Is viability gap funding enough to power India’s offshore wind dreams?

Sub: Economy

Sec: Infrastructure

Government of India’s Viability Gap Funding (VGF) Scheme for Offshore Wind Energy:

The Government of India approved a viability gap funding (VGF) scheme worth Rs 7,453 crore ($890 million) to promote offshore wind energy projects.
Rs 6,853 crore (~$820 million) is allocated for the installation and commissioning of 1 GW of offshore wind energy projects, with 500 MW each off the coasts of Gujarat and Tamil Nadu.
Rs 600 crore (~$70 million) is designated for upgrading ports Pipavav and Thoothukudi to support these projects.
The Union Ministry of New and Renewable Energy (MNRE) and the Union Ministry of Power will handle the cost and construction of power evacuation infrastructure.

About the Viability Gap Funding (VGF) for Wind Energy in India:

VGF is a financial support mechanism to ensure infrastructure projects are commercially viable, attracting private investment by reducing the gap between the project’s cost and expected returns.
The 1 GW offshore wind projects are expected to generate approximately 3.72 billion units of renewable electricity annually, reducing 2.98 million tonnes of CO2 emissions per year for 25 years.
This initiative aims to create a robust ecosystem for offshore wind energy, facilitating the development of 37 GW with an estimated investment of Rs 4,500 billion.

Implementation Mechanism of VGF:

Private developers will execute the projects through a bidding process, with the Power Grid Corporation of India Limited constructing the necessary power evacuation infrastructure.
The Ministry of New and Renewable Energy will coordinate with other ministries and departments to ensure seamless implementation, while the Ministry of Ports, Shipping and Waterways will support port development.

Anticipated Challenges:

Concerns exist about whether the VGF amount is sufficient for Independent Power Producers (IPPs) to generate and sell offshore wind power at competitive rates to state DISCOMs.
Considerations include waiving customs duty on offshore wind turbine generators, submarine cables, and foundations to address supply chain limitations in India.
The MNRE may extend the RLMM waiver for offshore wind turbines or provide higher tariff restrictions to encourage manufacturing in India.

Conclusion

The VGF scheme is a significant step towards a greener, more sustainable India, encouraging state governments to provide additional subsidies to transform coastal areas and create employment opportunities.
The success of offshore wind energy in India requires resolving power procurement risks from DISCOMs and defining environmental standards for offshore wind.
Sectoral policies need to enhance domestic manufacturing, logistics, transport, employment generation, and security in the Indian Ocean.
Strengthening the National Institute of Wind Energy’s institutional capacity, with offices in Gujarat and Tamil Nadu, is crucial for smooth project approval and development.

Source: DTE