The Japanese government on Wednesday announced a revision of its rules for offshore wind power auctions as the sector globally grapples with delays and soaring expenses driven by tight supply chains and inflation.
After a number of consultations since September to find ways to ensure the completion of offshore projects, Japan's industry and land ministries decided on changes including an electricity price adjustment scheme and a higher deposit requirement to cover delays.
Several offshore wind companies including Orsted took billions in write-offs, impairments and other cancellation fees in 2023 and 2024 when they determined they could no longer complete projects profitably due to rocketing construction costs, higher interest rates and supply chain snags.
Currently, if the cost of generation increases after a Japanese auction application, it cannot be reflected in the price of electricity sold.
Under the revised rules, up to 40% of capital cost increases - such as wind turbines, transmission cables and construction - can be incorporated, based on average prices in the year to the start of the auction, an industry ministry official said.
To ensure successful project execution, the government will raise the deposit required to cover delays from 13,000 yen to 24,000 yen per kilowatt of power generation capacity, the official added.
The amount forfeited will rise incrementally based on the length of the delay, taking into account supply chain disruptions.
The revisions will take effect from the government's next auction round, its fourth, but could also be applied to future cost increases faced by companies that won the first three rounds, provided certain condition are met, the official said.
The ministries last amended bidding rules in 2022 following industry criticism of the selection of three consortiums led by Mitsubishi Corp to operate all three areas in the government's first major auction round.
(Reuters - Reporting by Yuka Obayashi; Editing by Kirsten Donovan)