Abstract
Offshore wind (OSW) is positioned as a key pillar in Japan’s push to make renewable energy the primary electricity supply by 2040, as outlined in the Seventh Strategic Energy Plan. Northern Japan (defined here as Hokkaido Prefecture, Tohoku Region, and Niigata Prefecture) is expected to play a significant role in the deployment of offshore wind projects. There are currently 23 offshore wind projects totaling 12.7 GW (gigawatts) across Northern Japan (shown in Figure 1), of which approximately 250 MW (megawatts) is operational and thus significant growth is expected in the coming decade.
The Strategic Energy Plan also explicitly references the significant “economic ripple effects”, or gross value added (GVA), that the offshore wind projects can generate for local communities. Understanding these ripple effects is crucial to build local consensus for the development of offshore windfarms. This study therefore aims to evaluate the feasible socioeconomic benefits of offshore wind to the Northern Japan region and the necessary initiatives required to achieve them. Over 25 consultations were conducted with key stakeholders throughout the region to understand the opportunities and challenges faced by the local offshore wind industry.
Focusing on Hokkaido Prefecture, the GVA from eight offshore wind projects in the prefecture was calculated using input-output analysis. Two scenarios for the prefectural procurement within the offshore wind projects were calculated based on information gathered through stakeholder consultations, desktop research and literature review:
- Possible: Estimated prefectural procurement rates that are achievable considering the current supply chain capabilities in Hokkaido Prefecture.
- Potential: Prefectural procurement rates that are considered achievable in the future through feasible, additional initiatives and investments by local suppliers.
This study found significant opportunity for socioeconomic benefits through GVA from offshore wind projects in Hokkaido Prefecture. The total offshore wind project expenditure in Hokkaido Prefecture was estimated to be 5.5 trillion JPY. The GVA and total induced employment was then calculated to reach up to 641 billion JPY under the possible scenario and 2.12 trillion JPY under the potential scenario, as shown in Table 1. This corresponds to 45,000 and 124,000 jobs created for the two scenarios respectively. The GVA and employment effects reflect the total amount generated across the project lifetime. The “potential” GVA was over three times the value under the “possible” scenario, driven by factors such as increased involvement in the O&M phase and future development of the floating offshore wind supply chain.
Under the possible scenario, the “business services” industry sector, mainly made up of development and O&M phase services, contributed approximately 270 billion JPY, equating to 42% of the total GVA. The “construction” sector also contributed roughly 160 billion JPY which accounts to 25% of the total value, due to the possible involvement of prefectural companies in onshore cable and substation works. Economic ripple effects totalling 71.9 billion JPY were also generated in the “real estate” and “commerce” sectors, even though there was no direct OSW project expenditure in these categories.
When also considering the projects in Tohoku Region and Niigata Prefecture, the total expenditure of offshore wind projects in Northern Japan exceeded 10 trillion JPY, equating to potential socioeconomic ripple effects worth trillions of yen. Further socioeconomic effects may be realised through increased fixed asset tax revenue and the utilisation of the Community Coexistence Fund established by the project developers.
However, thus far supply chain considerations in Northern Japan have been fragmented at the prefecture or sometimes even project level. This has led to challenges such as greater exposure to changes in project plans and uncertainty of long-term supply chain demands. The development of a wider regional industry strategy is crucial for local supply chain initiatives and investments to be carried out. Below are five recommendations developed for Northern Japan’s OSW industry.
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Map industrial strengths throughout Japan to set direction for Northern Japan offshore wind supply chain development.
A national government-led assessment of OSW related industrial capabilities throughout Japan will allow for the roles of each region’s supply chain to be defined. Considering how Northern Japan’s localised industrial strengths and wind power potential can be leveraged within the context of the domestic and international OSW sector is crucial to develop opportunities for local procurement.
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Promote regional supply chain clusters to develop the offshore wind industry in Hokkaido and Tohoku.
Supply chain clusters offer a platform for collaboration among key stakeholders within the Northern Japan OSW industry. By leveraging international good practices, clusters can support local companies transitioning to offshore wind. Institutional and financial support from the national government will strengthen cluster initiatives to develop regional industry.
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Encourage greater focus on long-term regional industry development beyond individual offshore windfarms
The development of long-term, regional industry development strategies by national and local governments, aligned with auction frameworks, will provide greater visibility of opportunities for local businesses. Increased export opportunities to APAC (Asia Pacific) through the development of internationally competitive suppliers will also allow further economic ripple effects to be generated.
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Ensure socioeconomic ripple effects for communities surrounding project areas
In geographically vast areas like Hokkaido, utilisation of local ports and the development of a skilled workforce in the O&M phase allows for greater distribution of economic ripple effects. Continued coordination between municipalities and project developers will ensure the effective utilisation of local ports to ensure tangible benefits for local communities.
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Achieve successful project build out through coordinated risk management
Successful project delivery is the precondition to unlocking the possible and potential significant socioeconomic benefits offered by the over 12 GW offshore wind pipeline in Northern Japan. Stakeholder coordination to quantify project risks, such as grid availability and supply chain capacity, at each decision stage-gate provides the backing for supply chain initiatives to yield economic ripple effects. Flexibility in project schedule and offtake price also allow for greater focus on local procurement, as seen by the achievement of 60% domestic content in the Ishikari Bay New Port project.
Whilst the current supply chain initiatives in Hokkaido Prefecture will generate significant “possible” socioeconomic benefits, the implementation of the above recommendations will be crucial to realising the calculated “potential” GVA. Further, the long-term, holistic supply chain approach outlined within the recommendations will maximise economic ripple effects from offshore wind throughout Northern Japan. The report hopes to encourage greater dialogue and collaboration between key stakeholders to work towards a shared regional industry vision and establish Northern Japan as the centre of the nation’s next “energy revolution”.