MC EXCLUSIVE Govt mulls higher incentives for offshore wind

Govt mulls higher offshore wind subsidy, tasks World Bank, KPMG to review raising viability funding

• India may increase VGF outlay for offshore wind energy projects
• World Bank and KPMG tasked to assess financial needs
• Increased VGF to aim at boosting investor interest after failed tender

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In a push to accelerate development of India’s wind energy capacity and support the country’s target of achieving 500 GW of non-fossil fuel capacity by 2030, the government is considering increasing the Rs 7,543 crore outlay under the Viability Gap Funding (VGF) scheme for developing offshore wind energy projects, officials from the new and renewable energy ministry told Moneycontrol.

For this purpose, the government has tasked the World Bank and KPMG to conduct a study assessing the financial requirement for offshore wind projects and raising the outlay with the objective of attracting greater investor participation, the source said.

“The VGF that we have allocated is not appropriate. We are taking help from KPMG. The World Bank has also approached us and we have asked them to prepare a draft report on how we can go ahead, what is the finance requirement and how can it be addressed,” the official said. “Because the cost involved is also higher in offshore wind, so the VGF has to be higher,” the source added.

The government in June 2024 approved a Viability Gap Funding (VGF) scheme for offshore wind energy projects at a total outlay of Rs 7,453 crore, including an outlay of Rs 6,853 crore for installation and commissioning of 1 GW of offshore wind energy projects (500 MW each off the coast of Gujarat and Tamil Nadu), and grant of Rs 600 crore for upgradation of two ports to meet logistics requirements for offshore wind energy projects.

The scheme was aimed at implementation of the National Offshore Wind Energy Policy notified in 2015 with the objective to exploit the vast offshore wind energy potential that exists within the exclusive economic zone of India, the government had said.

The VGF support was aimed to reduce the cost of power from offshore wind projects and make them viable for purchase by distribution companies since developing offshore wind projects involve high capital cost. Construction of offshore wind energy projects and its operations also require specific port infrastructure, which can handle storage and movement of heavy and large dimension equipment.

The ministry’s plan comes after the country failed to find any takers for its tender of the first offshore wind energy project of 1 GW being set up in the Gulf of Khambat, off the Gujarat coast.

The official also said that the main constraint today in developing offshore wind energy projects is that other sources of energy are much cheaper. “We have to look into that also. But once the scale is there, maybe this (wind energy) may also become as attractive as solar,” the official said, adding that rates we are getting in Europe is around Rs 10 per unit. “So to bring Rs 10 to say Rs 5, we have to give VGF for another Rs 5,” said the source.

India and the United Kingdom on February 18 launched a taskforce to develop offshore wind ecosystems, improve supply chains and advance financing models in the country, in a move towards energy efficiency and de-carbonisation.

The official said that the task force will also work on the success stories of other countries and how they have addressed all the challenges associated with offshore wind projects.

India’s installed non-fossil capacity stands at over 272 GW, with solar at more than 141 GW and wind at 55 GW. This fiscal the country added more than 35 GW of solar and 4.61 GW of wind capacity, official data shows.

As per estimates from the new and renewable energy ministry, the country has a potential of developing 71 GW of offshore wind energy including 36 GW potential off the coast of Gujarat and  nearly 35 GW of offshore wind energy potential off the Tamil Nadu coast.

Offshore wind is a source of renewable energy which offers several advantages over onshore wind and solar projects, such as higher adequacy & reliability, lower storage requirement and higher employment potential.