The India-UK Offshore Wind Taskforce presents a strategic opportunity to strengthen supply chains, financing, auction markets, and transmission infrastructure for India's emerging offshore wind sector.
India's power demand recently hit a record 260 GW and will only rise in the coming months, as the country witnesses one of its hottest summers on record. Amidst this, energy security pressures spurred by the West Asia crisis have renewed calls to accelerate the deployment of renewables (RE) in the country to build resilience against energy shocks. In this regard, the recent India-UK Offshore Wind Taskforce ('the Taskforce'), constituted as part of the Fourth UK-India Energy Dialogue, assumes significance as a major international collaboration to expand domestic installed renewable capacity.
India has set a goal of establishing 30 GW of offshore wind (OFW) capacity by 2030. Seabed blocks with a potential of 70 GW have been identified off the coasts of Gujarat and Tamil Nadu for project development. However, the first tenders for these two blocks, worth 4.5 GW, were cancelled due to insufficient bids. The government nonetheless plans to relaunch these auctions this year to provide stable power for coastal industrial and green hydrogen projects. In this regard, the United Kingdom — the world's second largest OFW developer — shall provide expertise across various stages of project development.
Seabed blocks with a potential of 70 GW have been identified off the coasts of Gujarat and Tamil Nadu for project development. However, the first tenders for these two blocks, worth 4.5 GW, were cancelled due to insufficient bids.
With data centres, green hydrogen, manufacturing, and their consequent stable power demand gaining momentum in India's coastal states, augmenting offshore wind capacity is time-sensitive. Yet India remains far from meeting its 2030 target. This article analyses the gaps in India's OFW market through two sub-national case studies and offers recommendations on how the Taskforce can be leveraged to address these challenges.
Transmission networks ('evacuation projects' for green energy) are the proverbial horse that must be put before the cart of power generation projects. Ensuring grid connectivity before commencing generation is indispensable for power offtake and project viability. For OFW, building this network is more expensive than land-based networks, as installations are built on the seabed and also require onshore systems for connecting to the grid. Currently, India has only built 8,830ckm of transmission lines against a target of 15,253ckm.
European nations, as leaders in OFW energy, have adopted various strategies for building offshore substations. While Denmark, Germany, and the Netherlands have tasked their state-owned transmission operators, the UK has issued licences to private players to become offshore transmission owners (OFTOs). India, however, lacks a similarly coherent strategy, as evidenced by the cancelled tenders. On one hand, the Gujarat OFW project tender offered a grid-connected seabed lease under which public transmission utility POWERGRID would build the offshore substation, while on the other hand, the Tamil Nadu OFW tender did not specify whether this responsibility would fall on the government or a private transmission service provider. POWERGRID is yet to commence building the offshore substation.
Tasking POWERGRID with building offshore transmission is not a reliable strategy — it is already struggling to build onshore evacuation infrastructure and has no experience with offshore systems.
Tasking POWERGRID with building offshore transmission is not a reliable strategy — it is already struggling to build onshore evacuation infrastructure and has no experience with offshore systems. Yet it remains, in practical terms, the only utility with a capital base broad enough to invest. A viable approach, therefore, would be for the Taskforce to facilitate joint ventures between POWERGRID and UK-based OFTOs to build and manage offshore substations. The OFTOs would bring their operational expertise, while POWERGRID could focus on connecting offshore stations to onshore grids. This should be dovetailed with operationalising planning for offshore systems under the Green Energy Corridor Programme.
The 500 MW grid-connected OFW project off the coast of Gujarat in 2024 was cancelled at a time when the global OFW market was dampening investor interest due to rising project costs. Inflationary pressures and materials supply bottlenecks have pushed up the levelised cost of electricity (LCOE) — the average cost of generating electricity — even in major markets such as the US and UK.
This trend has been observed in India too, where the LCOE for offshore wind has climbed to ₹7/kWh. The Gujarat project offered a pre-determined tariff of ₹4.5/kWh under a long-term Power Purchase Agreement (PPA) with the Solar Energy Corporation of India. Although developers were eligible to avail of Viability Gap Funding (VGF), this would have brought the LCOE down only to ₹5/kWh. This potential revenue shortfall proved to be a major impediment to project viability.
It is imperative that volatile developer costs are accounted for when setting tariffs. Fixed tariffs under PPAs are not the best option for nascent OFW projects, given the limited scope for tariff discovery. Drawing on the UK's experience, the Taskforce should design a Contract for Difference mechanism for the Indian utilities market, wherein a 'strike price' is fixed between the government and the developer. If the market price drops below this price, the government pays the difference; if it exceeds the strike price, the developer reimburses the excess. This assures developers of a stable revenue floor, improving project viability.
OFW projects typically incur high upfront capital costs as they are built on seabeds. Furthermore, utility-scale projects generally rely on debt financing for project development. Hence, these costs have become a function of interest rates, which have risen owing to the geopolitical instability of recent years. The consequent supply shocks have pushed capital expenditure upwards, contributing to a worldwide surge in LCOE and causing many projects to default or be cancelled.
In 2024, the Ministry of New and Renewable Energy (MNRE) launched a VGF scheme with an outlay of ₹7,453 crores to fund commissioned projects of up to 1 GW. However, according to MNRE’s Strategy Paper for Establishment of Offshore Wind Energy Projects, eligibility is restricted to projects where surveys and studies are conducted by a government entity. Therefore, VGF was only available for the Gujarat project and not the Tamil Nadu project, where developers were required to undertake studies and surveys themselves. No new VGF scheme has been announced since the tenders were cancelled.
The India-UK Vision 2035 and the Comprehensive Trade and Economic Agreement signed last year have created a strong framework for a strategic climate partnership — one of growing importance to India's RE sector.
Volatility in the cost of capital warrants a look at financing options beyond VGF. The UK- and Brazil-led Global Clean Power Alliance can be tapped for unlocking private capital and first-loss capital to aid in de-risking projects. Blended finance led by British International Investment — a development finance institution tasked with delivering UK ODA — can also be accessed through the Taskforce for project-level financing and for funding offshore pooling and transmission systems. As a first step towards easing financing conditions, India should extend the Accelerated Depreciation Scheme — which allows developers to write off asset depreciation at a faster rate during the initial stages of a project — to OFW projects.
Materialising an ecosystem using the strategies discussed hitherto will require, as a prerequisite, securing the supply chain for OFW components, which are larger, costlier, and more sophisticated than onshore wind energy infrastructure. This would require facilitating their imports, rationalising local content requirements, and upgrading port infrastructure to provide logistical support for construction. In this regard, a mature market like the UK is a natural partner for India for supply chain development. The India-UK Vision 2035 and the Comprehensive Trade and Economic Agreement signed last year have created a strong framework for a strategic climate partnership — one of growing importance to India's RE sector. Whether the Taskforce can embody this synergy, however, remains to be seen.
Aadya Chaturvedi is a Research Assistant with the Centre for Economy and Growth at the Observer Research Foundation.
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Aadya Chaturvedi is a Research Assistant with ORF’s Center for Economy and Growth. Her work focuses on Energy and Climate Change, specifically on critical minerals, renewables, ...
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