Offshore Wind Hurdles

High initial costs may hamper development

In June 2018, the Ministry of New and Renewable Energy (MNRE) announced its offshore wind energy targets of 5 GW by 2022 and 30 GW by 2030. This announcement was made after the first-ever invite for expressions of interest (EoIs) for an offshore wind project received a positive response from developers. The EoIs were invited by the National Institute of Wind Energy (NIWE) in April 2018, almost a year after the government approved India’s National Offshore Wind Energy Policy. Studies have strongly suggested that there is a high offshore wind potential in the southern regions of the peninsula and along the western coast. However, experts suggest that the initial cost of power generation from offshore wind power plants and the resultant tariffs are expected to be much higher than those of mainstream renewable energy technologies. Renewable Watch analyses the factors responsible for the high cost of offshore wind power generation in India and its commercial ability to compete with the existing sources of renewable power generation…

Current status and costs

According to the MNRE, India has an offshore wind energy potential of around 70 GW along the coasts of Gujarat and Tamil Nadu. This is based on extensive studies undertaken by the NIWE, including wind speed data for the past one year based on the light detection and ranging (LiDAR) system installed and commissioned off the Gujarat coast. To further determine the offshore wind power potential, the NIWE has plans to install more such systems in Gujarat and Tamil Nadu.

Meanwhile, the offshore wind segment in India has recently gained policy and regulatory traction. In February 2019, the MNRE issued draft offshore wind energy lease rules to increase activity in the offshore wind segment. As per the draft lease rules, no project development activity or site survey for calculating the offshore wind potential can be undertaken without a lease. The MNRE will grant lease for all offshore wind projects in Indian exclusive economic zones (EEZs). The area covered by a lease will be specified and the terms of the lease will be initially valid for a period of five years for assessment and 30 years for the establishment of offshore wind power projects. The demarcation of offshore wind areas as EEZs brings them under special financial and taxation regimes and can fast-track the development of this technology.

Offshore wind power development in India has a significant cost premium associated with it as with any technology at its nascent stage. There are several challenges that make offshore wind costlier than other existing power generation technologies.

  • There is a strong need for more studies on the Indian coastline to determine the technologically recoverable power from offshore wind. The processes and equipment required for these studies are expensive and data needs to be gathered over several months to provide accurate results, thereby increasing the overall cost.
  • The lack of critical historical technical data such as resource map and bathymetric data further makes it difficult to identify potential sites and design wind turbine configurations suitable for optimum energy production.
  • Once the potential is determined and hotspots for initial installation identified, physical infrastructure is required to set up offshore wind farms. The costs associated with this will be on the higher end due to a dearth of installation and support equipment. Meanwhile, the manufacturing of local substructures is not yet mature in the country, thereby increasing reliance on imports.
  • Another critical challenge will be workforce training by Indian contractors and wind power developers. While this entails significant costs, importing trained workforce may prove to be even more expensive.

According to experts and market estimates, the offshore wind power levellised cost of energy (LCoE) in India is expected to be Rs 7-Rs 9 per kWh. This is one of the highest offshore wind LCoE across the world. It is important to note that this is the expected LCoE for the initial projects. With a target to achieve 5 GW of offshore wind power capacity by 2022, economies of scale may kick in to reduce the LCoE. However, considering the technological difficulties in developing an offshore wind farm, the reduction may not be as pronounced. The average expected offshore wind power tariff is the highest among conventional and onshore wind power sources. The onshore wind power tariffs have dropped sharply with the adoption of competitive bidding, from a feed-in tariff of around Rs 5 per kWh in 2017 to Rs 2.80 per kWh in 2019. The lowest onshore wind power tariff discovered through competitive bidding was Rs 2.40 per kWh. Moving forward, the offshore wind power segment aims to bring the tariff close to other power sources. It is achievable only through rapid technological development and economies of scale in offshore wind power capacity.

Challenges and the way forward

Currently, offshore wind power tariffs are over three times higher than the lowest onshore wind power tariff. This leads to a critical question of the discoms’ ability to procure such power. For large hydropower projects, high tariffs have prevented power offtake, leading to a continuously diminishing role of the segment in the country’s energy generation basket and nearly stalled development. Meanwhile, India was preparing to float a tender for 1 GW of offshore wind power development in October 2019. To this end, the country earmarked a viability gap funding (VGF) of around $900 million to bridge the gap between the cost of generating power from the project and the tariff set by offtakers. However, experts believe that even with the VGF, the cost of generation might only reduce to Rs 6-Rs 7 per kWh, higher than the Rs 3.50-Rs 4 per kWh that the offtaker in Gujarat has agreed to pay.

On the upside, while the initial cost may be high, it is only expected to reduce with the passage of time, evolution of technology and greater installation levels like in other countries where offshore wind power generation has matured. According to Bloomberg New Energy Finance, offshore wind costs in the second half of 2019 fell by about 12 per cent over the first half of the year. The costs had a steep fall of about 32 per cent over 2018, to reach a global benchmark LCoE of $78 per MWh. The US, the UK, the Netherlands and other parts of Europe have a significant offshore wind installed capacity and have been in operation for many years. Their policies and technological set-up are well established, which are critical factors in bringing down initial costs. Meanwhile, with technological advancements such as offshore wind turbines of sizes up to 10 MW, capital expenditure and energy generation have been optimised. Most of these factors are missing in the Indian offshore wind power market, leading to high initial costs.

Given the progress made so far, it is unlikely that India will meet its 5 GW offshore wind installed capacity target by 2022. Some capacity installation can be expected by 2023-24, but the 5 GW target may still be missed. The NIWE suggests that it would rather focus on meeting the 2030 target of 30 GW, a mammoth task in itself. As far as costs are concerned, Gujarat’s tariff indication may be a starting point for developers to find ways to reduce the LCoE.

Further, there is no lack of interest. The EoI invite floated in 2018 saw nearly every global developer participate, which may point towards a great deal of global interest in the Indian offshore wind segment. For now, the focus is on detailed data gathering and installation of LiDAR systems to unlock the huge offshore wind power potential along the country’s expansive coastline.

By Ashay Abbhi

GET ACCESS TO OUR ARTICLES

Enter your email address