With the aim to harness the large coastline India is bestowed with, for the development of offshore wind energy projects, the Ministry of New and Renewable Energy (MNRE) notified the National Offshore Wind Energy Policy, 2015 on October 6, 2015. The advantages of installing offshore wind projects are well known globally-no land requirement, better quality of wind and its conversion to electrical energy, higher efficiency of larger offshore wind turbines, etc. In order to enhance investor confidence, the MNRE set an ambitious target of achieving 5 GW of offshore wind installations by 2022 and 30 GW by 2030.
The policy attempts to achieve the following objectives: promote the deployment of offshore wind farms in India’s exclusive economic zone (EEZ), which is 200 nautical miles from the country’s base-line; encourage indigenisation of offshore wind energy technology; promote research and development in the offshore wind energy sector; create skilled manpower and employment in the offshore wind energy sector etc. Even in the case of the Jawaharlal Nehru National Solar Mission, one of the main objectives was technological innovation.
The policy designates the MNRE as the nodal ministry for the development of offshore wind energy. The ministry is required to work in close coordination with other government entities, such as the Ministry of Ports, Shipping and Waterways, state maritime boards, and central and state transmission utilities. Further, the National Institute of Wind Energy (NIWE) would act as the nodal agency. The NIWE has been granted a role akin to that of the Solar Energy Corporation of India in the solar power sector and is responsible for carrying out resource assessment, surveys and studies in the EEZ; demarcating offshore wind energy blocks for bidding; undertaking international competitive bidding for the development of offshore wind projects; entering into contracts with project developers; collecting lease from developers/owners; obtaining clearances for projects; etc.
Focus on details
While the policy is a great initiative towards recognising the essential components of a framework for the development of offshore wind farms, a number of details are yet to be worked out. Notably, the policy provides the development model for setting up offshore wind farms in the EEZ. In brief, the development plan starts with the NIWE conducting preliminary wind resource assessment, oceanography surveys, etc. for the demarcation of offshore wind energy blocks. In addition, even a project developer, with prior permission from the Ministry of Defence, is allowed to conduct studies and surveys to collect data and will have certain rights on it along with the NIWE. The MNRE had issued guidelines for offshore wind power assessment studies and surveys in 2018. One important aspect here is that a private developer conducting such survey and studies does not get any exclusivity on allocation over the surveyed blocks. Based on the experience in the upstream oil and gas sector and recent mining law changes, this exclusivity could have been a useful aspect to consider in these guidelines and the policy.
Post the selection of offshore wind energy blocks, the NIWE offers them to potential bidders through an open international competitive bidding (ICB) process. The prospective bidders may be a company, a consortium, or a joint venture. No further details with respect to the eligibility of a bidder, if it can be a foreign entity at the bidding stage, etc., are provided in the policy. In addition, the issuance of a well-balanced and bankable bid document would be critical to attract the required talent.
It is envisaged that the successful bidder would enter into a lease contract with the NIWE for leasing of wind energy blocks for exploration and exploitation of wind energy in consideration of a fee. One of the prerequisites of this lease would be the developer submitting a decommissioning and site restoration programme to the NIWE before any offshore construction work begins (along with the prescribed guarantee for such decommissioning work). To regulate the leasing mechanism of offshore wind energy blocks, the MNRE, on January 25, 2019, issued the Draft Offshore Wind Energy Lease Rules, 2019 for discussion with various stakeholders. The lease rules provide for a number of aspects such as the grant of lease, rights of the licensee and the lessee, suspension and cancellation of lease, termination of lease, etc. The lease rules are still at the draft stage.
The policy provides a detailed list of clearances that would be required to be obtained by a developer before commencing any offshore wind power development. The responsibility to obtain in-principle clearance from the Ministry of Defence, Ministry of Home Affairs, Ministry of External Affairs, Ministry of Environment, Forest and Climate Change, and the Department of Space before notifying the offshore wind energy blocks for an ICB is on the NIWE. Subsequently, upon allocation of offshore wind energy blocks, the developer is required to obtain the relevant clearances for environment impact assessment, coastal regulation zone, and naval security for vessels involved in construction/ support activities of wind power installation. The policy further provides that the NIWE would be responsible for issuing the certificate for commencement of operation of the offshore wind farm.
Furthermore, the policy provides that a clear time schedule for approvals would be issued by the MNRE to facilitate developers. Due to delays in grant of project approvals, this aspect would be critical. A number of other jurisdictions have proposed a single-window clearance for obtaining these approvals. The MNRE and the NIWE would need to consider the right approach for this and prepare a framework that ensures timely provision of these approvals.
Importantly, the electricity from offshore wind projects is proposed to be sold to a distribution utility under a power purchase agreement according to the Electricity Act, 2003. However, it is not clear whether this procurement would be through the bidding route in accordance with the guidelines issued by the government or under a negotiated route at the regulated tariff. Formulating the position on this aspect would be vital for any investor looking at these projects. Additionally, some thought about how the issue of credit risk of discoms may be mitigated would be required.
The tariff issue for offshore wind power is related to the credit risk of discoms. The high cost of implementation of an offshore wind energy project, as of date, as compared to other conventional or onshore renewable energy projects cannot be disputed. The natural corollary of this is a higher tariff for this power. Accordingly, the feed-in tariff as was offered to solar and wind projects historically would be initially required to provide an impetus to this sector. In this regard, the policy stipulates bundling of power generated from offshore wind power projects with conventional power to reduce the cost of power (albeit no further details of achieving this and allaying developers’ concerns are yet provided). Globally, other countries have provided financial incentives to offshore wind developers to ensure growth. It appears that the government may need to take a long-term view on this issue.
The policy does envisage that offshore wind energy is to be promoted through a variety of fiscal incentives similar to those provided to onshore wind projects. The details of these incentives are missing as of now but essential to provide upfront. In 2019, there was a discussion regarding viability gap funding for offshore wind projects; however, the position is not yet finalised. It would be useful this time around to devise an incentive package which inter alia encourages technology development and manufacturing for offshore wind installations in India.
The way forward
With the best wind resource sites being mostly taken, pushing the pedal on the development of offshore wind farms may well be the answer to achieving our aggressive targets for clean energy (175 GW by 2022 and 450 GW by 2030). However, for this to happen the challenges discussed above need to be attended to comprehensively. A well-thought-out regulatory framework to address the known challenges would be key at this stage to attract the required private and foreign participation in this sector. The biggest advantage for India is the experience of the last decade of development of solar and wind projects. It is time to learn from our experience and utilise it for the much-needed growth of the offshore wind power segment and move towards achieving energy security.