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Japan: New tailwind Bill for offshore wind farm

Japan's offshore wind power generation industry is seeing increased attention from companies and investors, both at home and abroad. On March 9 2018, the Cabinet approved the Bill on the promotion of the use of sea areas related to offshore renewable energy power generation facilities. The Bill is targeted for promulgation in 2019 (or maybe within 2018).

Under amendments to the Port and Harbour Act in 2016, it is possible to secure long-term occupation rights over port and harbour areas (comprising approximately only 1.5% of Japan's territorial waters). However, as to the general sea areas, which occupy the majority of the territorial waters of Japan, there remains no unified system to secure long-term occupation rights, and each prefecture grants occupancy rights in accordance with its own local ordinances. More importantly, the prefectures do not grant occupancy rights for periods sufficient to cover the entire 20-year feed-in-tariff (FIT) period (generally, they are only granted for periods as short as three to five years). Therefore, it has proven difficult for potential investors to secure financing for potential offshore wind farm projects. The Bill, which creates a national system through which operators may be granted occupancy rights in general sea areas for periods of up to 30 years, could resolve this situation.

Flow of procedures to occupancy

Under the Bill, operators may be granted long-term occupancy rights to general sea areas in accordance with the following general procedures. The authorities will: (a) designate promotion areas within the general sea areas upon consulting with relevant ministers and stakeholders, in particular commercial fishermen; and, (b) invite operators who wish to develop offshore wind farm projects to bid for participation in projects in such designated promotion areas. Operators that wish to bid for participation must submit a plan that describes the details of the proposed project, including the details of facilities, construction plan, financial plan, and project operational system. The authorities will select a plan based on their evaluation of the various factors of each plan submitted. To date, the details of the exact factors involved are unclear, but long-term stability, feasibility, environmental impact, and impact on neighbouring ports would be required criteria. Upon selection, the operator will be able to obtain: (a) Ministry of Economy, Trade and Industry (METI) certification under the FIT Act; and, (b) occupancy rights (for up to 30 years).

For financers, it should be noted that: (i) security interests cannot be established over the occupancy rights (unlike standard leasehold rights) since they are permits granted by governmental authorities; and, (ii) the transfer of an operator's rights and obligations will be subject to authorities' prior approval, based on their assessment of the capacity of the transferee to carry out the approved plan. It is also not yet clear whether financers' ability to enforce security interests over the shares of an operator, such as share pledges, which may result in there being a change in control of the operator, will be similarly restricted.

Sayana Kurachi

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