Developers have been keen to secure sites for potential projects, but the boom of the past few years (largely as a result of favourable subsidy policies) has put a strain on profit margins. As more and more companies compete for the limited amount of tenders put out by utilities, it is becoming ever harder to make a project commercially viable. Making the finances stack up is expected to get even more difficult after the recent decision by the Japanese New Energy Development Organisation (NEDO) to reduce the capital subsidy available to private companies building wind plant. Previously, public corporations could get a 50% government subsidy towards the construction costs of wind projects and the private sector could get 33% -- the viability of a wind project has often depended on getting the full amount. Now private companies can only get around 25%.
The introduction of a renewables portfolio standard (RPS) is expected to be announced in April. It could ease the financial pressure and ensure the target is met. The RPS will commit all Japanese power companies to source a set proportion of their output from renewable sources, including wind. Last year the government agreed an initial target of 1.36% of energy to come from renewables by 2010. To prove compliance, the utilities will have to acquire the appropriate number of green power credits by producing the required amount of energy from their own renewable developments or by buying green power from each other or from independent power producers.
Some larger developers are also lobbying government to introduce a system whereby only companies that meet specific criteria can bid for utility tenders. The Ministry of Economy, Trade and Industry, (METI), responsible for NEDO, is reviewing the subsidy system too. An announcement is expected shortly. Industry speculation is that the system may change from capital subsidies to production subsidies, or a combination of both. If this happens, careful siting of projects to gain maximum production and thus maximum subsidies will become more important, especially for smaller companies. Many single wind turbines in Japan today are said to under-perform due to poor siting in areas of low winds.
Some utilities are already preparing for the new renewable energy law despite the lack of details as yet or for it to be passed by parliament. Tokyo Electric Power Co has bought a 50% share in independent wind energy developer Eurus while other utilities, like Tohoku Electric Power Co and Chubu Electric Power Co, have started to produce wind generated electricity via subsidiaries.
Hokkaido Electric Power Co, which has not sourced any power from wind for some years, has also announced plans to do so again. It will not return to its former competitive tender system, but in a novel move plans to buy 100 MW of wind at a set price over two years from 2004, via a lottery system. It will buy 80 MW from private wind developers and 20 MW from public entities, like regional prefectures, cities or towns. Each developer will get a chance to bid for one project. If the private bids do not add up to 80 MW in the first round of the lottery, subsequent lotteries will be held until the target is met. The same system will be used for public owners of wind plant.
The utility is yet to disclose what it intends to pay for its wind power, but industry speculation is that it will be as low ´3-4/kWh ($0.025-0.033/kWh). But to ensure the risk is worthwhile for developers it plans to forfeit its right to the renewable portfolio standard certificates it would gain. Instead these will go directly to the developers.
The theory is that project developers will sell their green power certificates to utilities which cannot fill their RPS quota at the estimated prices of around ´5-6/kWh ($0.041-0.050/kWh). According to one wind industry player, developers will have to forfeit some of their earnings if the combined price for sale of electricity and certificates exceeds ´10/kWh ($0.083/kWh). Any lower than that and it will be difficult to make a profit, he says. In addition, Hokkaido Electric Power has not confirmed if it will be willing to enter into long term contracts, without which developers will be hard pressed to secure bank loans for projects.
With regard to offshore wind, Japan is still flirting with it rather than getting down to business. So far there are just two semi-offshore projects in the northern part of Japan -- one on a breakwater in a harbour and the other next to a harbour wall. The government has initiated several studies into the offshore wind potential, including one focussing on the Tokyo Bay area. Problems are anticipated with the deep sea bed along the Japanese coast with opposition from fishing industry unions.