Japan has the potential to meet its commitment to triple renewable power capacity by 2030 if it addresses structural and institutional barriers, according to a new report from the Institute for Energy Economics and Financial Analysis (IEEFA). The report notes that, despite sluggish progress in recent years, solutions exist to overcome systemic obstacles and unlock growth. Japan’s electricity market is dominated by ten major utilities, which control nearly 75% of installed power capacity but own less than 0.3% of non-hydro renewable capacity, focusing instead on fossil fuels and nuclear energy.
In 2024, a record 52 renewable energy developers exited the market, including eight bankruptcies with liabilities exceeding JPY10 million—double the number from the previous year. Report author Michiyo Miyamoto, IEEFA’s Energy Finance Specialist for Japan, emphasized that the main issues are not technological or economic but regulatory and systemic. Challenges include grid congestion, rigid market rules, output curtailment, and insufficient action by utilities.
Miyamoto also highlighted political and corporate hesitation to embrace renewables, technical and infrastructure-related curtailments, and regional imbalances between renewable production costs and benefits as major hurdles. Nevertheless, several regions—such as Fukushima, Saga, Akita, and Hokkaido—have shown that meaningful progress is achievable. These prefectures set local renewable targets, engaged communities, and mobilized regional financing to drive clean energy development.
The report recommends scaling up these successful regional strategies nationwide rather than relying heavily on fossil fuels for backup power. Key priorities include reforming grid access rules, updating market design, enforcing the Non-Fossil Certificate (NFC) obligations for utilities, and supporting power purchase agreements (PPAs) to expand renewable deployment. The NFC system, intended to help utilities meet non-fossil fuel targets without directly owning generation assets, has been underutilized. Most certificates purchased have come from non-renewable sources like nuclear energy. Weak enforcement of the legally binding 44% non-fossil fuel obligation has further limited progress.
Japan’s transition from the Feed-in Tariff (FIT) system, launched in 2012, to the Feed-in Premium (FIP) system in 2022 has also created uncertainty for smaller developers. The FIP adds a variable premium to wholesale electricity prices, encouraging market participation and flexible models like storage and aggregation. However, many small and medium-sized enterprises lack the financial resilience to manage the revenue volatility associated with FIP, making stable project development difficult. Coupled with increased curtailment risks due to limited grid capacity, this shift has made revenue projections for new projects less predictable.
The report underscores Japan’s lack of a comprehensive transmission development framework and the physical and economic disconnect between rural areas—where most renewable potential lies—and urban centers, which face high costs and land shortages but hold most demand. Grid limitations and complex permitting have delayed renewable projects in resource-rich regions like Kyushu, where developers face high grid access fees and dispatch rules that favor thermal plants exempt from curtailment below 30–50% of their output.
However, successful models exist. In Akita Prefecture, for instance, offshore wind development advanced through early negotiations with local fisheries cooperatives, supported by local governments that secured community backing. This approach, combined with national-level streamlining, has also been applied in Aomori and Hokkaido, enabling faster progress on offshore wind projects. The IEEFA report calls for specific measures to accelerate renewable growth.
These include setting clear targets for tripling capacity through auctions and procurement mandates, expanding corporate and community PPAs with financial and regulatory support, and creating public credit guarantees or risk-sharing mechanisms for smaller buyers. Encouraging public institutions to purchase renewable electricity and reducing legal costs for PPA agreements would also help develop Japan’s underutilized corporate PPA market.
Expanding renewable energy auctions is another priority. Japan’s recent offshore wind auctions demonstrated their potential to attract domestic and international investors, establish competitive pricing, and provide financing certainty. Legal reforms allowing development in Japan’s Exclusive Economic Zone (EEZ) are opening vast new areas for offshore wind, while international developers are bringing advanced technologies and expertise to the market.
According to Miyamoto, if Japan can resolve its grid connection and supply chain challenges, it could emerge as Asia’s leading offshore wind hub. By leveraging clear regulations, competitive processes, and proven regional strategies, Japan can reinvigorate its renewable energy sector and fulfill its 2030 pledge.
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