Mitsubishi Corp (TSE: 8058) has taken a 52.2 billion yen ($342.4 million) impairment charge on its offshore wind projects, reflecting the broader challenges facing Japan’s renewable energy ambitions.
The company, which leads consortia that won Japan’s first state-run offshore wind auctions in 2021, is reassessing its position due to soaring construction costs, supply chain disruptions, and rising interest rates.
Japan’s offshore wind sector was expected to be a cornerstone of its clean energy transition, but Mitsubishi’s latest move highlights the financial strain that even major players face.
The three wind farms, set to generate 1.76 gigawatts, were originally scheduled to start operations between 2028 and 2030, but their future is now uncertain.
The impairment charge was announced as part of Mitsubishi’s nine-month financial results to December 2024, where the trading house reported a 19% rise in net profit to 827.4 billion yen ($5.4 billion), largely driven by gains in liquefied natural gas (LNG) and asset sales.
Offshore wind projects struggle under cost pressures
Mitsubishi’s decision to reassess its offshore wind projects comes as Japan’s renewable energy sector grapples with post-pandemic inflation, geopolitical risks, and shifting supply chain dynamics.
CEO Katsuya Nakanishi noted that Russia’s invasion of Ukraine and its impact on global commodity prices played a major role in the company’s reassessment.
Rising interest rates have further compounded financial pressures, making long-term investments more expensive.
Despite Japan’s push to expand offshore wind capacity, developers are facing the same cost pressures seen in Europe and the US, where projects have been delayed or cancelled due to budget overruns.
Chubu Electric Power (TSE: 9502), Mitsubishi’s partner in the three offshore farms, also reported an 18 billion yen ($118 million) charge on the projects.
Even with the impairments, Mitsubishi is attempting to limit the financial fallout.
The company indicated that it has already factored in the maximum expected losses, ensuring that further write-downs will have minimal impact on overall business performance.
Japan’s offshore wind auctions and policy adjustments
Japan has held three offshore wind auctions to date, attracting major global players, including RWE (ETR: RWEG), Iberdrola (BME: IBE), and BP (LON: BP).
However, the government recently relaxed auction rules to make projects more financially viable in response to industry concerns.
Mitsubishi’s troubles are not unique—Mitsui & Co (TSE: 8031), which secured an offshore wind development right in 2023, also warned this week that rising construction costs and exchange rate fluctuations pose significant challenges.
Nevertheless, Mitsui reaffirmed its commitment to the sector, suggesting that companies are still banking on long-term growth despite short-term difficulties.
Mitsubishi’s ability to absorb its impairment loss without revising its full-year profit forecast of 950 billion yen ($6.2 billion) suggests confidence in other business segments, particularly LNG, which has remained a core driver of profitability.
However, the offshore wind sector remains a volatile investment, with regulatory changes and cost uncertainties influencing corporate strategies.
The coming months will be critical in determining whether Mitsubishi proceeds with the offshore wind projects or shifts its focus to less capital-intensive renewable energy initiatives.
Japan’s ambition to establish 10 gigawatts of offshore wind capacity by 2030 will depend on how companies navigate these financial and policy challenges.
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