Budget 2024:Govt to provide viability gap funding for 1GW offshore wind capacity

In a boost to development of offshore wind power capacity, Union finance minister Nirmala Sitharaman on Thursday said the government would provide viability gap funding (VGF) for initial capacity of 1 GW of offshore wind power.

Presenting the interim budget for FY25, Sitharaman said: “Viability gap funding will be provided for harnessing offshore wind energy potential for initial capacity of 1 gigawatt.”

On 17 January, Mint had reported that the interim budget may announce VGF support for offshore wind.

The proposed scheme aligns with the government's broader strategy for offshore wind projects, to be developed under three models.

VGF is expected to be provided to two sites off the coasts of Gujarat and Tamil Nadu. The other models propose bidding processes for site exclusivity during survey periods, with or without guaranteed seabed rights.

The renewed focus on this capital-intensive segment comes as India pursues ambitious renewable energy goals, including a net-zero target by 2070 and 500 GW installed capacity by 2030.

As part of this, the government aims to establish 10 GW of offshore wind capacity by 2030. Currently, India's onshore wind energy capacity stands at an estimated 44 GW.

Arindam Ghosh, partner for power advisory at Nangia Andersen LLP, welcomed the FM’s announcement, but added: “However, there is need to streamline key agreements and processes such as seabed leasing arrangement, and methodology for selection of offshore locations on a techno economic feasibility evaluation.”

Offshore wind offers higher quality wind and more efficient energy conversion due to the absence of obstructions at sea.

However, it is way more capital intensive than onshore wind projects and, therefore, central government support is necessary.

Given that offshore wind farms need to be set up on the seabed, the technology and infrastructure involved is more complex, and such projects require higher gestation periods.

Given the capital-intensive nature of these projects, the ministry of new and renewable energy’s (MNRE's) revised strategy paper last September had highlighted the need for central financial support to bridge the gap between actual tariffs and designated power purchase rates.

This is particularly crucial given the high costs of setting up turbines on the seabed and the associated power evacuation expenses.

Earlier, the Centre had notified the ‘National Offshore Wind Energy Policy’ in October 2015, but projects under this failed to take off given the high investments and lack of economic viability.

In 2022, MNRE had informed a parliamentary committee that the per megawatt cost of offshore wind projects could range from ₹20 crore to ₹25 crore, varying based on technology, marine conditions, and distance from the shore.

Acknowledging the financial challenges, the committee had recommended VGF to ensure project viability and the necessary transmission infrastructure.

It had added that the potential for offshore wind projects should also be explored in coastal areas other than Gujarat and Tamil Nadu along India’s 7,600-km long coastline.