Japan’s renewable energy sector faces significant hurdles, but a new report from the Institute for Energy Economics and Financial Analysis (IEEFA) suggests that targeted reforms could accelerate growth and help the country meet its ambitious 2030 targets. The report identifies grid governance, utility obligation reform, and local engagement as key areas for improvement, arguing that these changes could unlock Japan’s renewable potential.
Michiyo Miyamoto, IEEFA’s energy finance specialist, contends that Japan’s renewable energy challenges are not technological or economic but stem from systemic and regulatory issues. Grid congestion, inflexible markets, output restrictions, and inaction from major utility companies are cited as primary obstacles. Currently, ten major Japanese electric utilities control nearly 75% of installed power capacity but own less than 0.3% of renewable capacity (excluding hydro). This fossil fuel and nuclear-focused approach has led to a record 52 renewable energy project developers exiting the Japanese market in 2024, with eight bankruptcies involving liabilities exceeding Y10m ($67,697), double the number from the previous year.
However, the report highlights several regions, including Fukushima, Saga, Akita, and Hokkaido, where meaningful progress has been made. These prefectures have set local renewable energy goals, engaged their communities, and secured regional funding to promote clean energy initiatives. The report notes that Japan lacks a robust framework for developing transmission systems, leading to significant physical and economic disparities between renewable energy supply and demand. Renewable energy production is concentrated in rural and coastal regions, while high-demand areas are urban centers. Urban regions face land shortages and elevated project development costs, whereas rural areas host most large-scale renewable energy projects. Yet, the infrastructure for long-distance transmission is lacking due to complex permitting procedures and financial constraints faced by transmission operators.
Miyamoto emphasizes that Japan should scale successful regional approaches rather than relying on fossil fuels for backup. She advocates for reforming grid access rules, modernizing market design, strengthening enforcement of Non-Fossil Certificate obligations for major utilities, and enabling deployment paths such as power purchase agreements (PPAs). The report suggests establishing a clear objective to triple renewable energy capacity through auctions and procurement requirements, encouraging corporate and community PPAs through regulatory and financial assistance, and increasing the number of renewable energy auctions to facilitate price determination, encourage developer involvement, and secure project funding.
Japan’s recent auctions have demonstrated the viability of offshore wind projects and established a replicable framework for rapid scaling. By utilizing clear regulation, robust competition, and designated infrastructure, Japan can attract domestic and global capital into a previously dormant sector. The report’s findings could shape the development of Japan’s renewable energy sector, prompting policymakers and industry stakeholders to reconsider current approaches and prioritize systemic reforms. The success of regional initiatives underscores the potential for localized strategies to drive national progress, potentially influencing similar efforts in other countries facing comparable challenges.