Offshore Wind Opportunity: Exploring project costs, viability and key challenges

Offshore wind power projects are becoming increasingly important in the global wind industry, owing to the need to reduce the reliance on fossil fuels, and because these projects provide ad­vantages such as increased capacity uti­lisation factor and no land requireme­n­ts. The global offshore wind alliance, whi­ch was established by Denmark, the Glo­bal Wind Energy Council and the Inter­na­tional Renewable Energy Agency, project an in­c­rease in worldwide offshore wind capacity, from 64 GW as of December 2022 to 380 GW by 2030 and to 2,000 GW by 2050. At present, China dominates the global offshore wind market, followed by Europe.

India’s 7,500 km long coastline presents significant potential for the development of offshore wind energy. The country’s ins­talled wind power capacity has grown over the past 10 years, rising from 21 GW in August 2014 to 44 GW in August 2023, whi­ch is almost 10 per cent of the total installed capacity. Onshore wind energy plants are solely responsible for this. Ac­cor­ding to projections made by the Cen­tral Electricity Authority, the installed wind power capacity is expected to reach 100 GW by 2030 and 122 GW by 2032. Given the difficulties in obtaining onshore sites that have substantial wind production po­tential, the government anticipates that the offshore wind segment will contribute to additional wind power installations in the country, with a target of 30 GW of offshore wind capacity by 2030.

Offshore wind projects – Pros and cons

Offshore projects can reach greater plant load factors (PLFs) and provide more co­nsistent supply than onshore projects, hence helping achieve round-the-clock (RTC) supply. They also help alleviate land availability and acquisition concerns. Additionally, India’s southern and western coasts have significant offshore wind po­tential that has yet to be realised. Preli­mi­nary investigations by the National Insti­tute of Wind Energy (NIWE) have shown that India has the potential for 70 GW of offshore wind capacity.

Offshore wind energy has many advantages, yet there is also an array of challenges that must be resolved if it is to be developed successfully. Compared to on­shore wind power projects, offshore wind projects have longer development cycles and greater capital costs, which raise the levellised cost of generation. For transmission of power from these installations, lar­ge investments in the transmission infrastructure are also needed. Integrating offshore wind energy into the current power infrastructure can be a complex proposition. The power generated offshore must be transferred to onshore substations and then incorporated into the system. This can be costly and may require regulatory reforms to upgrade and extend the grid infrastructure. Moreover, long distance transmission might lead to energy losses and higher infrastructure costs. Building a strong supply chain for offshore wind eq­uipment, such as turbine parts and installation tools, can also be difficult. These bul­ky, heavy components demand complicated logistics, which call for careful pla­nning. Furthermore, compared to on­shore projects, permissions for offshore projects have more stringent requirements.

Policy landscape

Over the past 10 years, India’s offshore wind energy policy environment has seen tremendous change. The Indian govern­me­nt announced the National Offshore Wind Energy Policy in 2015 to encourage the development of offshore wind power projects in India’s exclusive economic zo­nes (EEZs). The NIWE issued recommendations for offshore wind power evaluation studies and surveys in 2018. This was followed by the notification of the draft Off­shore Wind Energy Leasing Rules in 2019. However, the final rules are yet to be notifi­ed. More recently, in November 2022, MNRE announced a draft bidding document for seabed leasing for an offshore wind project off the coast of Tamil Nadu. In the same year, the MNRE also released a strategy document with the goal of auctioning 37 GW of offshore wind projects by 2030 us­ing one of three suggested models, with Model-2 garnering a good deal of attention.

Model-1 will be adopted for offshore wind zones where the MNRE/NIWE has previously undertaken surveys and investigations. From the developers’ standpoint, this st­ra­tegy is considerably less risky, because the responsibility of identifying the location and obtaining the necessary appro­vals lies with the NIWE. Model-2 will be applicable to offshore wind zones identified by the NIWE within Indian EEZs, where stu­di­es/su­r­veys have yet to begin. the NIWE will work with several ministries to obtain ap­provals and will give instructions for conducting the offshore survey, including ev­aluation of the wind resource. The sites will be given to developers on first come, first served basis. As the developer bears the responsibility for the study and approvals, this model carries a moderate level of risk. Model-3 calls for the allocation of offshore wind farms with exclusive rights for a set amount of time for open access electricity sales via captive mode or the third-party route, all without government support for viability gap funding (VGF). The locations will be chosen throu­gh a competitive bidding process, with the leasing cost serving as the criterion for the winning bid. As the developer is solely responsible for all investigations and approvals, there is a fairly high amount of risk involved.

Viability analysis for offshore wind projects

As per ICRA research, the capital cost and tariff determined during the bidding process continue to be factors that determine how economically viable offshore wind generation projects are. These projects will have tariffs of over Rs 5.50 per unit, not considering the benefits of any VGF or generation-based incentives (GBIs), given the high current capital costs of Rs 200 million per MW or more for offshore wind power projects.

Securing power purchase agreements with discoms at rates this high might be challenging in the absence of such incentives. Given that the PLF of offshore wind power projects is anticipated to be grea­ter than that of onshore wind power projects, where PLFs have been in the range of 30-38 per cent, these calculations take a PLF of 50 per cent into account. In addition to capital costs and tariffs, the PLFs achie­v­ed have a significant impact on a project’s feasibility.

The moderation in module prices and increased module efficiencies in the case of solar, and the anticipation of greater PLFs in the case of wind, have been driving the trend of lower solar and wind bid tariffs over the years. However, these tariffs are still highly competitive compared to the marginal variable cost of generating in the bottom 25 per cent of a state distribution utilities’ merit order despatch. Furthermore, the prices found in the proposals for RTC supply from renewable energy projects continue to be fairly competitive compared to the price of generating power from conventional energy sources. However, considering a capital cost of Rs 200 million per MW and a PLF level of 50 per cent, the levellised cost of generation for an offshore wind power plant is anticipated to be significantly hig­her. Decreasing the cost of capital re­ma­i­ns vital for these projects to become more competitive.

To boost competitiveness in the short term, offshore wind projects will require VGF. The upfront VGF support needed to make these projects feasible is anticipated to be close to Rs 80 million per MW, based on the projected capital cost of Rs 200 million per MW for offshore wind generation projects.


The growing demand for renewable energy, along with the limits in developing onshore capacity, has shifted the attention to offshore wind projects. The finalisation of bidding criteria and the appointment of a nodal agency will offer developers the necessary clarity. To increase cost competitiveness in the short term, policy support through VGF/GBI remains essential. The development of a local supply chain for larger capacity offshore wind turbine generators and port facilities will also be crucial, going forward. Further, clarity regarding the roles that developers and the central transmission utility should play in the construction of transmission infrastructure will be critical.

This article is based on a presentation by Sabyasachi Majumdar, Vice-President and Sector Head – Financial Sector Ratings, ICRA, during Renewable Watch’s 11th An­n­ual Conference on “Wind Power in India”.