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ADDRESSING KEY QUESTIONS ON INDIAN OFFSHORE WIND

On 11th June, MEC+ launched a report teaser on “Breaking the Catch-22 in Indian Offshore Wind” along with a briefing video with our MD, Mr. Sidharth Jain. In our previous session, we talked about why India should bother about OW at all and what are the opportunities and challenges for the various stakeholders in this sector today. Following this session, we have received several queries from the key stakeholders around the Offshore Wind industry which we would like to address here.

Key remarks from Mr. Sidharth Jain on the following questions were::

What do you think needs to come first, is it the policy or the pipeline?

It must be a policy. Focus on policy is required from the government to give confidence to the developers to be able to put money on the ground and to start building the supply chain. The government should bring the two-fold policy-

  • Long visibility through a development roadmap to achieve the target
  • Providing regulatory clarity to the stakeholders

The roadmap is required for the development of the supply chain & the projects which in turn will help to meet the targets set by the government. On the regulatory part, the government needs to focus on bringing clarity around the approvals. There are currently 20+ agencies planned to be included in the approval process where the timeline of turnaround is not very clearly defined. Delay in securing approvals can inhibit the timeline which can escalate the costs. Therefore, a milestone-driven plan, as well as a single-window time-bound clearance process, is required to manage the timelines and to predict the costs of the project.

Is Offshore Wind going to happen any time soon and when it is expected to take off? Should Indian developers who are focussed on onshore wind and solar take it seriously?

Offshore Wind is a nascent industry and is less mature than the other technologies. So, it is unfair to compare Offshore Wind with Onshore Wind and Solar which are already in the sales mode. Investors and developers need to approach Offshore Wind with a different mindset. They should think about the following questions-How can they develop the project? How can they identify the customers? How can they give the proof of concept and clarify the cost decline that is possible in the industry which has been seen in Europe?
Pursuing Offshore Wind in India does make sense for the developers due to the enormous potential, long coastline, and presence of huge demand which will not be met by onshore wind and solar in the future due to grid challenges. Post-2030, India will have an option to fire polluting coal or look towards greener alternates like Offshore wind to meet increasing demand. If the industry can commit to a cost trajectory to match OW at coal costs, then OW uptake would be inevitable in India.

European supply chain players, who have been a part of an entire European OW journey, want to understand the status of the supply chain in India. Is there any synergy or leveraging that can be done by the Offshore Wind developers who come to India?

The supply chain in India for Offshore wind is not yet developed because it is not a mature industry right now but the supply chain for the Onshore wind industry is fairly developed. Around 10 GW of the local WTG manufacturing is already set up in India, which can be upgraded to develop Offshore Wind capabilities. New facilities will still be required to be built near the port areas where there is going to be an installation of Offshore Wind so that there is no road-related bottleneck. Competencies are present in the market within turbine technology and supply chain which need to be upgraded and leveraged.
The second part crucial for offshore wind is marine engineering and offshore supply chain, which is largely missing in India. However, developers can bring the global supply chain in India and can leverage the capabilities and competencies within their global supply bases. There are limited restrictions in importing components as well as using the global vessel fleet in India for OW deployment.
On the other hand, the major concern is around the port infrastructure, which is missing for OW manufacturing and O&M purposes. New ports would need to be developed for increasing the scale of Offshore Wind in India, which is quite capital intensive. Port infrastructure is a definite area of concern.

One of the major concerns for developers is around the creditworthiness of off-takers in India. Is there any proposition where developers can sell directly to C&I consumers? Are there any other alternate revenue streams that can be targeted?

Commercial and Industrial segment (C&I) contributes nearly 50% of the total electricity demand in India and is expected to grow significantly over the next 10 years. Therefore, demand is not a problem, secondly, the prices at which companies procure their power are also attractive which can make a good business case for direct sales of power to C&I in India. But there are many charges and regulatory bottlenecks that have made it difficult for developers to be able to supply directly to C&I consumers (See MEC+ webinar of challenges of corporate procurement in India). Without the initial government support, it would not be prudent to bank on the C&I market. For the first set of projects, where risks and uncertainties are high, it would be wiser to go towards government-backed tenders because of the inherent security in terms of the commitment which has been made by off-takers to honor the PPA and offer 25-year revenue certainty. Also, it would be much easier to raise finance on the back of a 25-year central government backed PPA, rather than a 10-15-year corporate PPA.

Who is responsible for financing and are there any tie-ups done so far?

Some green shoots in India regarding financing new and upcoming renewable energy technologies are emerging, and their support is expected in the development of Offshore Wind as well. There was also an announcement made by an agenda bank who would be willing to finance a 100 MW demo OW project.
Local financial markets, on the other hand, are under stress due to COVID. But if developers tap International players who have access to capital from global markets, then financing will not be an issue. Some interest is visible from large national thermal & O&G companies as well, such as ONGC and NTPC have expressed their interest in partnering with large international companies to explore this OW sector. This would give them access to both the local resources as well as the ability to tap the global financial markets. A coming together of large Indian Companies and large International companies is a good signal for the market.

Is there any alternate path of development of Offshore Wind in India other than the path proposed by the government?

Currently, the project proposed by the government was for 1 GW project in Gujarat, primarily because Gujarat DISCOM had given in-principle approval to procure power at a fixed rate. If the 1 GW Gujarat OW project does not come across, these can be the following mechanisms which can be adopted by the government to kick-off the industry:

  • The government can shift the first project from Gujarat (GJ) to Tamil Nadu (TN) as TN has better resource condition and the price discovered would be lower as compared to GJ. Also, the International supply chain could be leveraged in TN which can lead to scaling up the industry.
  • Apart from shifting the project from GJ to TN, the government can take action to reduce the size of the project to match the capital available as a subsidy from the Government of India.
  • The government can also move the project from a pure-Offshore location to some inter-tidal or near-shore location where demonstration projects can be set up to gain experience and kick-off the industry. This will eventually scale-up the OW industry.

MEC+ with WindInsider is conducting a masterclass focussed in offshore wind, where government and industry will share a common platform to understand- what is needed to kick-off this nascent yet attractive opportunity in India. Register for our upcoming Offshore Wind Webinar here.