Offshore wind may not need govt financial support beyond 2030 as project cost may decline: MNRE Joint… – Moneycontrol

India will soon launch its first offshore wind energy tender and the government is hopeful that its plan to bid out 37 gigawatts (GW) equivalent of offshore wind projects by 2029-30 will attract enough players to the sector, Dinesh Jagdale, Joint Secretary, Ministry of New and Renewable Energy, told Moneycontrol.

Jagdale, who handles wind and bio energy at the ministry, said the offshore wind seabed lease tender under model 3 is expected to be floated within the next 4-6 weeks. The model 3 will entail the development of offshore projects without any viability gap funding (VGF) from the government. These projects need not sell power to power distribution companies (discoms). The tender for offshore wind projects to be awarded with VGF support from the government will follow soon in 2023-24, he said.

Despite having a coastline of 7,600 km and significant potential, India doesnt have offshore wind energy capacity. The government is trying to push capacity addition by offering tenders through different models that include seabed leasing and offering financial support. Jagdale said he expects the cost of offshore wind projects to decline by the end of the decade such that these projects will become viable even without VGF from the government. Edited excerpts of the interview:

India has offshore wind potential but no capacity to speak of. Now with the offshore wind bid timeline in place, how soon can we see the bids opening?

Over the lastone year or so, we came out with a strategy paper, then we came out with the draft bid and then there were two consultation rounds. The first bid is under model 3 where we are actually leasing out the seabed blocks on a competitive basis. Those who pay the maximum lease and score the maximum points as per the techno-commercial weightage will get the project.

This bid is basically for the people to get the C grade blocks, do the survey, do the detailed project reports, construct the project and then sell the power bilaterally, not to the discoms. They can sell through open access to consumers, industries, exchange mechanisms or any other mechanism that they feel good about. There will be no VGF. We expect to invite bids in four to six weeks; only a few final points are pending. Once we are able to tweak that and satisfy the conditions, we will be able to come out with the tender.

This project is without VGF. So what kind of electricity tariff are you expecting from such projects?

Without VGF, it will go straight to their consumers. Across Gujarat, it will be around Rs 8 per unit. If you go to Tamil Nadu, it will be around Rs 7 per unit. These projects will take probably 7 to 8 years for construction. So these projects are going to be for captive use or for selling to industrial and commercial consumers. Today, the rate for industries is around Rs 8 to 10 (per unit) and for commercial is much more than Rs 10 (per unit). Therefore, when they start selling power in open access by 2030, the cost which may be at Rs 7 (per unit) today will come down to Rs 5 (per unit). At that stage, we will not give any VGF.

What is the status of the offshore wind tender that will be awarded with VGF?

We have in-principle approval from the Ministry of Finance for VGF. Now we will go to the Cabinet for clearance for VGF. As soon as we get that, we will go ahead with the first batch of 1 GW of tender. I am expecting this to happen during this financial year 2023-24.

Offshore wind continues to be expensive. But you mentioned you will not continue with VGF support beyond a point. What is the plan?

In the UK and Denmark markets, cost reduction is happening across the offshore wind supply chain. The turbines are getting bigger, the hardware cost is reducing, the transmission is getting bigger and better leading to cost reduction. The cost was, say, Rs 25 crore per megawatt (MW), now it is around Rs 20 crore. We expect it to reach Rs 15 crore per MW. Once we get to less than Rs 15 crore per MW, with the available wind speeds that we have across Tamil Nadu, we will be able to get tariffs of around Rs 4 to 4.5 per unit, which will be self-sufficient.

But the industry feels that Rs 4 per unit tariff for offshore wind is too ambitious. Your thoughts?

If I release the bid today, it is going to take at least five years to construct the project. So the bids that I am going to support with VGF are going to take time till 2028-29 or 2029-30. By that time, my entire infrastructure supply chain is going to be ready. So the projects that are going to come after 2029-30 will not require VGF. And I say that because by the end of this decade, the volume that is going to go up across the globe is massive, and therefore the cost of turbines will come down.

The government has indicated a bid target of 37 GW for offshore wind by 2030. What would be the timeline for capacity addition?

Projects will be awarded soon. When we talk of 37 GW, that is the bidding trajectory. That is not the completion trajectory. Projects which are awarded in 2023 will probably get commissioned in 2028. Bids will be coming up in batches for the total 37 GW up to 2030.

One of the biggest challenges in adding renewable energy capacity has been the supply chain issues. We have faced this problem with solar and even thermal power. From our learnings from these sectors, how can we handle offshore wind differently to avoid these issues?

The biggest advantage India has is the existing turbine technology players are already in India. Companies like Siemens Gamesa, GE and Envision already have assembly capacities, design shops, and everything else in-house. They are technically here within India, doing business on onshore projects, they only have to expand their base. For them to change their investment to the requirements offshore is going to be much easier. And that is where we are trying to encash. They are producing a 3.6 MW turbine, now we have to produce 15 MW turbines, for which the government has given trajectory and will be giving the necessary industrial setup near the ports. The state governments are keen to join hands with companies; they have a good workforce that will support their needs. We will create the demand that is required through the bids. What else do we need for industry or for entrepreneurs to put in investments?

The industry said they will invest only when they see a strong pipeline of offshore wind projects

The first tender is coming out soon. We have given 37 GW of trajectory. What else is needed? I think no country has given a trajectory, year-wise break-up for 37 GW. It may go one or two months here and there in the initial setup because that's where every government has its own challenges. But once the first tender comes out, and if we follow this, we will be on track for the 500 GW mission for renewable energy.

NTPC and other local companies have sought a level-playing field for offshore wind projects as they believe that the current bid norms favour international companies which have experience in setting up these projects. What is the ministry doing to address this concern?

We are working on that. Experience is also important; there will be joint ventures and partnerships around that. We will ensure that there is a larger participation and there are serious participants. We have already received feedback on one or two issues. We already have a consultation paper and we are going to get into the details.

Globally, gas-based power and hydropower are used as backups to complement intermittent renewable energy. Gas and hydro projects in India are a challenge. The other way to ensure round-the-clock power is through storage battery and pump storage but we are still in the early stages of developing that. How can this be expedited?

Battery storage is going to play a critical role and pump storage too. PLI (production-linked incentives) and VGF will support them.

But have we reached a stage where we have substantial renewable energy capacity but not enough backup power? Would this lead to disruptions?

I don't think that we have come to that stage. There is some elasticity in the grid, which we'll adapt as we go forward. We are not at that stage where the grid will collapse. But we have to start now. We have scaled it (backup power) up, and we will be able to support it. But if we don't start now, then we will be in trouble, so therefore we have started working on it.

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Offshore wind may not need govt financial support beyond 2030 as project cost may decline: MNRE Joint... - Moneycontrol