Japan is considering more favorable terms for offshore wind developers, including longer project durations and regulatory changes, as it struggles to revive its ambitious renewable energy plans amid rising global costs and industry pullbacks.

As Japan aims to install 45 gigawatts of offshore wind capacity by 2040, government officials are in talks with industry leaders to ease the path for developers—many of whom are grappling with surging costs and delays. Offshore wind is central to Japan’s strategy to reduce carbon emissions, lower its dependence on imported fossil fuels, and boost energy security.

However, progress has been slow. Three rounds of offshore wind auctions have failed to jumpstart momentum. Mitsubishi, the winner of Japan's first auction in 2021, has yet to begin construction and reported more than $300 million in related losses. The company cited cost increases as a key challenge. Denmark’s Orsted withdrew from Japan last year as part of a global restructuring, and Shell recently downsized its offshore wind team in the country.

In response, Japan’s Ministry of Economy, Trade and Industry (METI) and the land ministry are now considering a package of reforms. These include extending offshore wind project terms from 30 to 40 years and clarifying maritime laws to allow foreign-flagged vessels to operate in Japanese waters—changes that could significantly reduce investor risk and uncertainty.

“This is a very new industry in Japan and there's a huge learning process taking place on all sides,” said Yuriy Humber, CEO of Tokyo-based consulting firm K.K. Yuri Group. “The key thing is the receptiveness of the government to work with industry.”

Developers are also pushing for auction reforms to allow longer-term contracts for utilities and industrial buyers, instead of the current annual arrangements. Industry sources say further incentives—such as tax relief or subsidies for industrial consumers who sign long-term power purchase agreements—are also being discussed, though budgetary pressures may limit such support.

Reuters spoke to six sources involved in confidential discussions with METI and the land ministry. All emphasized the need for policy certainty and support to make offshore wind viable in Japan’s unique market conditions.

While Japan’s largest business federation, Keidanren, has not yet commented on the proposed tax measures, pressure is mounting to strike a balance between boosting industrial-scale renewables and managing public spending.

As the global offshore wind sector faces turbulence in markets like Europe and the U.S., Japan's next moves could determine whether it emerges as a renewable energy leader or falls further behind.

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