calculated 178.62 300.46 Reference: Introduction Potential in FY2010 Potential Study 282.94 1,572.62 12 Japan Offshore Wind: Approaching a Tipping Point Offshore wind power: Current and planned sites Source: ANRE February 2018, Linklaters > At the end of December 2017, projects undergoing environmental assessment totalled 570MW in the port areas and 3,760MW in the general areas. > In addition, various port authorities were separately reviewing projects totalling 220MW. 12 Japan Offshore Wind: Approaching a Tipping Point Offshore wind power: Current and planned sites 1 Source: ANRE February 2018, Linklaters > At the end of December 2017, projects undergoing environmental assessment totalled 570MW in the port areas and 3,760MW in the general areas. > In addition, various port authorities were separately reviewing projects totalling 220MW. Offshore wind power: Current and planned 12 Growth potential of wind power Topography, climate and floating technology 13 14 Japan Offshore Wind: Approaching a Tipping Point Topography and Climate Topography and Climate Japan has the seventh longest coastline in the world at nearly 30,000km and an estimated 1,600 GW of offshore wind potential in comparison to 280 GW of onshore wind, which is constrained by land availability and geography. Japan also has very challenging bathymetry, with very deep waters relatively close to its shores. As such, 80% of the offshore wind resource is located in a water depth greater than 100 metres. Europe by contrast, which leads in offshore wind farm deployments, benefits from large areas of shallow seabed and on average its turbines are in water just 29 metres deep. These depths suggest that bespoke deep-water turbine technology, for example floating turbines that can also withstand harsh conditions will be required to harness the opportunity and meet its current national target of 36 GW installed wind capacity by 2050. In addition to the depth, Japan is also exposed to extreme weather conditions such as high winds due to typhoons and lightning strikes as well as strong ocean currents and the risk of earthquakes and tsunamis. These impose stresses and loads on the substructure which need to be anticipated. Japanese onshore wind farms have already suffered considerable damage from storms, most notably in Miyako Island, Okinawa, in 2003, where all seven turbines were destroyed by a typhoon (with three falling down, three losing blades, and one losing the roof of its nacelle). Furthermore, several Japan Steel Works 2 MW turbines were also damaged by 2013 storms which hit the onshore wind farm of Tsu IV wind farm in Mie prefecture, Western Japan. Despite being designed to withstand wind speeds of 70 km/h, severe storms carrying winds of up to 150 km/h caused blades to break off turbines, as well as damage to several turbine towers. Lightning storms have been identified as the most common cause of failures in Japanese wind farms. Insurance cover has been available in Japan for offshore wind farms since 2015. The prototype Fukushima Floating Offshore Windfarm Demonstration (Forward) (see page 15) also were insured in Japan by leading insurance companies. Most of the existing installed wind capacity in Japan is based on fixed turbine technology and it is anticipated that near shore (within 10km and under 20m deep) will represent the majority of offshore wind farms deployed to 2025, which could be some 2GW. A number of recent demonstrations – both fixed and floating – are encouraging; however, the offshore wind industry in Japan is nascent and faces challenges to scale up deployment. Topography and climate are two key factors that could have slowed down Japan’s offshore wind development. Topography and Climate 14 Topography, climate and floating technology 15 Japan Offshore Wind: Approaching a Tipping Point Technology – Floating offshore wind Global existing deployments There are a number of test and development floating sites in operation, notably: > The first full scale floating wind turbine was established off the coast of Norway in 2009 > The second was deployed off the coast of Portugal in 2011, a 2MW turbine > The Floatgen Ideol project sponsored by Hitachi Zosen and Marubeni > The Fukushima Floating Offshore Windfarm Demonstration (Forward) project is currently operational consisting of 2MW, 7MW and 5MW turbines Japan is well placed to take this lead and has over 20 years’ experience of R&D in floating technology. Globally, there are 13 announced floating offshore wind projects (9 in Europe – UK, Portugal and France, 3 in Asia – Japan and Korea and 1 in the U.S.). However, currently the only operational floating wind farm of scale is Hywind Scotland, developed by Equinor and commissioned in October 2017. The farm has 5 floating turbines with a total capacity of 30 MW. Floatgen wind turbine which is installed 22 km off Le Croisic (Loire-Atlantique) in France also became operational on 18 September 2018. Technical issues and challenges Floating foundations offer many potential benefits which alleviate some of the logistical and environmental difficulties associated with fixed foundations, including greater flexibility in construction and installation, the ability to transfer onerous bending loads onto water rather than rigid seafloor, and easier removal upon site decommissioning. However, floating technology has yet to be fully proven, and there are several technical challenges which need to be resolved, such as: > minimising wind and wave-induced motion; > the added complexity of design; > electrical infrastructure design and costs (particularly dynamic cables); and > new challenges for construction, installation, and O&M procedures. The challenges are perhaps evident when reviewing the performance to date of the Fukushima Forward test site. Recent reports suggest the three turbines at the test site (2MW, 5MW and 7MW) are currently producing less electricity than initially anticipated. While the capacity factor - the ratio of actual to maximum possible output - for new wind turbines should be around 30%, only one of the three turbines has actually reached this value: the 2MW turbine even achieved a slightly higher result of 34% in the past two years. The 5MW turbine, which was commissioned in February last year, only managed 12%, the 7MW turbine just 2%. However, the operational Hywind park in Scotland has exceeded expectations, achieving an average capacity factor of 65% during November in 2017. Large installation vessels are of course required, as are suitable port facilities. These, along with limits to current grid capacity, are identified as significant bottlenecks in Japan. In supply chain terms, there are several key novel elements of floating wind that present an opportunity for both existing and new supply chain entrants, including: > Platform design and fabrication; > Mooring design and fabrication; > Anchor design and fabrication; > Mooring connectors; > Dynamic cables; > Cable connectors; > Deepwater substations; > Ballast control systems; > Ballast material; > EPCI and installation contractors; and > Vessel suppliers and operators. As noted on the previous page, Japan has a limited number of suitable sites in sufficiently shallow water (<50m depth) for economically viable fixed foundations to be deployed, and 80% of the country's offshore wind energy resource is located in deep waters. While floating technologies are still in a nascent state, numerous countries are investing to commercialise the technologies and develop floating wind turbines at scale. The opportunity is significant since, with more than 70% of global offshore wind resource in deep water, floating foundations are tipped to be the long-term future for the offshore wind industry. 13 floating wind projects announced and 2 floating wind farms in commercial operation Technology – Floating offshore wind 15 Topography, climate and floating technology 13 floating wind projects announced and 2 floating wind farms in commercial operation Policy and Regulatory Support 16 17 Japan Offshore Wind: Approaching a Tipping Point Feed-in-tariff and applicable regulations Feed-in-tariff After the Fukushima nuclear accident in 2011, Japan introduced a generous feed-in-tariff regime. Under the feed in tariff regime, utilities (in their capacity as the general electricity transmission and distribution utility) are required to enter into a power purchase agreement and an interconnection agreement with a renewable generator certified by METI. The relevant utility must: I. take all power produced by the renewable installation (a volume guarantee subject to certain exceptions); II. pay a specified tariff for all power actually received; and III. offer a connection point to the generator (that the generator must pay for). Renewable energy operators are derisked from market risk based on a pro forma power purchase and interconnection agreement prepared by METI with little/no scope for additional risk transfer and no capacity payment (i.e. the utility does not take resource risk). There is very little scope to negotiate the terms of this pro forma power purchase and interconnection agreement. Utilities are also entitled to curtail under specific circumstances.5 Utilities are compensated for purchasing renewable electricity by a combination of (i) surcharge imposed on end-user consumers and (ii) subsidy from the Government. Once determined, the tariff applied for the duration of the procurement period. The set tariff is not automatically adjusted by reference to any variable elements such as inflation, retail energy price etc. Applicable laws and guidelines A non-exhaustive list of applicable laws and guidelines is set out in the Appendix.6 6 See http://www.enecho.meti.go.jp/category/saving_and_ new/saiene/kaitori/dl/fit_2017/legal/guideline_wind.p df      21 5 See the Japan section of “Renewable Energy in Asia Pacific Country Insights – October 2018” 5 See the Japan section of “Renewable Energy in Asia Pacific Country Insights – October 2018" 6 See http://www.enecho.meti.go.jp/category/saving_and_ new/saiene/kaitori/dl/fit_2017/legal/guideline_wind.pdf 資源エネルギー庁「事業計画策定ガイドライン (風力)」21頁 Policy and Regulatory Support 17 18 Japan Offshore Wind: Approaching a Tipping Point 7        (http://www.meti.go.jp/press/2017/03/20180309002/2 0180309002.html) Recent Developments Amendments to the Port and Harbour Act The Port and Harbour Act was amended in 2016 to allow development of offshore wind projects in the port and harbour areas. Ports and Harbours were perceived to be suitable and relatively easier to promote development of offshore wind given that: (i) the port authorities (mostly municipal governments) already operate as a mediator to build consensus with existing stakeholders, (ii) connection to the grid is already secured; and (iii) benefit from the existing port infrastructure. Although approximately 1000MW in total is under development, ports and harbours suitable for offshore wind power generation are limited. Marine Renewable Energy Bill The Bill on Promotion of Use of Sea Areas to Develop Marine Renewable Energy Facilities7 (the “Marine Renewable Energy Bill”) was approved by the Cabinet on 9 March 2018 and submitted to the Diet on the same day. The bill was unfortunately not approved by the Diet at the ordinary session that ended in June 2018, however, the expectation is that the bill will be approved in subsequent session in 2018 autumn or the ordinary session in 2019. The Marine Renewable Energy Bill has two important purposes: I. empowering and requiring the state to engage and consult with the public and existing stakeholders in order to allow long-term occupation of a particular area of the sea for the purposes of wind power generation; and II. combine the zone auction process with the feed-in-tariff reverse auction, each to address the lack of coordination with existing stakeholders (e.g. fisheries) and cost efficiency. The Marine Renewables Energy Bill will allow wind farm operators to use sea areas for a period of 30 years (whereas currently, the right of occupancy in general common sea areas could only be retained for 3-5 years). Set out below is a summary of the Marine Renewable Energy Bill: i. Basic Policy The Prime Minister is required to prepare a draft of the “basic policy” (the “Basic Policy”) setting out, inter alia, (a) the purpose and specific targets with respect to development of marine renewable energy facilities, (b) policy with respect to the use of the relevant sea area, (c) policy with respect to the designation of promotion areas, (d) policy with respect to deal with competing interest such as rights of fisheries, other development works, preservation of the environment and maritime security, (e) policy with respect to the use of ports.8 ii. Designation of Designated Zones Based on the Basic Policy, the Ministers of METI and MLIT are entitled to designate certain areas of territorial waters as “marine renewable energy facility development promotion areas” (the “Designated Zones”) having regard to, inter alia, (a) wind and other natural conditions, (b) the impact on sea lanes and use and management of ports, (c) the possibility of integral use of the area and the relevant port, (d) connection to the grid and (e) impact on the fishery. The designation is subject to public consultation and the relevant ‘council’ consisting of, inter alia, the MAFF, governor of the relevant prefecture, mayor of the relevant municipality, representatives from the fishery industry and academics.9 8 Article 7 of the Marine Renewables Energy Bill. 9 Articles 8 and 9 of the Marine Renewables Energy Bill. The new Marine Renewable Energy Bill is able to address the cost efficiency concern and achieve consensus with existing stakeholders, killing two birds with one stone. Hirofumi Taba, Partner, Tokyo 7 海洋再生可能エネルギー発電設備の整備に係る海域の利用の促進に関する法律案 (http://www.meti.go.jp/press/2017/03/20180309002/2 0180309002.html) 8 Article 7 of the Marine Renewables Energy Bill. 9 Articles 8 and 9 of the Marine Renewables Energy Bill. 18 Policy and Regulatory Support 19 Japan Offshore Wind: Approaching a Tipping Point 10 The Ministers of METI and MLIT may elect not to publish the maximum price amount until the auction is completed (Article 13, paragraph 6 of the Marine Renewables Energy Bill). iii. Auction Guidelines Following the designation of the Designated Zones, the Ministers of METI and MLIT are required to prepare guidelines for the auction. The guidelines should include, inter alia, (a) category of marine renewable energy facilities (fixed or floating), (b) area of occupancy, (c) commencement of occupancy, (d) eligibility requirements, (e) bid guarantee deposit, (f) maximum price for the feed-in-tariff 10, (g) the determining factors of the feed-intariff, (h) term of the feed-in-tariff, (i) time limit for the METI certificate with respect to the feed-in-tariff, (j) requirements for the integral use of the relevant port, (k) decommissioning, (l) effective period of the Certification (see below) and (m) the evaluation criteria.11 iv. Auction and Certification Each bidder is required to submit its proposal in respect of, inter alia, (a) area of occupancy, (b) term of the occupancy, (c) details of the business and period it intends to carry out the business, (d) category of marine renewable energy facility, (e) structure of the marine renewable energy facility, (f) construction plan, (g) capacity of the facility, (h) purchase price for the feed-in-tariff, (i) operation and maintenance plan, (j) decommissioning and (k) financing and business plan. The Ministers of METI and MLIT will select successful bidders from the viewpoint of long-term, stable and efficient implementation of the marine renewable energy business and award a certification (the “Certification”) with respect to the plan submitted by the relevant successful bidder. Based on the Certification, the Minister of MLIT will grant an approval with respect to the occupancy of the relevant Designated Zone.12 Once approved by the Diet and promulgated, the Marine Renewables Energy Bill will come into force by no later than 4 months from the date of promulgation. The purpose of the Marine Renewables Energy Bill is to promote new developments and as such is not intended to have an impact on existing projects under development. Japanese media reported that Aomori, Akita, Saga and Nagasaki are likely to be among the five Designated Zones to be created, however, these are areas remote from mass consumption which already is reported to have grid capacity constraints (Tohoku) or generation capacity is reported to exceed the regional demand (Kyushu) (and therefore the likelihood of curtailment). Given the strategy and grid capacity constraints, the Government may be looking for areas closer to mass consumption (e.g. Kanto). Areas close to Kanto are potential Designated Zones due to grid capacity constraints in the Tohoku area. Hirofumi Taba, Partner, Tokyo 11 Article 13 of the Marine Renewables Energy Bill. 12 Articles 14 and 15 of the Marine Renewables Energy Bill. 19 Policy and Regulatory Support 10 The Ministers of METI and MLIT may elect not to publish the maximum price amount until the auction is completed (Article 13, paragraph 6 of the Marine Renewables Energy Bill). 11 Article 13 of the Marine Renewables Energy Bill. 12 Articles 14 and 15 of the Marine Renewables Energy Bill. 13 See https://www.occto.or.jp/iinkai/kouikikeitouseibi/2018/files/seibi_34_01_02.pdf 広域系統整備委員会事務局「(長期方針)流通設備効率の向上に向けて」44頁 20 Policy and Regulatory Support 20 Japan Offshore Wind: Approaching a Tipping Point Grid Capacity Solutions The existing grid is designed to connect large-scale power stations to mass consumption areas in most cases within the geography of the relevant regional utility. It is not fit for transmission of renewable energy (which can be spread in remote areas) and cross-regional transmission. As a result, it is reported that connection was not granted to certain potential renewable energy operators whose projects were therefore not developed. This issue had been raised at the Government level and change in some policies has already been implemented OCCTO and a report by the relevant METI committee was prepared in May 2018. Time and cost associated with the upgrading of the existing grid is significant and therefore maximising the existing capacity is a priority. From that viewpoint, the following solutions have been discussed and implemented – it is dubbed as the Japanese version of “connect and manage”. In summary: i. rationalising capacity calculations – previously, capacity of the grid was calculated based on each facility’s maximum generation capacity but that is rationalised by applying such facility’s average historical output. This change has been implemented in April 2018. As at the end of May 2018, this has freed-up grid capacity by 374MW in total;13 ii. reduction in capacity for emergency – regional utilities are required to reserve grid capacity for emergencies. The OCCTO and the regional utilities have started to require the installation of new equipment (which will suspend transmission in the case of an emergency) within the generation facilities (called “N-1 Restriction”) in exchange for granting access to the grid; iii. non-firm access – an arrangement allowing transmission only when the grid has excess capacity. This will result in complication of the operation of the grid and although it has not been implemented yet, it is on the policy agenda as one of the priorities. 13 See https://www.occto.or.jp/iinkai/kouikikeitouseibi/2018/f iles/seibi_34_01_02.pdf         44 Current operation Expected change Calculation of remaining capacity Assume maximum capacity Realistic assumptions thermal: merit order/ renewables: historical records Emergency Resume approximately 50% Install new technology to shut down immediately in the event of an emergency Connection assuming curtailment Not assuming Allow connection assuming curtailment Current operation Expected change 1 2 3 Freed up 374MW of grid availability since it was implemented in April 2018 20 Japan Offshore Wind: Approaching a Tipping Point Grid Capacity Solutions The existing grid is designed to connect large-scale power stations to mass consumption areas in most cases within the geography of the relevant regional utility. It is not fit for transmission of renewable energy (which can be spread in remote areas) and cross-regional transmission. As a result, it is reported that connection was not granted to certain potential renewable energy operators whose projects were therefore not developed. This issue had been raised at the Government level and change in some policies has already been implemented OCCTO and a report by the relevant METI committee was prepared in May 2018. Time and cost associated with the upgrading of the existing grid is significant and therefore maximising the existing capacity is a priority. From that viewpoint, the following solutions have been discussed and implemented – it is dubbed as the Japanese version of “connect and manage”. In summary: i. rationalising capacity calculations – previously, capacity of the grid was calculated based on each facility’s maximum generation capacity but that is rationalised by applying such facility’s average historical output. This change has been implemented in April 2018. As at the end of May 2018, this has freed-up grid capacity by 374MW in total;13 ii. reduction in capacity for emergency – regional utilities are required to reserve grid capacity for emergencies. The OCCTO and the regional utilities have started to require the installation of new equipment (which will suspend transmission in the case of an emergency) within the generation facilities (called “N-1 Restriction”) in exchange for granting access to the grid; iii. non-firm access – an arrangement allowing transmission only when the grid has excess capacity. This will result in complication of the operation of the grid and although it has not been implemented yet, it is on the policy agenda as one of the priorities. 13 See https://www.occto.or.jp/iinkai/kouikikeitouseibi/2018/f iles/seibi_34_01_02.pdf         44 Current operation Expected change Calculation of remaining capacity Assume maximum capacity Realistic assumptions thermal: merit order/ renewables: historical records Emergency Resume approximately 50% Install new technology to shut down immediately in the event of an emergency Connection assuming curtailment Not assuming Allow connection assuming curtailment Current operation Expected change 1 2 3 Freed up 374MW of grid availability since it was implemented in April 2018 20 Japan Offshore Wind: Approaching a Tipping Point Grid Capacity Solutions The existing grid is designed to connect large-scale power stations to mass consumption areas in most cases within the geography of the relevant regional utility. It is not fit for transmission of renewable energy (which can be spread in remote areas) and cross-regional transmission. As a result, it is reported that connection was not granted to certain potential renewable energy operators whose projects were therefore not developed. This issue had been raised at the Government level and change in some policies has already been implemented OCCTO and a report by the relevant METI committee was prepared in May 2018. Time and cost associated with the upgrading of the existing grid is significant and therefore maximising the existing capacity is a priority. From that viewpoint, the following solutions have been discussed and implemented – it is dubbed as the Japanese version of “connect and manage”. In summary: i. rationalising capacity calculations – previously, capacity of the grid was calculated based on each facility’s maximum generation capacity but that is rationalised by applying such facility’s average historical output. This change has been implemented in April 2018. As at the end of May 2018, this has freed-up grid capacity by 374MW in total;13 ii. reduction in capacity for emergency – regional utilities are required to reserve grid capacity for emergencies. The OCCTO and the regional utilities have started to require the installation of new equipment (which will suspend transmission in the case of an emergency) within the generation facilities (called “N-1 Restriction”) in exchange for granting access to the grid; iii. non-firm access – an arrangement allowing transmission only when the grid has excess capacity. This will result in complication of the operation of the grid and although it has not been implemented yet, it is on the policy agenda as one of the priorities. 13 See https://www.occto.or.jp/iinkai/kouikikeitouseibi/2018/f iles/seibi_34_01_02.pdf         44 Current operation Expected change Calculation of remaining capacity Assume maximum capacity Realistic assumptions thermal: merit order/ renewables: historical records Emergency Resume approximately 50% Install new technology to shut down immediately in the event of an emergency Connection assuming curtailment Not assuming Allow connection assuming curtailment Current operation Expected change 1 2 3 Freed up 374MW of grid availability since it was implemented in April 2018 Current operation Expected change 1 Calculation of remaining capacity Assume maximum capacity Realistic assumptions thermal: merit order/ renewables: historical records 2 Emergency Resume approximately 50% Install new technology to shut down immediately in the event of an emergency 3 Connection assuming curtailment Not assuming Allow connection assuming curtailment Freed up 374MW of grid availability since it was implemented in April 2018 21 Japan Offshore Wind: Approaching a Tipping Point 14 See http://www.env.go.jp/policy/assess/1- 3outline/img/pamph_e.pdf Other items on the policy agenda are, inter alia: (a) predictability of curtailment and relevant information disclosure, (b) termination of connection agreement with projects which are delayed. In the meantime, METI and OCCTO are considering how to secure sufficient investment for the next generation grid in order to meet both (i) the need for cross-regional transmission (e.g. transmission from large-scale offshore wind farms) and (ii) decentralisation / local consumption. Measures to stabilise the grid from intermittency of renewable energy is starting to be addressed. In Hokkaido, an electricity storage facility has been installed on the grid side to resolve this and in the future, hydrogen is expected to be a major source of storage of energy generated by solar / wind. facilities Japan has high ambitions on the use of hydrogen. Environmental Impact Assessment Since October 2012, wind farms (regardless of whether it is onshore, offshore, fixed or floating) with generation capacity of 10MW or more are classified as “category 1” projects and therefore are required to complete the most stringent environmental impact assessment process in accordance with the Environmental Impact Assessment Act. It is said to take at least 4 years from the start of the process and offshore wind projects currently waiting for the completion of environmental impact assessment total 570MW in the port areas and 3,760MW in general waters (see page 12). It probably is the longest lead item which most potential operators are grappling with. Broadly, there are 5 stages (amongst which 4 involve public and relevant authority consultation) before the construction can commence14: i. primary environmental impact consideration – at the policy making / early planning stage of the relevant project, the project proponent is required to consult with the public, relevant prefectural governor and the relevant national authority granting the relevant licence; ii. scoping – in order for the assessment to be carried out in the particular context and on a site-oriented basis, the scope of the assessment would be consulted with the public, relevant prefectural governor(s), mayor(s) of the relevant municipality(ies) and the relevant Minister (following consultation with the Minister of Environment). The project proponent is also required to organise public meetings at venues closer to the project site. iii. survey, forecast and evaluation - after the scoping stage, the project proponent would need to carry out the relevant survey, forecast and evaluation of the environmental impacts in accordance with the evaluation items and methods decided in the scoping procedure and applicable law. 14 See http://www.env.go.jp/policy/assess/1- 3outline/img/pamph_e.pdf 21 Policy and Regulatory Support 22 Japan Offshore Wind: Approaching a Tipping Point iv. draft environmental impact statement – following the survey, forecast and evaluation, the project proponent prepares a draft environmental impact statement that describes the outcome of the assessment which will be delivered to the relevant prefectural governor(s) and municipal mayor(s) for consultation. The draft also needs to be published on the proponent’s website for public consultation and arrange meetings to explain the outcome to the assessment. The project proponent would need to revise the draft as appropriate taking into account the comments received from the public, the relevant prefectural governor(s) or municipal mayor(s). v. finalisation of the environmental impact statement – the draft environmental impact statement would then be delivered to the relevant Minister granting the relevant licence and the Minister of Economy. The environmental impact statement would need to be revised based on comments received by the two Ministers and following the revision, the final version would be sent to the relevant prefectural governor(s), municipal mayor(s) and invite further comments from the public for a period of 1 month. The stringent and protracted element of the environmental impact process was raised in the context of the Government’s Growth Strategy 201615 , which proposed to halve the time required for the environmental impact assessment process. Following the Government’s Growth Strategy, various government policies have been proposed and implemented: i. Ministry review time – to reduce review time of the Ministers to 45 days; ii. Local authority review time – to reduce review time of the relevant prefectural governor(s) and municipal mayor(s) by applying best practices; iii. Guidelines to accelerate the survey, forecast and evaluation stage – the Environmental Impact Assessment Act does not require the survey, forecast and evaluation process to be carried out in the sequence set out above. Since 2016, METI and the MOE have encouraged Project Proponents to carry out the survey in parallel with the primary environmental impact consideration (stage (i)) and/or scoping (stage (ii));16 iv. Zoning approach – the MOE has set guidelines for municipalities to classify its region into three categories by carrying out a survey and building consensus with local community and existing stakeholders; (a) preservation areas, (b) areas which require consensus building and (c) suitable areas for wind power development. Projects in areas classified as suitable areas will be looked upon favourably in the context of environmental impact assessment; v. Data collection – survey by the MOE and centralised data collection with respect to endangered species in the suitable areas; vi. Separate guidelines for fixed and floating wind technology – Japan’s climate ranges from subarctic in the north to subtropical in the south and conditions are different between the Pacific coast and the Sea of Japan coast – there are seaweed beds, tideland and coral in various parts and have a rich marine ecosystem. Many of the perceived primary environmental and human impacts that would be identified within a standard of onshore wind development scoping exercise are transferable. However, specific considerations for evaluation will vary (e.g. deep-water habitats), as well as the spatial planning considerations (distance from shore, differing stakeholders etc.) and a one-size-fits-all approach can be inefficient. One of the differences for consideration in the context of scoping is the expected distance from shore. Sites further from shore will likely encounter different habitat and species interactions to nearshore sites, as well as human sea users. Far-shore sites may exclude from the scoping items such as noise, wind turbine shadows but may require different managed responses (such as consideration of the Espoo (EIA) Convention which covers international obligations) than might be the case for sites closer to shore. Accordingly, the committee set up by the MOE proposed to distinguish near-shore and far-shore sites (broadly whether it is 5km offshore) and carry out a more targeted environmental impact assessment. 15 See http://www.kantei.go.jp/jp/singi/keizaisaisei/pdf/2016s aikou_torikumi.pdf @!')*7-09" )*:&12016E  %+ $  618C 16 See http://www.nedo.go.jp/content/100648559.pdf D.2A  / #B;(8 =>5 ? 34/ <, 6  15 See http://www.kantei.go.jp/jp/singi/keizaisaisei/pdf/2016s aikou_torikumi.pdf 内閣官房日本経済再生総合事務局 「日本再興戦略2016-これまでの成果と今後の取 組」18頁 16 See http://www.nedo.go.jp/content/100648559.pdf 風力·地熱発電に係る環境影響評価手続きの迅速化等 に関する研究会「前倒環境調査の取組に向けて」 22 Policy and Regulatory Support 23 Japan Offshore Wind: Approaching a Tipping Point The 2030 energy mix target is only intended to “lay the foundation” for renewables to be the “major power source” and therefore contributing to the decarbonisation of the economy by 2050. Wind energy, in particular offshore wind energy, plays a key role in the 5th Energy Strategy. Looking at the developments in 2018, we think that the Government is mobilising all sources to achieve the 2030 target. Given the scale of potential development, there is broad consensus that the potential benefits of offshore wind power development to the wider economy are huge. The political concern is cost. If the cost concern is addressed (i.e. following the recent rapid tariff reductions in the UK, albeit for bottom mounted offshore wind), there is a possibility that the Government target could, in the end, be exceeded. Conclusion Conclusion 23 Appendix 24 Applicable law Relevant authority 1 Coast Act MLIT MAFF 2 Environment Impact Assessment Act MOE 3 Act on Prevention of Disasters Caused by Steep Slope Collapses MLIT 4 Act on Development of Fishing Ports and Grounds MAFF 5 Aviation Act MLIT 6 Factory Location Act METI 7 Port and Harbour Act MLIT 8 National Land Use Planning Act MLIT 9 Erosion Control Act MLIT 10 Forestry Act MAFF 11 Landslide Prevention Act MLIT 12 Natural Parks Act MOE 13 Nature Conservation Act MOE 14 Act on Conservation of Endangered Species of Wild Fauna and Flora MOE 15 Wildlife Protection and Proper Hunting Act MOE 16 City Planning Act MLIT 17 Soil Contamination Countermeasures Act MOE 18 Road Act MLIT 19 Cropland Act MAFF 20 Act on Development of Agricultural Promotion Regions MAFF 21 Act on the Protection of Cultural Properties Ministry of Education, Culture, Sports, Science and Technology 1. Applicable laws and regulations Appendix 25 Applicable guidelines Relevant body 1 Wind Power Energy Development Guidebook NEDO 2 Small-Scale Turbines Guidebook Japan Small Wind Turbines Association 3 Offshore Wind Power Generation at Ports and Harbours – a Manual for Coexistence with Port Management and Operation MLIT MOE 4 Technical Guidelines for Offshore Wind Power Generation Facility at Ports and Harbours MLIT 5 Operational Guidelines for Public Auctioned Occupancy Regime in respect of Offshore Wind Power Generation at Ports and Harbours MLIT 6 Guide for Uniform Technical Standards for Offshore Wind Power Generation Facilities METI, MLIT 7 Guidelines for Examination of Constructions of Offshore Wind Power Generation Facilities METI, MLIT 8 Wind Conditions Review Manual NEDO 9 Environmental Impact Assessment Guidebook for Small Scale Wind Power Generation Business JWPA 10 Wind Power Generation Guidelines NEDO 11 Fixed Turbine Offshore Wind Power Generation Development Guidebook NEDO 12 Floating Offshore Wind Power Generation Facilities Technical Standards MLIT 2. Applicable guidelines 26 Japan Offshore Wind: Approaching a Tipping Point Japan John Maxwell Partner, Tokyo Co-head of Asia Green Energy practice Tel: +81 3 6212 1227 john.maxwell@linklaters.com Hirofumi Taba Partner, Tokyo Tel: +81 3 6212 1245 hirofumi.taba@linklaters.com Ryokichi Asaka Senior Legal Advisor, Tokyo Tel: +81 3 6212 1223 ryokichi.asaka@linklaters.com Ying Fu Managing Associate, Hong Kong Tel: +852 2901 5379 ying.fu@linklaters.com James McLaren Partner, Hong Kong Co-head of Asia Green Energy practice Tel: +852 2842 4106 james.mclaren@linklaters.com Hong Kong Xylia Sim Managing Associate, Tokyo Tel: +81 3 6212 1249 xylia.sim@linklaters.com This report features research and insights by Linklaters LLP. This publication (the “Publication”) is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice, and its contents should not be relied upon as legal advice, either generally or in relation to any specific transaction. Although the contents of the Publication are current as at the date of the Publication, the subjects covered constantly change and develop, and neither Linklaters LLP nor its partner or associated firms undertakes to update them in respect of information provided to it after that date, or to notify any person of such information. Linklaters LLP and its partner or associated firms accepts no responsibility for any loss which may arise from reliance on the information contained in the Publication. Should you have any questions on issues presented here or on other areas of law, please contact one of your regular contacts. Please also refer to specific disclaimers in the Publication. Joo Hee Lee Partner, Seoul Tel: +82 2 6320 1040 joo_hee.lee@linklaters.com John Pickett Partner, London Head of Global Green Energy practice Tel: +44 20 7456 5926 john.pickett@linklaters.com London South Korea Contacts Hirofumi Taba Partner, Tokyo Tel: +81 3 6212 1245 hirofumi.taba@linklaters.com John Maxwell Partner, Tokyo Co-head of Asia Green Energy practice Tel: +81 3 6212 1227 john.maxwell@linklaters.com Xylia Sim Managing Associate, Tokyo Tel: +81 3 6212 1249 xylia.sim@linklaters.com Ying Fu Managing Associate, Hong Kong Tel: +852 2901 5379 ying.fu@linklaters.com Ryokichi Asaka Senior Legal Advisor, Tokyo Tel: +81 3 6212 1223 ryokichi.asaka@linklaters.com James McLaren Partner, Hong Kong Co-head of Asia Green Energy practice Tel: +852 2842 4106 james.mclaren@linklaters.com Joo Hee Lee Partner, Seoul Tel: +82 2 6320 1040 joo_hee.lee@linklaters.com John Pickett Partner, London Head of Global Green Energy practice Tel: +44 20 7456 5926 john.pickett@linklaters.com Contacts This report features research and insights by Linklaters LLP. This publication (the “Publication”) is intended merely to highlight issues and not to be comprehensive, nor to provide legal advice, and its contents should not be relied upon as legal advice, either generally or in relation to any specific transaction. Although the contents of the Publication are current as at the date of the Publication, the subjects covered constantly change and develop, and neither Linklaters LLP nor its partner or associated firms undertakes to update them in respect of information provided to it after that date, or to notify any person of such information. Linklaters LLP and its partner or associated firms accepts no responsibility for any loss which may arise from reliance on the information contained in the Publication. Should you have any questions on issues presented here or on other areas of law, please contact one of your regular contacts. Please also refer to specific disclaimers in the Publication. 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