India currently does not have any commercial offshore windfarms, but with a long coastline, the country has the potential to develop 1 gigawatt of offshore wind capacity, especially in states such as Tamil Nadu, Gujarat, Kerala, Karnataka and Goa.
Although the long-term prospects for offshore wind power are promising, the sector faces many challenges, particularly in terms of technology risk, evacuation risks (i.e. getting the power to a grid for distribution), impact on the local environment, lack of skilled personnel, shortage of appropriate auxiliary services (such as crane vessels), competition with other marine users, and multiplicity of clearances and approvals required from various government agencies. Therefore, if India wants to attract private investment to develop offshore wind power projects, it needs to put in place a robust policy framework that guarantees investor confidence.
This article analyses India’s draft offshore wind energy policy to see if the framework proposed under the draft policy addresses the key issues that investors and project developers assess while considering an investment.
In order to develop India’s offshore wind sector, the Ministry of New and Renewable Energy (MNRE) has recently come out with a draft policy for the development of offshore wind energy. The draft policy aims to set up offshore wind projects in Indian territorial waters (i.e. up to 12 nautical miles from the coast) through private participation.
Under the draft policy, the MNRE would set up the National Offshore Wind Energy Authority (NOWA) to carry out initial wind resource assessment, allocate offshore blocks (through international competitive bidding), execute lease deeds with project developers, and assist the project developers with obtaining clearances for offshore wind projects. The draft policy also proposes to establish an Offshore Wind Energy Steering Committee to oversee the overall development of the offshore wind energy industry in India.
The draft policy further provides for fiscal incentives and concessions such as tax holiday for the first 10 years of offshore wind power generation and customs duty and excise duty exemption for procurement of technology and equipment. Service tax is proposed to be waived for services by third party consultants for the projects (such as conducting resource assessment, environmental impact assessment and oceanographic studies) and for the use of survey and installation vessels.
The power from the offshore wind projects set up under the draft policy would be sold to state distribution companies (or agencies nominated by the relevant state governments) at a regulated tariff to be fixed by the Central Electricity Regulatory Commission or the relevant state regulatory commission (as the case may be). Project developers would be required to construct the offshore evacuation infrastructure and the off-taker or designated state agency would provide the required onshore facilities for evacuating power from the offshore wind power projects.
Are the risks addressed?
In respect to addressing the key risk factors affecting development of offshore wind power projects, the draft policy has scope for improvement. While it aims to create a single window clearance for setting up an offshore wind power project (through the NOWA, which has a coordination role), the project developers are ultimately responsible for obtaining the required consents. Therefore in practice, the developers will end up visiting “multiple windows” for obtaining various clearances for their projects.
Further, the draft policy does not fully address issues related to creating reliable transmission and power evacuation infrastructure (both offshore and onshore). For project developers, having to bear sole responsibility to develop offshore transmission facilities may prove to be a disincentive. The MNRE should consider setting up separate offshore grid operators responsible for development and operations of offshore grids which feed in the electricity from multiple offshore wind projects to the onshore transmission system. This system is already used by Germany.
The high cost associated with development of offshore wind farms is a material concern, and although the draft policy envisages fiscal incentives (such as tax holidays and concession on payment of duties), these alone may not be sufficient incentives for investment in offshore wind power projects.
To provide fiscal incentives which help the bottom line and improve returns for the investors, the government should consider requiring the state electricity regulatory commissions to fix a minimum percentage of energy which distribution licensees must purchase from offshore wind projects until such time as offshore wind power achieves parity with onshore wind power.
Therefore, while the draft policy is a step in the right direction to tap the vast offshore wind potential, as to providing a simple and holistic policy framework governing the offshore power sector, there is certainly scope for improvement.
Avirup Nag is a counsel at Trilegal and Kaif Ahmed Siddiqui is an associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.
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