Offshore Wind Outlook

Progress, potential and pitfalls for the segment

Offshore wind has the potential to play a significant role in India’s energy transition. As compared to on­sh­ore wind installations, offshore wind farms are more effective in generating power due to stronger and more consistent win­ds. Vis-à-vis onshore turbines, offshore wind turbines are greater in size with higher capa­cities. While the segment has not yet taken off in the country, the present se­ntiment towards offshore wind development amongst the industry and the government has been encouraging. The government has announced its aim to establish 30 GW of offshore wind installations by 2030. Fur­ther­more, as one of the large­st consumers of electricity in the world, India may increa­singly utilise renew­able en­ergy sources such as offshore wind to bridge its power demand-supply gap. The renewables sector will also improve In­dia’s gr­een hydrogen economy.

The country has roughly 7,600 km of coastline, which provides significant pot­ential for offshore wind energy development. Preliminary studies for project development have been conducted in the sta­tes of Gujarat and Tamil Nadu. As per a study by the National Institute of Wind En­ergy (NIWE), 36 GW of offshore wind energy potential exists off the coast of Gujarat and 35 GW exists off the Tamil Nadu co­ast. However, factors such as high costs and investments, lack of financing optio­ns, need for risk assessment studies and lack of port infrastructure have curtailed the es­tab­lishment of offshore wind energy projects in the country.

Considering the immense potential of offshore wind in fulfilling the country’s clean energy requirements over the coming years, it is essential to analyse the prog­re­ss and challenges that the segment faces in India, while learning from international best practices.

Progress and milestones in India

Over the past decade, various steps have been taken by the government to promote the offshore wind segment in the country. During 2013-18, the Facilitating Offshore Wind in India (FOWIND) project was carried out by a consortium led by the Global Wind Energy Council (GWEC) and supported by the European Union, with a key focus on Gujarat and Tamil Nadu. As many as 16 zones were identified during the project using offshore wind mapping across an area covering 12 nautical miles off the coastline.

To provide policy support and a legal framework for the establishment of offsh­ore wind projects in India, the government also formulated the National Offshore Wind Policy in 2015. The first offshore wi­nd en­er­gy project in India was planned between 2016 and 2019; it was supported by the European Union.

Subsequently, expressions of interest (EoIs) for a 1 GW project off the coast of Gu­­ja­rat were invited by the NIWE in 2018. About 35 multinational and Indian developers/OEMs submitted EoIs and provided their inputs for the bidding pro­cess. A geophysical survey of 365 squ­are km for the 1 GW project capacity was also co­m­pleted, along with a preliminary environmental impact assessment. How­ever, even almost four years after the introduction of the 1 GW project, it has not com­m­e­n­ced operation due to high capital ex­penditure and lack of financial support. The Ministry of New and Renewable Ener­gy (MNRE) applied for a Euro 800 million vi­ability gap funding in the Ministry of Finance in 2019. However, the funding is yet to get approval. In 2019, the draft Off­sh­o­re Wind Energy Lease rules were re­lea­sed by the government for public opinion. A partnership between the MNRE, NIWE and the Danish Energy Agency (DEA) was also established in 2019 for buil­­ding a database for developing an offshore wind market in the country, both with short- and long-term objectives. By 2021, studies on the levellised cost of en­ergy (LCOE) and offshore technologies were conducted under the partnership.

In April 2022, the NIWE and ORE Catapult of the UK signed a joint declaration of in­tent with the objective of establishing a five-year collaboration programme for the de­velopment of wind energy, particularly off­shore wind.  Under the project, a wind en­­ergy technology demonstration infrastructure is planned to be established in Ta­mil Nadu. Cost-effective offshore wind power areas will also be identified.

Further, leaders in the renewables sector have expressed interest in foraying into off­shore wind. In February 2022, for in­s­tan­ce, Tata Power announced that it has si­gned an MoU with RWE Renewable GmbH of Germany to explore the potential of offshore wind projects in India. The MoU is a welcome step in light of India’s rising power demands as well as the government’s target of establishing 30 GW of offshore wind projects by 2030.

In December 2021, India and Denmark entered into an agreement for cooperation between Danish and Indian companies for developing new and renewable en­­ergy technologies. The collaboration se­­e­ks to build technical capacity for offsh­ore wind projects, develop offshore wind forecasting and scheduling, and establish standards to ensure the quality of wind tur­bines and other components.

Tender trajectory

In June 2022, the Union Minister for Power and New and Renewable Energy announced at a meeting on transmission planning for offshore wind energy projects in India that bids for offshore wind energy blocks off the coasts of Tamil Nadu and Gujarat of 4 GW would be issued every year for the next three years. Following that, 5 GW of capacity will be bid out every year for the next five years, up to and including financial year 2029-30. The first bid is expected in the next three to four months.

The first 12 GW of bidding will be conducted using a single stage, two envelope model, in which bidders will be evaluated based on their technological and commercial skills, with only the technically qualified bidders moving on to the financial evaluation. The financial evaluation is based on the quoted lease fee per square km of seabed. The bidder who offers the highest lease charge per sq km of seabed area will be considered the project’s winner.

To encourage offshore wind development, all offshore wind capacity that will be bid out up to the financial year 2029-30 will receive free evacuation and transmission of power from the offshore pooling substation to onshore transmission.

Impediments

Offshore wind energy provides certain ad­vantages over onshore wind and solar po­wer. Both onshore wind and solar po­wer require large tracts of open land, whi­ch is often subject to regulatory res­tric­tions and resistance from local communities. Off­sh­ore wind does not have such limitations. Moreover, in the open wa­ters, wind turbines are relatively free from obs­tructions and are known to function more efficiently and with greater sp­eed. There­fore, wind may be better utilis­ed by an offshore wind turbine to generate greater output of power.

However, despite the initiatives taken up by the government and industry, offshore wind projects have not yet taken off in the country. There are several factors that need to be considered before the development of such projects. The price point is a crucial factor. At present, solar and onshore wind tariffs in India are relatively cheaper. The component costs are also higher for offshore projects. As per a Ma­rch 2021 report by the Lok Sabha’s 17th Standing Committee on Energy, the per megawatt cost of an offshore wind turbine is two to three times the cost of an on­shore wind turbine.

Other challenges are lack of financing, subsea cabling, grid interconnection and operation, and the development of transmission infrastructure. There is also un­certainty regarding data as offshore wind data and studies in India are largely inaccessible or insufficient at present. More­over, building manufacturing capabilities near the ports would be crucial as component sizes for offshore are much larger and may be more costly to transport acro­ss larger distances.

It is also important for the government to create certainty regarding the bidding pro­cess and provide a clear timeline to en­hance investor confidence. Finally, several potential sites for offshore wind projects may be ecologically sensitive, thereby posing a major threat to wildlife, fish and the overall ecological balance of the re­gion. As per the US Department of Energy, turbine bla­des can pose a threat to oc­ean birds and bats. Therefore, conducting thorough environmental impact assessments will be crucial to estimate the likely impact of wind plant development activities. This, however, may also be a costly undertaking.

International experience

As per the GWEC Global Offshore Wind Report 2021, a total of 35 GW of offshore wind had been installed across the world at the end of 2020, with 6.1 GW of capacity added in 2020. China led the world in new installations for the third year in a row with over 3 GW of offshore wind grid connected in 2020. However, Europe re­mains the largest offshore market, making up 70 per cent of the total global offshore wind installations in 2020. The re­port also suggests that the outlook for global deployment of offshore wind has grown tremendously, especially due to a drop in its LCOE.

The year 2022 is likely to witness tremendous breakthroughs in the offshore wind seg­ment. There is also a rising focus on floating offshore wind, especially in the Eu­ro­­pean market. France is expected to an­no­unce the results of the world’s first auction for a 250 MW floating wind farm. Spain is also developing an offshore wind road­map, with an aim to build 3 GW of floating wind by 2030. Greece has ex­pre­s­s­ed its in­tent for an auction this year. In Europe, “zero-priced” bids have been undertaken recently, wherein the project receives only the wholesale price of electricity and no additional support or payment.

The UK, which remains in the top spot globally in terms of cumulative offshore wind capacity, has taken steps such as renewable purchase obligation and introduced the Contracts for Difference (CfD) scheme, which incentivises upfront in­ve­st­ment costs for developers and protects them from volatile wholesale prices.  The com­pe­titive nature of the CfD scheme has be­en successful in deploying offshore wind in the UK. The country also launched a £20 million competitive funding scheme in 2021. In China, concession bidding be­gan in 2010, followed by the introduction of the feed-in tariff (FiT) mechanism. Sub­sidies, FiTs and auction-based projects are common to most markets. A key as­pe­ct which differentiates India from other markets is the lack of seabed rights under maritime leasing rules. This is an important reason deterring developers from in­vesting in the country. Financial support and incentives for risk sharing are also insufficient in India at present.

Outlook

With clear objectives, a comprehensive re­gulatory and financial mechanism, bankable research and industry participation, the Indian offshore market will be able to soar high. Taking lessons from experienc­ed markets and adopting bidding and lea­sing practices that have proved to be succ­essful in other markets may also drive gr­o­w­th in the sector. Creating an eq­uip­ped workforce for each part of the value chain will also be necessary. A cost-benefit ana­lysis of offshore wind projects may also be done in a holistic manner, keeping in view the potential offshoots from offshore such as green hydrogen plants.

Finally, to ensure that offshore wind truly meets the “clean energy” criteria, it is im­p­ortant to undertake its development in a sustainable manner, ensuring the balance and security of the ocean ecosystem.

By Kasvi Singh

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