THE CATCH-22 OF INDIAN OFFSHORE WIND: HOW TO BREAK IT?
India is one of the fastest growing power markets in the world. During the last decade, electricity demand in India has increased at a CAGR of 8% and is projected to increase at a rate of 6% p.a. in the next ten years. At the same time, the overall installed base has grown by 208 GW during the last ten years, while renewable energy made up one-third of new energy additions. Towards 2030, India is expected to add nearly 450 GW of which three quarters is planned to come from renewables.
India targets 30 GW offshore wind by 2030 and has a pipeline of 1.7 GW
India's first commercial discussions around offshore wind started in 2018, following the 1 GW Expression of India (EoI) issued by the government for a project in Gujarat. The EoI was followed by the announcement of aggressive offshore wind targets; 5 GW of the installed offshore wind capacity by 2022 and 30 GW by 2030.
To achieve this ambition, India has allocated nearly 67-69 GW of areas for development for offshore wind. Of the designated areas, ~1.7 GW of projects have currently been marked for initial project pipeline, and further 6 GW resource prospecting is planned. To realize the pipeline, the Indian government has conceptualized a conducive tender design that provides relaxed qualification criteria and a ‘price-only’ selection criteria. Furthermore, offshore wind projects would benefit from a long term 25-year fixed-price power purchase agreement awarded by the government and a capital subsidy planned to support the first project.
The aggressive and dedicated targets, along with a visible pipeline and a supportive market design, make India an attractive offshore wind market. Even if these targets are partially achieved by 2030, India will become one of the largest offshore wind geographies.
Despite its attractiveness, the market is in a catch-22 situation due to the pricing expectation
India's power market is highly sensitive to the pricing expectations for power procurement. Extremely competitive prices in the range of EUR 30-40/MWh from wind and solar tenders have set an expectation for offshore wind to be available within this range.
The expected price is extremely difficult for offshore wind projects, especially for the first set of projects due to lack of scale in supply chain and nascent capabilities. The competitive pricing expectation has stalled the market temporarily, and the tender continues to be delayed. India's government is unable to balance price requirements on projects and the procurement pricing expectations of power off-takers which delays initiation of activity. This creates a catch-22 situation in the market; offshore wind only becomes competitive if it is deployed on a large scale, but reaching scale requires it to be cost-competitive.
Demand opens for expensive power in the long term
In contrast to the competitive pricing expectation in the short term, a need for higher priced power is expected to emerge towards 2030. Cost-competitive wind, solar, coal, hydro and nuclear energy is currently available within the price range of EUR 30-50/MWh. However, India's power demand is expected to exceed the available low-cost power supply towards 2030.
Grid capacity limitation on cost-competitive wind and solar projects as well as increasing cost of generation from coal power plants limit the availability of low-cost supply. This means that India is expected to utilize expensive energy (65+ EUR/MWh) to meet its power demand in 2030. This requirement of expensive supply can go up to 50 GW by 2030 where offshore wind projects can become a potential supply source.
Participants must balance local and global capabilities to optimize set-ups and create scale
In order to capture part of the demand for expensive supply, participants must optimize the supply chain set-up. This means combining existing onshore wind and O&G capabilities in India with global supply chain to deliver cost-optimized projects.
The offshore wind industry is similar to the onshore and O&G industries in terms of capabilities and supply chain set-up. The presence of 37 GW installed onshore wind capacity and 203,000 km2 operational O&G blocks indicate the maturity of both industries. Players can leverage existing competencies within various parts of the supply chain to support the first set of offshore wind projects and build scale.
Synergies exist within many offshore wind supply chain areas which can be combined with global bases to optimize set-ups.
- All leading WTG OEMs have an extensive supply base in India for onshore wind, and facilities can be scaled to meet future offshore wind demand. Components of WTG, including nacelles, towers and blades, have a high degree of localization, while imports for gearbox, generators and electronics have low duties.
- Within foundations, both monopiles and jackets have been deployed in India in the past. Manufacturing capabilities are accessible in local bases for monopiles and in international bases for jackets.
- For evacuation cable supply, there are players in India with requisite design and voltage-levels. Partnerships can be created for turnkey deployment of cables between domestic and international suppliers.
- Suitable ports by virtue of location and port design are visible in India for earmarked development areas. Although investments are needed to ready ports for deployment, greenfield construction is not required.
- Since an international fleet can operate in India without restrictions, the supply of vessels for siting, development, construction and O&M is not expected to be a challenge for offshore wind projects.
The local supply chain, lack of restrictions on the import of equipment/infrastructure and low import duties make it possible for players to leverage global manufacturing bases and assets. The illustration below summarizes the existing capabilities and investment needed across India's offshore wind supply chain.
Want to know more?
QVARTZ & MEC have published a detailed report (“Breaking the catch-22 in the Indian offshore wind sector”) which explores the case for sustainable growth in the pipeline for offshore wind projects. The report also discusses the most poignant challenges and complexities that the nascent Indian offshore wind sector faces. More specifically, it includes discussion and analysis of the following topics:
- The change of energy mix and merit-order of supply towards 2030.
- The current status of the pipeline for offshore wind projects and planned activities.
- A comparison of the Indian offshore tender design with global counterparts; i.e. the relative attractiveness of tender design.
- Regulatory bottlenecks and the expected approval process.
- Deep dive on the supply chain, including WTG, foundation, cables, ports and vessels with an analysis of requirement, existing capabilities and relevant players.
- The importance of partnerships, including a potential list of offshore wind partnership prospects.
It is our hope that the report can help industry players resolve dilemmas around entering into an attractive, yet nascent offshore market in India.