Japan's renewable energy growth challenges can be addressed through grid governance, utility obligation reform, and local engagement, according to a new report by the Institute for Energy Economics and Financial Analysis (IEEFA).
The report highlights that these reforms can stimulate Japan’s renewable energy growth, enabling the country to meet its pledge to triple renewable power capacity by 2030.
IEEFA's energy finance specialist Michiyo Miyamoto stated that the obstacles to Japan's renewable energy expansion are not rooted in technology or economics.
Instead, they stem from systemic and regulatory issues, including grid congestion, inflexible markets, restrictions on output, and a lack of action from major utility companies.
Ten major Japanese electric utilities control nearly 75% of installed power capacity while owning less than 0.3% of renewable capacity (excluding hydro).
These utilities have prioritised fossil fuel and nuclear assets, contributing to a record 52 renewable energy project developers exiting the Japanese market in 2024, including eight bankruptcies with liabilities exceeding Y10m ($67,697), double the number from the previous year.
However, several regions in Japan, including Fukushima, Saga, Akita, and Hokkaido, have demonstrated that meaningful progress is possible.
These prefectures have established local renewable energy goals, involved their communities, and secured regional funding to promote the growth of clean energy initiatives.
The report notes that Japan currently lacks a robust framework for the development of transmission systems, resulting in considerable physical and economic disparities between the supply and demand for renewable energy in both urban and rural areas.
Renewable energy production is primarily found in rural and coastal regions, whereas the areas with high demand are situated in urban centres.
Urban regions encounter a shortage of available land and elevated costs for project development, whereas rural areas are home to the majority of large-scale renewable energy projects.
Nonetheless, the infrastructure for long-distance transmission is still lacking, primarily due to complex permitting procedures and the financial constraints faced by transmission operators.
In prefectures such as Fukushima, Akita, Saga, and Hokkaido, effective local leadership, timely zoning, investment in transmission infrastructure, and collaboration with local financial institutions have facilitated significant advancements in renewable energy.
Miyamoto said: "Japan should focus on scaling these successful regional approaches instead of relying on fossil fuels for backup.
"Priorities should include reforming grid access rules, modernising market design, strengthening enforcement of the existing Non-Fossil Certificate obligations for major utilities, and enabling deployment paths such as power purchase agreements."
The report presents suggestions aimed at expediting the adoption of renewable energy in Japan, including the establishment of a clear objective to increase renewable energy capacity threefold via auctions and procurement requirements.
It also states encouraging the growth of corporate and community power purchase agreements (PPAs) through regulatory and financial assistance.
The report added that, in the meantime, increasing the number of renewable energy auctions can facilitate price determination, encourage developer involvement, and assist in securing project funding.
Miyamoto added: "Japan’s recent auctions have proven the viability of offshore wind projects and established a replicable framework for rapid scaling.
“The country can attract domestic and global capital into a previously dormant sector, utilising clear regulation, robust competition, and designated infrastructure.”
