MC Explains | What does VGF scheme mean for offshore wind energy projects?

Offshore wind

The Union Cabinet chaired by Prime Minister Narendra Modi on June 19 approved the Viability Gap Funding (VGF) scheme for offshore wind energy projects at a total outlay of Rs 7,453 crore.

This includes Rs 6,853 crore earmarked for the installation and commissioning of 1 GW of offshore wind energy projects (500 MW each off the coast of Gujarat and Tamil Nadu), and a grant of Rs 600 crore for the upgrade of two ports to meet logistics requirements for offshore wind energy projects.

What does this mean for the clean energy industry? MC takes a look into it for a detailed analysis.

What is Viability Gap Funding?

Viability Gap Funding (VGF) is a financial support mechanism provided by the government to make infrastructure projects commercially viable. It involves providing grants to cover the gap between the project cost and the expected financial returns from the project. This funding helps attract private investment into sectors where projects are otherwise not financially feasible due to high initial costs or long gestation periods.

What is the status of offshore wind energy in India?

Despite possessing a 7,600-km coastline and significant offshore wind energy potential, India has been slow in developing offshore wind projects. But now, the government plans to tap into offshore wind projects totaling 70 GW along the coasts of Tamil Nadu and Gujarat. Seabed lease tenders for a trajectory of 37 GW are scheduled to be issued by 2030. Both the Tamil Nadu and Gujarat governments have expressed interest in procuring offshore wind power at a competitive tariff rate of Rs 4 per unit for initial projects.

Who are the leading players? 

In India, the sector is yet to see established domestic players making significant inroads into offshore wind energy.

How will the sanction of funds help the industry? 

The VGF support from the Centre will reduce the cost of power from offshore wind projects and make them viable for purchase by distribuytion companies, commonly called discoms, according to the government. The scheme may  kick start offshore wind energy development in India and potentially lead to creation of required ecosystem in the country to supplement its ocean-based economic activities.