Rising Costs and Profitability Concerns in Japan's Offshore Wind Sector: Strategic Divestment and Its Implications for Asian Renewable Energy Investment

Japan's offshore wind sector, once hailed as a cornerstone of the country's energy transition, is facing a reckoning. The recent exits of industry giants like Mitsubishi Corporation and Kajima Corporation from key projects signal a broader crisis: soaring costs, regulatory bottlenecks, and financial models that no longer hold up under macroeconomic strain. These developments are not just a blow to Japan's renewable energy ambitions—they're a wake-up call for investors across Asia. Let's break down what's happening and where the next opportunities might lie.

The Cost of Wind: Inflation, Currency, and Supply Chain Woes

Mitsubishi's February 2025 announcement to review its 1.7GW offshore wind projects—Yurihonjo, Noshiro Mitane Oga, and Choshi—was a seismic moment. The company cited a “significantly changed” business environment, including inflation, a depreciating yen, and supply chain disruptions. These factors have eroded the profitability of projects that were bid under 2021's tender rules, which assumed a stable economic climate.

The numbers tell the story: Mitsubishi reported a JPY 522 billion impairment loss on these projects, a staggering figure that underscores the fragility of offshore wind economics in Japan. Meanwhile, Kajima's exit from the consortium managing these projects highlights another issue—cost-sharing disputes. With construction costs rising 30–40% above initial estimates, partnerships are fracturing.

Regulatory Hurdles and Infrastructure Gaps

Japan's permitting process is a labyrinth. Environmental assessments alone take years, and the lack of a streamlined framework for projects in the Exclusive Economic Zone (EEZ) has delayed timelines. The government's proposed two-stage approval process, modeled after the UK, is a step forward, but it adds complexity.

Infrastructure is another hurdle. Only a handful of Japan's 1,000+ ports can handle offshore wind components, and grid upgrades to accommodate renewable energy are lagging. This creates a vicious cycle: developers need grid access to make projects viable, but grid upgrades require project commitments to justify the investment.

Strategic Divestment: A Sector-Wide Trend

Mitsubishi and Kajima's exits mirror global trends. In the U.S. and UK, firms like Ørsted and Vattenfall have scaled back offshore wind projects due to inflation and interest rate hikes. Japan's situation is unique, though, because of its over-reliance on a single developer (Mitsubishi) for early-stage projects. This concentration of risk has left the sector vulnerable to macroeconomic shifts.

The Japanese government is now pivoting. Future tenders will emphasize non-price criteria like project timelines and financial viability, a shift that could attract more stable, long-term investors. But until these reforms take root, the sector remains a high-risk, high-reward proposition.

Where Are the Opportunities? A Shift in Asian Investment Flows

As Japan's offshore wind sector falters, neighboring markets are stepping up. Here's where investors should look:

South Korea: The New Powerhouse

South Korea has launched its first commercial-scale offshore wind farms and is targeting 12GW of capacity by 2030. The government's revised tender guidelines and streamlined permitting process are attracting international developers. Grid upgrades are also underway, though challenges remain.

Vietnam: Ambitious Targets and Policy Clarity

Vietnam's Power Development Plan 8 (PDP8) aims for 6–17GW of offshore wind by 2035. A World Bank report highlights the country's shallow coastal waters and proximity to population centers as key advantages. The government is working to align offshore zones with national spatial plans and improve port infrastructure.

Philippines: Liberalized Markets and Competitive Auctions

The Philippines is leveraging its Green Energy Auction Programme (GEAP) to attract offshore wind investment. The Renewable Energy Payment Agreement (REPA) mechanism offers a contract-for-difference structure, providing developers with price stability. The next auction round could be a game-changer if the government sets a competitive ceiling tariff.

India: A Sleeping Giant

India's offshore wind potential is vast, but regulatory clarity is still lacking. The country is in the early stages of planning, with a focus on Gujarat and Tamil Nadu. Investors should watch for policy updates in 2025, as India's energy security goals could drive aggressive offshore wind expansion.

Investment Advice: Diversify and Adapt

For investors, the lesson from Japan is clear: diversification is key. While offshore wind remains a critical component of Asia's energy transition, the sector's risks—cost inflation, regulatory delays, and infrastructure gaps—demand a more flexible approach.

1. Prioritize Markets with Clear Policy Frameworks: South Korea and Vietnam offer the most stable environments for offshore wind.
2. Partner with Local Players: In markets like the Philippines and India, partnerships with local firms can navigate regulatory and community engagement challenges.
3. Focus on Floating Wind Technology: Japan's struggles with fixed-bottom turbines highlight the need for innovation. Floating wind, though more expensive, could unlock deeper waters and avoid some of the infrastructure bottlenecks.

The Bottom Line

Japan's offshore wind sector is at a crossroads. The exits of Mitsubishi and Kajima are not just corporate decisions—they're symptoms of a sector struggling to adapt to a rapidly changing economic landscape. For investors, this means shifting focus to markets with clearer regulatory pathways, stronger infrastructure, and more resilient financial models. Asia's renewable energy future is still bright, but the wind is blowing in a new direction.