India's Offshore Wind Subsidy Buys One Gigawatt and a Price Signal, Not Yet a Market

On 19 June 2024 the Union Cabinet approved a viability gap funding scheme for offshore wind with a total outlay of Rs 7,453 crore. Of that, Rs 6,853 crore is meant to support the installation and commissioning of 1 GW of offshore wind, split as 500 MW off the coast of Gujarat and 500 MW off Tamil Nadu, and Rs 600 crore is a grant to upgrade two ports for the heavy logistics that offshore turbines demand.

Private developers are to be chosen through competitive bidding, while Power Grid Corporation of India will build the evacuation infrastructure, including the offshore substations. The Ministry of New and Renewable Energy is the coordinating ministry. India has talked about offshore wind since the National Offshore Wind Energy Policy of 2015 and has nothing in the water to show for it. Divide the project component by the capacity and the support works out at roughly Rs 6.85 crore per megawatt.

Press reports of the decision put the expected generation from the 1 GW at about 3.72 billion units a year. That implies a capacity factor of a little over 42 per cent, well above what most Indian onshore wind fleets deliver. In September 2023 the ministry published a revised strategy paper with an indicative auction trajectory totalling 37 GW by 2029-30. The new scheme lines up with Model A. It funds exactly the 1 GW of supported capacity in that table.

Everything else in the 37 GW plan is meant to proceed without viability gap funding. The first Model B tender, for about 4 GW of seabed across four Tamil Nadu sites, was scheduled in the strategy paper for February 2024, with leases initially running five years, a floor rent of Rs 1 lakh per square kilometre a year and a bank guarantee of USD 1 million per site. Those terms describe an option on a site, not an obligation to build.

Offshore turbines now come with blades longer than 100 metres and nacelles that weigh several hundred tonnes. Assigning offshore substations and export cables to Power Grid is sensible, because it takes a large and unfamiliar risk off the developer's balance sheet and lets a state utility with a strong credit rating borrow for it. The scheme says the subsidy is designed to make power viable for purchase by discoms. Indian distribution companies remain financially stretched, and their appetite for long-term contracts at prices above their average power purchase cost is limited. The viability gap scheme is a real step and a sensible one.