Japan Renewables Alert 61

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Today’s Topic

Due December 8: Offshore Wind Guidelines for Round 2 Now Open for Public Comments

On November 8, 2022, the draft of the “guidelines for public tender of exclusive occupancy and use” (the “Public Tender Guidelines” and the draft of the Public Tender Guidelines for Round 2, the “Draft Guidelines”) for “Round 2” auction for offshore wind projects in general sea areas (see here) was submitted to the public comment procedure.  Comments can be submitted by anyone as long as it is written in Japanese by using the comment submission form on the website or by using an email attachment and will be accepted until 23:59 on December 8, 2022.

The many changes made to the Draft Guidelines (offshore Happo Town and Noshiro City; offshore Enoshima, Saikai City; offshore Oga City, Katagami City and Akita City; and offshore Murakami City and Tainai City) reflect renewed discussions based on the results of the first-round of the public tender that began in 2020. With the Round 2 auction expected to begin in December of this year, it will be essential to analyze and study these Draft Guidelines to grasp the direction of any future offshore wind power trends in Japan.

1. Offshore Wind Auction

Pursuant to the Act on Promoting the Utilization of Sea Areas for the Development of Marine Renewable Energy Power Generation Facilities (Act No. 89 of 2018), which came into effect on April 1, 2019, operators for offshore wind projects in general sea areas are to be selected through a public tender process for promotion zones designated by the government.  Public tenders are to be conducted in accordance with the rules set forth in the Public Tender Guidelines for each promotion zone.

In December 2019, the offshore area of (1) Goto City (Nagasaki Prefecture) was designated as a promotion zone, and following a public tender from June to December 2020, an operator was selected in June 2021 for a 17 MW floating offshore project (see here).  In December 2021, this was followed by the selection of a consortium led by Mitsubishi Corporation, at a price shockingly lower than market forecasts, as operator for the three projects off the coasts of (2) Noshiro City, Mikane Town and Oga City (Akita Prefecture; bottom-fixed 479 MW), (3) Yurihonjo City (Akita Prefecture; bottom-fixed, 819 MW in total for the north and south areas) and (4) Choshi City (Chiba Prefecture; bottom-fixed, 391 MW), which were designated as promotion zones in July 2020 and opened for public tender from November 2020 to May 2021 (see here).

The area off the coasts of (5) Happo Town and Noshiro City (Akita Prefecture, Japan; 356 MW) that were designated as a promotion zone in September 2021 opened for public tender in December 2021, but the government, stating that price competitiveness of offshore wind power became evident by the first round of bidding, decided in March 2022 that the Public Tender Guidelines should be revised to further encourage early commencement of operation (see here).  Three new promotion zones were designated in September 2022 off the coasts of (6) Enoshima, Saikai City (Nagasaki Prefecture; bottom-fixed, 424 MW); (7) Oga City, Katagami City and Akita City (Akita Prefecture; bottom-fixed, 336 MW) and (8) Murakami City and Tainai City (Niigata Prefecture; bottom-fixed, 1,050 MW), and all four zones (5) to (8) are scheduled for the second-round of tender offer.

2. Discussion at Expert Panel and Draft Public Tender Guidelines

A joint council of the government’s Offshore Wind Promotion Working Group and Offshore Wind Promotion Subcommittee discussed the criteria for evaluating occupancy plans that are to be submitted by bidders, and further discussed reviewing the public comments on draft amendments to the Guidance for Operation of the Public Tender Process for Exclusive Occupancy in general sea areas (see here, amended October 2022), which provide general policies on matters to be specified in the public tender guidelines set for each sea area.  Its findings are reflected in the Draft Guidelines that are subject to the public comment procedure currently underway.

The evaluation of occupancy plans is based on the sum of “price evaluation points” (out of 120 points) for the supply price proposed by each operator and “project feasibility evaluation points” (out of 120 points) for the feasibility of the project.  One criticism of the evaluation criteria used for the first-round public tender was that while the operator offering the lowest price would receive the maximum of 120 points for price evaluation, absolute evaluation made it difficult to receive the maximum of 120 points for the feasibility evaluation.  The Draft Guidelines, therefore, provide for adjustment (evaluation points of the operator ÷ evaluation points of the highest evaluated operator × 120) that will allow the operator with the highest evaluation to be awarded the full 120 points for feasibility (see Draft Guidelines, p. 49).

The project feasibility evaluation consists of four items under the category of (1) project implementability (80 points) including (1.1) timeliness of the project plan (20 points), (1.2) fundamental aspects of the project plan (20 points), (1.3) implementation aspects of the project plan (20 points) and (1.4) stable power supply (20 points); and four items under the category of (2) community coordination and spillover economic effects (40 points), including (2.1) ability to coordinate with the heads of relevant administrative agencies (10 points), (2.2) coordination and coexistence with surrounding navigation routes, fishing industry, etc. (10 points), (2.3) regional economic spillover (10 points) and (2.4) national economic spillover (10 points).  Item (1.1) for timeliness of the project plan was included in Round 2 to encourage early commencement of operations; in order to prevent poor planning, it is to be scored by multiplying the basic points obtained according to the timing of commencement of operations (e.g., in the case of (5) Happo Town and Noshiro City, a maximum of 20 points is given for commencement of operations by June 30, 2027) by the ratio of evaluation points for (1.2) fundamental aspects and (1.3) implementation aspect (the sum of the evaluation points for these two items divided by 40) (see p. 49 and after).  In response to criticism that the evaluation criteria for project implementability were too abstract and did not allow for much differentiation among projects, items have been made more concrete so that differences among projects will be more strongly reflected (see p. 50 et seq.).  With respect to category (2) community coordination and spillover economic effects, the Draft Guidelines state that the governor’s opinion is to be heard (see pp. 48 and 49).

Further, as opposed to the FIT scheme that was applied in Round 1, Round 2 will come under the FIP scheme. Although the FIP price will depend on the amount stated in the occupancy plan submitted by each bidder, a maximum amount has been set at 19 yen/kWh for (5) Happo Town and Noshiro City, (7) Oga City, Katagami City and Akita City and (8) Murakami City and Tainai City, where monopile foundations are expected to be used, and 29 yen/kWh for (6) Ejima, Saikai City, where jacket foundations are presumed. Either the lowest price or a price below 3 yen/kWh will receive the maximum of 120 points for price evaluation.

In the event that price evaluation and project implementability evaluation results in the same bidder being ranked first in multiple zones exceeding 1GW in total, the selected operator will be awarded the promotion zone in order of the largest point difference from the runner-up until 1GW is reached, after which occupancy plans for other promotion areas will be treated as invalid and the runner-up will be promoted (see p. 122 et seq.). In addition, since there could potentially be an overlap in the cases of (5) Happo Town and Noshiro City and (7) Oga City, Katagami City and Akita City if the selected operators were to use Akita Port or Noshiro Port as a base port, the Draft Guidelines set forth a method for determining the selected operator in the event that price evaluation and project implementability evaluation results in a potential overlap in the base port when the top bidder is selected for each promotion zone (see p. 122 and after).

3. Future Outlook

The government plans to launch the second-round public tender by the end of this year with a solicitation period of approximately six months.  The government aims to achieve a renewable energy ratio of at least 36-38% to install 5.7GW of offshore wind power by FY2030.  Developers and industry groups such as JWPA are now preparing their comments regarding the Draft Guidelines.  With Japan’s offshore wind burgeoning and the regulations still evolving, market players need to closely monitor regulatory changes and continue to respond and make their voices heard in a proper way.