|An offshore wind farm in Belgium developed and operated by Parkwind. Parkwind has partnered with Japanese investment giant Sumitomo on four projects in the country since 2014.
Japanese investors have played a significant role in Europe's 22-GW offshore wind industry — and now the experience accrued over the course of a decade in European projects is starting to pay off in their home market.
It has been nine years since Marubeni Corp., one of Japan's largest trading houses, became the first Japanese company to invest in offshore wind, acquiring a 49.9% stake in Ørsted A/S's Gunfleet Sands project in the U.K.
That deal paved the way for rivals like Sumitomo Corp. and Mitsubishi Corp. to make their own entries into offshore wind — buying into projects led by experienced utilities like Engie SA and innogy SE, or independent developers like Parkwind NV — and later opened the door for other kinds of Japanese companies, along with investors from elsewhere in Asia, to make their way to Europe.
At the time of Marubeni's entrance, Europe had about one-third of the offshore wind capacity it has now. And during the early 2010s, the cost of installing a turbine offshore was many times higher than it is today.
"In hindsight, it was a really astute decision for some of these Japanese trading houses to get involved [in offshore wind] so early on," said Ross Schloeffel, a partner at London-based law firm Linklaters, given the construction and technology risk involved in some of the early projects.
Fallout from Fukushima
Nearly a decade on from that first investment, construction of Japan's first large-scale offshore wind farms is underway in Akita prefecture, led, in an act of symmetry, by Marubeni. But the story could have been very different if not for the Fukushima nuclear disaster, which occurred just six months before Marubeni's Gunfleet Sands deal was announced.
The events of March 2011 had huge social and political ramifications for the country. "The Fukushima disaster was absolutely a wake-up call for the Japanese government ... It changed the political thinking about their future energy plan," said Feng Zhao, strategy director at the Global Wind Energy Council, or GWEC.
Most notably, it led to the decommissioning of most of the country's nuclear fleet and a search for alternative sources of power generation, including a rush for solar and a refocusing toward gas and coal. Offshore wind came into play more recently, with the government now aiming for 10 GW of capacity by 2030.
"If it wasn't for Fukushima, you may not have had offshore wind in Japan," said Marc Fevre, partner at law firm Baker McKenzie.
Beginning with Marubeni, several of Japan's largest general trading houses — sprawling conglomerates with interests in multiple business lines globally — were among the earliest strategic investors in Europe's offshore wind market, which now attracts a broad range of capital, from oil majors to pension funds.
The first few transactions saw them buy stakes in operating projects. More recently, they have become comfortable with construction risk — a microcosm of a wider market trend.
Against the backdrop of Fukushima, Japanese companies invested early in European offshore wind to eventually help build a market back home. "Generally speaking, the Japanese … investors invest in these projects to learn about the contracting. That's the main reason: getting some operational experience," said Michael van der Heijden, managing director at Amsterdam Capital Partners, a financial advisory firm.
The Japanese corporation most active in offshore wind projects is Sumitomo, which in 2014 acquired a stake in the Belwind and Northwind wind farms in Belgium from developer Parkwind.
"[Offshore wind] was a new sector to many [investors at that time], and obviously for a big Japanese trading house to enter at an early stage and to have quite some ambition in the market ... We had not immediately predicted that. They were really very motivated," said Pieter Marinus, Parkwind's general counsel and investment relations director.
Sumitomo went on to invest in two other Parkwind projects — this time taking on construction risk — as well as projects in the U.K. and France with other partners. While its primary rationale for doing so may be to export the knowhow back to Japan, the company has a broader objective to invest in renewable energy globally, Marinus said: "[Sumitomo's intention was] not just to learn. They just saw it as an interesting investment opportunity."
"Trading houses invest because it's good business to be had," added Baker McKenzie's Fevre. "That's been their model in the power sector globally — and they've become more sophisticated in their approach."
The trading houses, which did not respond to requests for interviews, have also invested across the energy value chain. Marubeni, for instance, is a shareholder in Seajacks International Ltd., which supplies offshore installation and maintenance vessels for wind farms and the oil and gas sector.
Meanwhile, Mitsubishi has an offshore wind turbine manufacturing joint venture, MHI Vestas Offshore Wind A/S, with Denmark's Vestas Wind Systems A/S, and also in March joined forces with Chubu Electric Power Co. Inc. to acquire Dutch energy company Eneco Groep NV with a view to expanding into offshore wind markets in the U.S. and Japan.
Crowding in capital
The presence of the trading houses in Europe's offshore wind sector has spurred multiple waves of capital from Japan. "The trading houses really paved the way for … other Japanese capital to flow into Europe," said Marinus.
Marubeni has helped attract compatriots, selling its stake in Gunfleet Sands to the Development Bank of Japan Inc. and Japan's largest utility, JERA Co. Inc. — a joint venture between Chubu Electric Power and Tokyo Electric Power Co. Holdings Inc., or TEPCO. Meanwhile, Germany's innogy offloaded an interest in its Triton Knoll project in the U.K. to utilities Electric Power Development Co. Ltd., also known as J-Power, and The Kansai Electric Power Company Inc.
Floating wind, which has recently emerged as the next frontier for offshore renewables, is also attracting the attention of Japanese investors: Tokyo Gas Co. Ltd. invested in floating developer Principle Power Inc., while JERA formed a joint venture with France's Ideol SA to develop 2 GW of floating projects globally. The companies will be hoping to repeat the pioneering role that Japanese companies have played in Europe's fixed-bottom offshore wind market, and also perhaps have one eye on their home market, whose deep waters make it better suited to floating turbines.
Japan has about 66 MW of offshore wind in operation today but its nearly 30,000 kilometers of coastline make it ripe for development, according to GWEC. While floating turbines might be the end game, fixed turbines will account for most of the government's 10-GW capacity target by 2030. "We think Japan will predominantly be a bottom-fixed market over the next decade," Imogen Brown, wind energy analyst at BloombergNEF, said on a July 14 webinar hosted by Reuters Events.
Investment in European offshore wind projects comes from other parts of Asia, too. Chinese state-owned companies like China Three Gorges Corp., State Development & Investment Corp. Ltd. and China Resources (Holdings) Co. Ltd. have invested in European projects in recent years. Unlike Japan, China already has an established offshore wind market, with nearly 7 GW installed, according to GWEC.
"As many Asian governments continue to promote international investment in key strategic sectors, debt and equity providers and equipment manufacturers from Asian countries will likely be increasingly active in the European renewables and power sectors in the months and years ahead," Paul Doris, a partner at multinational law firm Dentons, said in an email.
With Asia set to overtake Europe as the world's largest offshore wind market, with as much as 613 GW of capacity by 2050, according to projections by the International Renewable Energy Agency, the cooperation between the two continents is working in the opposite direction, too.
Ørsted and Germany's wpd AG are already active in the nascent Taiwanese market, and Ørsted has a joint venture with TEPCO to work on offshore wind in Japan, whose power sector, like Taiwan's, is seen as open to foreign investors.