Will the 2025 Union Budget Propel Offshore Wind Growth?

Key Takeaways

The Indian government aims to auction 37 GW of offshore wind capacity by 2030, but substantial financial support is required.
A recent study indicates the current funding falls short, with an annual cost gap of approximately INR 85,000 crore needed to meet 2030 goals.
Public sector involvement and innovative funding models are essential to bridge the cost gap and foster private investment in offshore wind projects.

Government Initiatives and Funding Shortfalls

The Indian government has set an ambitious goal to auction 37 GW of offshore wind capacity by 2030, recognizing the potential of offshore wind as a stable and reliable source of renewable energy (RE). To achieve this, significant financial and policy support is essential. The upcoming Union Budget for 2025 presents a crucial opportunity for the government to allocate necessary funds and address the challenges that hinder the development of this sector.

In June 2024, the government’s initial Viability Gap Funding (VGF) scheme offered INR 6,850 crore for the installation of 1 GW of offshore wind capacity off the coasts of Gujarat and Tamil Nadu. However, a recent report by the International Institute for Sustainable Development (IISD) and the Center for Study of Science, Technology, and Policy (CSTEP) revealed that this funding is inadequate. The study estimates that an additional INR 9,000 crore is needed to make offshore wind energy competitive with the round-the-clock (RTC) electricity benchmark price of INR 5.5 per kWh, given that offshore wind currently costs between INR 10-15 per kWh.

Additionally, the Gujarat government announced power purchase agreements for offshore wind at a significantly lower tariff of INR 4.5 per kWh, which could further deter developer interest by widening the existing cost gap. Progress on the 4 GW offshore wind tender for Tamil Nadu has been stalled due to the lack of VGF support and guaranteed power purchases, leaving developers exposed to high financial risks.

Addressing the Cost Gap and Funding Opportunities

To meet the 2030 auctioning goal, the IISD and CSTEP report highlights the need to bridge an annual cost gap of roughly INR 85,000 crore over the next six years. This gap defines how much costs must decrease for offshore wind to achieve parity with RTC electricity prices. While full funding by the government may not be necessary, strategic public investments can stimulate significant private sector involvement. Some experts suggest reevaluating the lofty 2030 target to allow time for technology costs to decrease, while still advocating early investments to bolster cost reduction and attract investors.

The upcoming Union Budget provides a pivotal chance for the government to establish a long-term commitment to offshore wind funding. It could also explore supplemental funding strategies, such as contributions from state governments and international climate finance. Public sector undertakings like ONGC and NTPC Green Energy Limited have begun collaborations focused on renewable energy, particularly offshore wind, leveraging their offshore operational expertise to bolster development.

Affordable financing options, including concessional loans and loan guarantees, may make offshore wind projects more appealing to private investors. Additionally, non-financial approaches, such as renewable purchase obligations and infrastructure development, are integral to enhancing the sector’s viability and supporting the supply chain.

Economic Benefits and the Case for Offshore Wind

Investing in offshore wind presents substantial advantages, including enhanced energy diversification and consistent supply, with utilization factors off Tamil Nadu exceeding 50%. The IISD and CSTEP report suggests that offshore wind could contribute INR 15.8 lakh crore to GDP, create 8.2 lakh jobs, and generate INR 4.7 lakh crore in public revenue by 2050, all while significantly reducing greenhouse gas emissions and air pollution.

With ambitious goals tethered to credible actions, the government has a unique opportunity to position offshore wind as a fundamental aspect of India’s energy transition and its net-zero objectives. The upcoming Budget can serve as a turning point, enabling strategic investments that align with the nation’s aspirations for a sustainable future.

The content above is a summary. For more details, see the source article.