Japan’s Renewable Transition: Progress and Challenges Since the 7th Strategic Energy Plan

The Middle East situation has once again exposed Japan’s dependence on imported fuels and reminds us of the importance of increasing energy self-sufficiency, currently at around 15% (Nikkei). The 7th Strategic Energy Plan (7th SEP), published by the Japanese government in February 2025, set a goal for renewable energy (RE) to reach up to 50% of the electricity mix by 2040 (ANRE). In line with this policy direction, a recent Fuji Keizai report projected Japan’s RE market will grow strongly from JPY 976.2 billion in FY 2024 to JPY 6 trillion by FY 2040. The growth is expected to stem from increased RE deployment, ESG investment, and rising awareness of environmental value, among other things. The report also reviews the current status of RE expansion since the announcement of the 7th SEP, and highlights both what has progressed and the challenges encountered so far.

RE Market Expands While the Government Bets on New Technologies

Identified as a priority in the 7th SEP, an increasing number of FIT projects have been transitioning to the more market-linked FIP scheme. Alongside this development, the number of corporate PPAs from RE sources (both onsite and offsite) has increased. In fact, corporate PPAs are projected to account for approximately 37% of newly installed solar PV capacity in FY2025 (onsite: 23%, offsite: 14%), and their share is expected to grow further towards 2040, according to Yano Research Institute. Furthermore, the second phase of the GX-ETS scheme is scheduled to roll out from April, which is expected to discourage fossil-fuel-based generation and, in turn, encourage greater RE deployment.

Technological developments are also taking shape. The latest SEP has set a target of up to 29% for solar power in the energy mix. To achieve this goal, the government has invested in developing perovskite solar cells with concrete targets to reduce costs to below JPY 14/kWh by FY2030 and achieve approximately 20 GW of installations in Japan by 2040. In addition to perovskite, the Council for Japan’s Growth Strategy led by PM Takaichi, recently added additional technologies as key areas that should receive government support, including offshore wind (OSW) and next-generation geothermal. Next-generation geothermal is expected to expand deployment from the 2030s, and technology development and early-stage installations at promising sites are set to be promoted from FY2026 through the Green Innovation Fund.

Changing Regulatory Frameworks and Market Conditions Pose Challenges

Meanwhile, challenges also remain. For solar power, the government has opted to introduce stricter regulations for large-scale ground-mounted solar projects (so-called mega solar), reflecting rising concerns about environmental issues and Chinese solar panels. As a concrete measure, starting from FY2027, no new FIT approvals will be granted for ground-mounted solar installations. Turning to wind power, the SEP plans to raise its share in the generation mix to 8% in FY2040, up from 1.1% in FY2023 – but major developments are well behind schedule. Since Mitsubishi’s decision to withdraw from the first round of the OSW project due to increased project cost, auctions have been suspended. The government is currently discussing changes in auction rules and support measures for the other operators that won auctions. Creating a promising investment environment is key to advancing OSW development.

Changing domestic and international market conditions linked to disruption in the Middle East have already begun to affect the roadmap set out in the 7th SEP. How quickly Japan can adapt (e.g., restart OSW auctions; nuclear facilities) to emerging conditions will be critical to achieving its targets, as will its ability to effectively harness the latest technological developments. Prolonged energy market uncertainty linked to events in the Middle East could further intensify domestic debates on energy security, which has the potential to create a tailwind for renewable energy expansion.

💡 Shulman Commentary: Overall, Japan’s renewable transition continues to create meaningful commercial opportunities across project development, corporate procurement, and market optimization, even as regulatory and cost challenges introduce greater execution complexity. As policy support increasingly shifts toward market-linked mechanisms and new technologies, stakeholders that can combine local regulatory insight with strong capabilities in structuring PPAs, managing merchant exposure, and positioning early in emerging segments such as offshore wind, next-generation geothermal, and advanced solar, are likely to secure a competitive advantage. In this evolving landscape, timely market intelligence and strategic positioning will be critical to capturing value as Japan moves toward its 2040 decarbonisation targets.

________________________________________________________________________________________

Thank you for reading.

Shulman Advisory offers bespoke workshops, strategic analysis, guidance on license acquisition, and tailored projects to help you navigate market entry, procurement planning, and investment decisions.
Let’s talk!