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Courtesy of Orsted An offshore wind power plant under construction in Europe
By Koichi Kuranuki and Katsutoshi Samata / Yomiuri Shimbun Staff Writers
17:34 JST, February 16, 2022
At the end of last year, the Economy, Trade and Industry Ministry and the Land, Infrastructure, Transport and Tourism Ministry selected a corporate consortium centered around Mitsubishi Corp. for three offshore wind power projects off the coasts of Akita and Chiba prefectures.
The overwhelmingly low cost was the decisive factor in the winning bid.
Attention is focused on whether expanding offshore wind power, which some analysts see as key to expanding renewable energy, will help spur the decarbonization of society.
Many reactors’ worth
The government’s green growth strategy aims to achieve net-zero carbon dioxide emissions by 2050 and has offshore wind power as one of its pillars. By 2040, the goal is to introduce from 30 million to 45 million kilowatts of offshore wind power, the equivalent of about 40 nuclear power reactors.
The Yomiuri Shimbun This was the first major bid in government-designated offshore wind development zones.
From two to five consortiums bid on one project off the coast of Choshi, Chiba Prefecture, and on two projects off the coast of Akita Prefecture.
An alliance of Mitsubishi and Chubu Electric Power Co. won the bids for all three, which are scheduled to be operational in 2028-30. The total output of the projects could be up to about 1.7 million kilowatts, similar to two medium-sized nuclear reactors.
Offshore wind power is subject to the central government’s feed-in tariff system. The policy is designed to encourage growth by setting a high purchase price, though there is concern that the burden on the public will grow because these costs are eventually passed on to consumers through electricity rates.
Over the next 20 years, the Mitsubishi consortium proposed to sell electricity for ¥16.49 per kilowatt-hour from the Choshi project and for ¥11.99 to ¥13.26 per kilowatt-hour from the Akita projects. These prices are well below the upper limit the government originally set of ¥29, and up to about ¥14 lower than the other bids.
Offshore wind power has traditionally been seen as expensive, but it is now cheaper than onshore wind, which costs about ¥15-¥17, and comparable to commercial solar power. This decline in cost is expected to reduce the burden on the public.
Concrete plans
Mitsubishi’s low prices come from a painstaking analysis of the risks involved, from design to construction, operation and maintenance, and deep knowledge of how to achieve efficiency.
They scrutinized everything — including designs that take into account the topography and geology of the seabed, the specifications of submarine transmission lines, and the content of maintenance and inspections — to figure out where they could cut costs while still achieving sufficient performance.
Many trading companies that are engaged in energy projects do not send employees overseas, choosing to only invest. However, since the early 2010s, Mitsubishi has taken part in seven offshore wind projects in Europe, giving its employees valuable experience.
In 2020, Mitsubishi and Chubu Electric paid ¥500 billion to acquire Eneco, a Dutch company engaged in offshore wind power. Being able to incorporate professionals who have real-world experience in offshore wind power projects in Europe was a big advantage.
A person involved in the bid review said, “Mitsubishi’s proposals were not only superior in price, but also in the specificity of their plans.”
Yoshihiro Iwasaki, president of Mitsubishi Corporation Energy Solutions Ltd., which will implement the projects, said, “We want to achieve both decarbonization and economic growth in Japan by supplying renewable energy at competitive prices.”
Rethinking strategy
The results of the bidding were a shock to the other consortiums.
The stock price of renewable energy company Renova Inc., which bid for the Akita project, plunged from ¥4,600 to the ¥1,500 level after the results of the bid were announced.
Renova, which worked with local utility Tohoku Electric Power Co. and others, had already engaged in marine surveys and taken local action, and was seen as likely to win the bid.
“We have to fundamentally rethink our business plan for the next bid,” a person involved said.
Tokyo Electric Power Company Holdings Inc., which was expected to win the Choshi project, suffered a major disappointment because it had positioned its offshore wind power business as a pillar of its management reconstruction.
TEPCO needs ¥450 billion per year in profits to cover compensation costs for the Fukushima No. 1 nuclear power plant disaster, of which it wanted to make ¥100 billion from renewable energy.
TEPCO tried to tap into the knowledge of overseas companies by partnering with the Danish offshore wind power company Orsted, but they were apparently not able to cut enough from the budget.
Helping domestic industries
A public-private council studying the spread of offshore wind power proposed that the percentage of parts procured from domestic companies should be raised to 60% by 2040, to strengthen industrial competitiveness.
A feed-in tariff system led to rapid expansion of solar power, but cheap Chinese panels have swept the market, stymieing the growth of the domestic industry.
By learning from this mistake, the strategy is to involve numerous domestic companies in offshore wind power, from construction to maintenance, in the hope this will spark economic growth.
However, specially appointed Prof. Kimio Yamaka of the Kyoto University graduate school said: “People said that the cost of offshore wind power in Japan would be nearly double that of our predecessors in Europe, due to the lack of any track record. I have doubts as to whether the sector will expand if domestic companies don’t make enough profits off this latest bid.”
Still, the Mitsubishi camp is bullish. Through efforts such as assembling windmills made by General Electric of the United States at Toshiba Corp. factories in Japan, Iwasaki said, “We want to nurture domestic industries and take Japan-based offshore wind power projects overseas.”
Because the output of renewable energy varies depending on the weather and time of day, it has been seen as a poor choice for a core power source.
For offshore wind power in particular, it has been pointed out that there are few sea areas that are shallow enough and have strong enough winds in Japan.
Promising areas for offshore wind power have been designated off the coasts of Aomori and Nagasaki prefectures. Whether these and other places will be developed depends on the success or failure of the Mitsubishi consortium’s projects.
It is important for businesses to improve efficiency on their own through healthy competition. The government also needs to pay close attention to the progress of the plan.
