Budget may announce viability gap funding for offshore wind projects

Offshore wind offers higher quality wind and more efficient energy conversion due to the absence of obstructions at sea. (File Photo)
Offshore wind offers higher quality wind and more efficient energy conversion due to the absence of obstructions at sea. (File Photo)

Summary

  • The renewable energy ministry's estimates indicate a need for 14,212 crore in VGF to set up 3 GW of offshore wind energy capacity, along with an additional 13,500 crore for transmission and power evacuation infrastructure

New Delhi: In a move that could significantly boost India's offshore wind energy sector, the Union Budget for fiscal year 2024-2025 (FY25) is expected to propose a viability gap funding (VGF) scheme with an outlay of 6,000 crore.

The initial allocation is specifically aimed at supporting 1 GW of offshore wind capacity, two people familiar with the developments told Mint, adding that the ministry of new and renewable energy (MNRE) has sent a proposal to the finance ministry.

Both the renewable energy and finance ministries didn't immediately reply to queries on the funding proposal.  The government will present its interim Budget on 1 February. 

MNRE's proposed scheme aligns with the government's broader strategy for offshore wind projects, to be developed under three models. The first involves VGF for two 0.5 GW sites off the coasts of Gujarat and Tamil Nadu. The other models propose bidding processes for site exclusivity during survey periods, with or without guaranteed seabed rights.

Offshore wind offers higher quality wind and more efficient energy conversion due to the absence of obstructions at sea, according to the MNRE. The Centre had notified the ‘National Offshore Wind Energy Policy’ in October 2015, but projects under this failed to take off given the high investments and a lack of economic viability.

Also, given that offshore wind farms need to be set up on the seabed, the technology and infrastructure involved is more complex, resulting in higher gestation periods.

"The cost involved, technology, and the lack of manpower are some challenges for the growth of the sector. The VGF may help lower the cost and help (power distribution companies) take up power from these projects. (But) incentives would be required for initial projects," said Vikram V., vice president and co-group head of corporate ratings, ICRA.

“Further, compared to two years to two-and-half years of time required to set up onshore wind projects, offshore projects would require at least four years from the award of the project," he said.

Given the capital-intensive nature of these projects, the MNRE's revised strategy paper in September last year had highlighted the need for central financial support to bridge the gap between actual tariffs and designated power purchase rates. This is particularly crucial given the high costs of setting up turbines on the seabed and the associated power evacuation expenses.

In 2022, the MNRE had informed a parliamentary committee that the per megawatt cost of offshore wind projects could range from 20 crore to 25 crore, varying based on technology, marine conditions, and distance from the shore. 

Acknowledging the financial challenges, the committee had recommended VGF to ensure project viability and the necessary transmission infrastructure.

It had added that the potential for offshore wind projects should also be explored in coastal areas other than Gujarat and Tamil Nadu along India’s 7,600 km-long coastline.

The ministry's estimates indicate a need for 14,212 crore in VGF to set up 3 GW of offshore wind energy capacity, along with an additional 13,500 crore for transmission and power evacuation infrastructure.

The September strategy paper for offshore wind projects had, however, recommended that VGF should be initially provided for 1 GW capacity.

The renewed focus on this capital-intensive segment comes as India pursues ambitious renewable energy goals, including a net-zero target by 2070 and a 500 GW installed capacity by 2030. As part of this, the government aims to establish 10 GW of offshore wind capacity by 2030.

As of now, India's onshore wind energy capacity stands at an estimated 44 GW.

Despite the higher costs per MW for offshore turbines, the renewable energy ministry believes desirable tariffs are achievable with the development of a supporting ecosystem.

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
more

topics

MINT SPECIALS