Japan investing heavily in overseas renewables

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IEEFA report: Japan investing heavily in overseas renewables
March 28, 2017 • By Michelle Froese
This article comes from the Institute for Energy Economics and Financial Analysis (IEEFA) and is authored by Tim Buckley and Simon Nicholas. Read thefull release here.

Among one of the key points made in a recent IEEFA report on Japan’s post-nuclear energy economy is how Japanese energy-investment capital is being pulled inextricably now toward overseas renewable-energy projects. It’s a point worth repeating.

The report, entitled “Japan: Greater Energy Security Through Renewables – Electricity Transformation in a Post-Nuclear Economy,” details how the country is at a crossroads in how it decides where to go from here. One hint on which way this decision will turn is in Japanese renewable investments abroad.

Investors are keen for renewables, a phenomenon that is freshly apparent in Japan’s continuing momentum across both domestic and overseas activity. Investment started in solar but is moving to wind.

Several years of U.S. $20-30 billion annual domestic Japanese solar PV investment—over 2013 through 2015—made Japan the second largest installer of solar PV globally behind China. Japanese companies, working in their own backyard, have gained important expertise and a deep understanding of the full implications of rapidly evolving renewable energy technology.

It’s also raised awareness of  investment opportunities emerging elsewhere in the inevitable transition toward a lower-emission global energy market. However, Japanese investors aremoving into wind, prompted by negative domestic interest rates. Japan’s banks especially have been attracted to renewable energy infrastructure investments abroad by their strong annuity yields backed by long-term PPAs from mostly highly rated utilities.

According to Bloomberg New Energy Finance, Mitsubishi UFJ Financial Group (MUFJ) and Sumitomo Mitsui Financial Group were the two largest lead arrangers globally for clean energy asset financing in the first 10 months of 2016. These two banks, in particular, have moved into offshore wind in Europe. This experience places these banks in a strong position to support the growing Japanese offshore wind industry. (MUFJ has also invested in onshore wind, including by way of a co-investment with German insurer Allianz in the 225-MW Great Western wind project in Oklahoma).

Elsewhere, Mitsubishi Heavy Industries (MHI) is building capacity in offshore wind turbines worldwide via a joint venture with Danish wind turbine manufacturer Vestas—MHI Vestas Offshore Wind took its largest-ever order, for 450 MW of capacity in January. The order, from Denmark’s DONG Energy, will use MHI Vestas Offshore Wind’s 8-MW turbines for theGerman Borkum Riffgrund 2 project.

In February, Kyushu Electric’s renewable development arm, Kyuden Mirai Energy, won the right to develop a US$1.55 billion 229-MW offshore wind project off the port of Hibikinada in Fukuoka prefecture. Kyuden Mirai joins a consortium of Kyudenko Corp, Hokutaku Renewable Energy Service, J-Power and Saibu Gas for construction of the plant, the first scheme to take advantage of a legal modification to the country’s Port and Harbour Law to allow for up to a 200-year use of designated water zones in port-designated areas to leverage existing port infrastructure for offshore wind project.

Battery storage is also developing fast with Panasonic, a major global player in electric vehicle batteries via its partnership with Tesla, especially in the fast-expanding home battery storage market. Panasonic held a 74% market share of the U.S. electric vehicle battery market in 2016.