Harnessing the Wind: India’s Journey into Offshore Wind Energy

The Government’s ambitious plans to develop OWE projects, coupled with its favorable geographical location and vast coastlines, create a conducive environment for this clean and renewable energy source to thrive

Introduction

With a coastline of over 7,500 km, India is well placed to exploit its potential to generate Offshore Wind Energy (“OWE”), which would not only cater to India’s growing energy demands, but also help India achieve its target of ‘net zero’. India intends to harness the ‘offshore’ wind capacity in the coastal states of Gujarat and Tamil Nadu. To that extent, MNRE in October 2015 notified the “National Offshore Wind Energy Policy” which provides the framework for the development of OWE projects.

Pursuant to this, the Ministry of New and Renewable Energy (“MNRE”) recently notified the second revision to the ‘Strategy for Establishment of Offshore Wind Energy Projects’ on September 26, 2023 (“Strategy Paper”) for effective and strategic implementation of the policy. The Strategy Paper sets out different models that may be adopted for the development of OWE projects in India through public private partnerships. This comes against the backdrop of MNRE and National Institute of Wind Energy (“NIWE”) planning to conduct the auction of India’s first OWE project near Tamil Nadu¹.

The Strategy Paper envisages three models through which the MNRE will develop the projects:

(i) Model A – for areas where MNRE/ NIWE has already carried out, or proposes to carry out, the studies and surveys for the development of offshore wind farms. OWE will be procured from these identified zones through competitive bidding process and necessary assistance will be provided by the Central Government in the form of Viability Gap Funding (“VGF”)². At present, sites of 0.5 GW off the coast of Gujarat and Tamil Nadu respectively has been identified for the implementation of Model A.

(ii) Model B – the zones identified by NIWE will be allocated to developers for a fixed period on a lease basis through a bidding process. The developers will have exclusive rights over the seabed zone allotted to them and the power generated from such projects may be used either for captive consumption or sold to third parties under power purchase agreements. The developers can claim the benefit of renewable energy credits and carbon credits as may be determined by the Central Government. No financial assistance in the form of VGF is envisaged.

(iii) Model C – the developer will be allowed to identify any project site within the exclusive economic zone, except for the sites already identified under Model - A and Model - B. The allocation of seabed will be done through a bidding process, which may be carried out either by MNRE or any other authority as may be designated by the Central Government. The developer conducting the study/ survey may submit a proposal to develop the site surveyed and such developer will have the right of first refusal in the bidding process. Like Model – B, developers can claim the benefit of renewable energy credits and carbon credits as may be determined by the Central Government from time to time, however, no VGF will be provided to the developers.

Recently, MNRE had released the draft OWE tender documents in public domain to invite stakeholders’ comments, and it is expected that India will publish its first OWE tender by the first quarter of 2024, and the tenders for the remaining sites by the end of FY 2024-25³.

OWE in other jurisdictions

Some of the measures adopted in other jurisdictions, specifically in United Kingdom, to promote the development of OWE are:

(i) Contracts for Difference (“CFD”): The UK Government provides developers with protection from volatile wholesale electricity prices under private long-term private power purchase agreements. CFDs has been the driving force behind the success of OWE projects in UK.

(ii) Establishment of the Offshore Wind Acceleration Taskforce to streamline the approval process reducing the time required to obtain consents for new OWE farms from four years to one year.

(iii) Subsidies and benefits announced on plant and machinery investment made until March 2026.

Challenges in India

The development of OWE projects in India faces several challenges including:

Regulatory and Policy Framework: The absence of clear, long-term policies and regulations and frequent issuance of draft RFPs with no actual actions being undertaken by the government, can deter investors and developers. A stable and investor-friendly regulatory environment is essential for project development.

Lack of Infrastructure: Developing OWE projects requires significant infrastructure, including sub-sea grid connections and pooling substations. India currently lacks the necessary infrastructure to support large-scale offshore wind development, which can lead to increased project costs and delays.

Environmental and Ecological Concerns: OWE projects can have environmental and ecological impacts, including disturbance to marine ecosystems, migratory bird routes, and fishing communities. As a first step, environmental studies and appropriate clearances are required to be in place in line with the United Kingdom’s bidding process⁴.

Costs and Financing: OWE projects are capital-intensive, and financing can be a major challenge. As discussed above, the Government of India, at present, is considering to provide financial assistance in the form of VGF only under Model A.

Cable Laying and Maintenance: Maintaining underwater cables and transmission infrastructure in corrosive marine environments can be technically challenging, time consuming and expensive. This has been one of the major reasons for the delay in India’s first OWE tender⁵.

Conclusion

The Government’s ambitious plans to develop OWE projects, coupled with its favorable geographical location and vast coastlines, create a conducive environment for this clean and renewable energy source to thrive. While challenges such as initial capital costs, environmental considerations, and grid integration must be addressed, the momentum gained in the OWE sector in India is encouraging. With continued investment, innovation, and collaboration between the Government, industry stakeholders, and research institutions, India’s OWE sector is poised to become a beacon of sustainable energy development, paving the way for a cleaner and more resilient energy future for the country.