New Delhi: India is working on a broad financial and political push to jump-start India’s offshore wind program after the country’s first tender off Gujarat yielded no bids, two people with knowledge of the development said. At the heart of the government’s plan is a proposal to strengthen support for the capital-intensive sector, including increases ₹7,453 crore viability gap financing (VGF) to make the project attractive to investors.
The Ministry of New and Renewable Energy (MNRE) has asked the World Bank to assess additional financing requirements and risk mitigation measures needed to attract private investment, while working with consultancy firm KPMG and seeking input from the India-UK Offshore Wind Taskforce, one of the two people said. The India-UK Offshore Wind Taskforce, which was launched on Wednesday, along with a representative from Denmark – a pioneer country in the field – is due to meet next week.
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India, the largest producer of greenhouse gases after the US and China, plans to use the scale to reduce offshore energy tariffs by harnessing the huge wind energy potential along its 11,098 km coastline. Although offshore wind power generates higher power compared to onshore projects, there is a requirement for higher capital expenditure to set up these projects on the seabed and evacuate the electricity.
The renewed focus also comes as restrictions on land acquisition have slowed the expansion of onshore wind farms, prompting the government to look at offshore projects to diversify capacity additions. However, high start-up costs, complex seabed infrastructure and customs challenges have so far stalled progress, although offshore wind is seen as critical to harnessing the country’s estimated 70 gigawatts (GW) of potential along its 11,098km coastline and moving towards an ambitious target of 500GW of non-fossil energy capacity by 2030.
For perspective, 70 GW can cover the energy needs of almost 70 million households.
“The VGF currently allocated for offshore power may not be adequate. So it may need to be revised. Also in Europe, offshore wind costs are around ₹10 per unit. To bring it to the neighborhood ₹5, the government may have to provide a higher VGF,” said the person quoted above. Viability gap financing is a grant to bridge the gap between the high initial cost of a project and the income that the market can sustainably support.
The ministry has commissioned the World Bank to prepare a report that would address the restrictions and additional financial requirements,” the person added. ₹5 unit would make offshore wind competitive with other energy sources that are within reach ₹2-6.
Schedule shift
After the Union Cabinet approved the VGF in June 2024, India’s renewable energy implementing agency Solar Energy Corp of India (SECI) launched a tender for 500 MW in September 2024 for a build-and-operate arrangement and a 25-year power purchase agreement (PPA) with a prescribed completion schedule of 48 months. The 500 MW offshore wind project was to be built on an area of 202 km2 in the Gulf of Khambhat off the coast of Gujarat.
“No interest was received for the Gujarat tender. Now the focus has shifted to Tamil Nadu and the next tender will be for Tamil Nadu, also because the coast there would provide a better CUF (capacity utilization factor),” said a second person with knowledge of the development.
The person added that Gujarat was the first preference as the required data to develop the project was already available. Should considerations of increased funding take concrete shape, the new renewable energy ministry will have to propose the same to the finance ministry, the person added.
In response to an email query, a World Bank Group spokesperson said offshore wind farms were of strategic importance to India’s energy needs, but there were complex issues in how to make it work.
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“Offshore wind can provide clean energy while accelerating domestic manufacturing, port development and creating more and better skilled jobs,” the spokesman said. “At the same time, the sector is capital intensive and complex, requiring coordinated policy, grid planning and risk mitigation frameworks to unlock private investment. In this context, the World Bank Group is engaged in ongoing dialogue with MNRE on opportunities for a scalable offshore wind market in India.”
Inquiries sent to the Department of New and Renewable Energy and KPMG remained unanswered at press time.
The plan to increase incentives for offshore wind projects comes at a time when onshore wind projects face several challenges, including hurdles in acquiring land, right-of-way and adding transmission capacity. The new Ministry of Renewable Energy has already set up a task force to look into these issues and come up with a recovery plan to address the issues and revive the onshore wind sector, as Mint previously reported.
India currently has approximately 55 GW of installed onshore wind capacity and the government aims to achieve a cumulative wind capacity of 100 GW by 2030.
Lots of challenges
Offshore wind projects witness higher wind quality and more efficient energy conversion due to the absence of offshore obstacles. However, it is much more capital intensive than onshore wind projects and the cost of energy from these projects would also be very high compared to other renewable energy sources, thus far making the industry unviable and non-starter in India.
Since offshore wind farms need to be established on the seabed, the technologies and infrastructure involved are more complex, and such projects also require a longer gestation period.
The government first announced a “National Offshore Wind Policy” in October 2015 and released a strategy document in 2023. However, due to high investments and insufficient financial viability, the projects failed to take off.
In the Union Budget for FY25, the government announced viability funding for setting up 1 GW of offshore wind capacity, initially off the coast of Gujarat and Tamil Nadu.
India ranks fourth in installed onshore wind power after China, the US and Germany.
To nudge and support
Experts suggested that given the higher costs and gestation period of these critical projects, more incentives and regulatory relaxations would be needed to attract private investment.
Bhupinder Singh Bhalla, former secretary in the new and renewable energy ministry, said timelines are key: “Along with higher VGF, there is also a requirement for flexible regulations and timelines. Globally, there have been cases of offshore wind projects taking up to 7-10 years to complete. So the benchmarks should be set according to global space-specific standards.”
He also emphasized the need for long-term visibility and scale for developers to invest. “The government should come up with a trajectory of 10-20 GW projects, which would show that there is a bigger game for these big global developers,” Bhalla said. “There is also a shortage of inventive land for onshore wind projects, increasing the demand for offshore projects as we move beyond 2030.”
Offshore wind has been a success story in China and Europe, with countries such as Denmark, Norway, the Netherlands and the UK among the first movers. China leads the world in offshore wind capacity with 41 GW of installed capacity, out of a global capacity of nearly 81 GW.
Among the world’s leading developers of offshore wind farms are Denmark’s Orsted, Sweden’s Vattenfall, Germany’s RWE Renewables and Sweden-based Iberdola. In India, state power companies NTPC and ONGC have come together to venture into this space.
These countries initially supported the establishment of offshore wind projects through incentives including subsidies. The UK continues to provide subsidies for these projects.
Duttatreya Das, energy analyst for Asia at Ember, a global think tank focused on energy transformation, said these top countries faced the same challenges as India in terms of high costs. “However, the need to meet climate targets and the lack of solar energy in some European countries have forced them to switch to offshore wind power, and these countries are supporting these projects through various incentives,” Das said.
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A report by Ember, published in November last year, said that transmission infrastructure is a challenge for the sector. “It’s a chicken-and-egg dilemma: there’s always a risk that one element will be completed early and left to wait for the other. Encouragingly, the government has already started grid planning for potential zones through India’s Central Transmission System (CTU), Power Grid… However, with mounting hurdles in the availability of HVDC (high-voltage direct current) equipment and transformers, it will adhere to the timeline globally, according to the report.
She said initiatives such as financial incentives, a local supply chain and acceleration of transmission capacity will help patient capital flow into the industry.
MP Ramesh, former executive director of the National Institute of Wind Energy, a research and development institute under the Ministry of New and Renewable Energy, said there was a need to first show that these projects were feasible and would be viable in the long term, and the government should ensure that the first project was developed.
“A public-private partnership model can also be considered. Offshore wind projects require heavy investment, including hiring large vessels to transport equipment to an offshore location and setting up port infrastructure,” Ramesh said. “So, without significant support, these projects would not take off. But there is an urgent requirement to prove that these projects can be implemented, we are also starting a pilot project with government support.”
Bhalla noted that India’s journey to an ambitious 500 GW non-fossil and net zero carbon target would require a diversity of energy sources, with offshore wind a key component.