Institute for Energy Economics and Financial Analysis (IEEFA)
Tamil Nadu and Gujarat have been identified as the two key coastal markets with the best offshore wind resources. A prerequisite for offshore wind is the need to build a whole new supply chain and infrastructure system.
Offshore wind costs are plummeting in Europe and this new technology is extremelypromising, albeit roughly a decade behind the development curves of solar and onshorewind.
IEEFA expects offshore wind to emerge as a cost-competitive source of electricity generationsystem diversification for Tamil Nadu by 2025. Providing grid diversification is a key advantageof offshore wind, as are its absence of land requirements and its proximity to heavilypopulated coastal cities, particularly in Tamil Nadu given its prohibitive distance from India’sthermal coal deposits.
Northern Europe accounts for 90% of global offshore wind developments to date, but withTaiwan, South Korea, China, Japan and the U.S. all investing now in the next phase ofgrowth, further technology and scale advantages are expected to combine with significant“learning by doing” effects to drive cost deflation, a trend that will be assisted by utilization rates of more than 50%, double Indian onshore wind rates.
In the first half of 2017, China completed 2,066 MW of offshore wind projects, on track to meet
its target of 10 GW of offshore wind under construction by 2020.IEEFA expects India’s 3,100 km coastline will provide significant opportunity for furtherdomestic electricity generation diversification as this technology becomes more costcompetitive, and the long coastline of Tamil Nadu has some ideal sites. While trialdeployments are being studied, commercial scale remains some time off.
While it is uncertain as to when Indian deployments might begin, costs continue to fall muchfaster than markets forecast. In September 2017, the U.K. government awarded threeoffshore wind projects totalling 3.2 GW through contracts for difference (CfD) with strikeprices going as low as £57.50/MWh for projects scheduled for commissioning in 2022/23.
Following approval by the Union cabinet in October 2015, development planning for India’soffshore wind industry has been coordinated by the FOWIND consortium, a collaboration andknowledge-sharing initiative with the EU, led by the Global Wind Energy Council. AnOctober 2017 report provided a grid integration study for offshore wind farm development inTamil Nadu and Gujarat, with a target of connecting 500 MW in each by 2025.
In Tamil Nadu state electricity model, IEEFA assumes “just” 1 GW (US$3-4bn) of investment in offshore wind will be successfully commissioned by 2026/27, providing learning by doing to facilitate a tenfold expansion in offshore wind across India in the following decade likely to cost half the price of the first 1 GW.
India Power Minister R.K. Singh surprised the market in December 2017 with the announced intention to tender for 5 GW of offshore wind as early as 2018. This statement was in the context of accelerating deployments of renewable energy to raise India’s zero-emissions generation capacity target of 175 GW by 2022 to in-excess of 200 GW.
While this clear and ambitious policy signal deserves applause, IEEFA would caution against undue haste in the implementation timetable. Clearly Tamil Nadu and Gujarat have been identified as the two key coastal markets with the best offshore wind resources. The very low price of onshore wind and solar are an immediately cost competitive alternative. Secondly, a prerequisite for offshore wind is the need to build a whole new supply chain and infrastructure system. Calling for a tender in 2018 with a 6-8 year progressive delivery timeframe (backed by cash deposits by winning proponents to ensure delivery) would provide the long-term security to achieve aggressive international bidding interest (particularly if a US$ financial hedge of the tariff can be facilitated). This should provide the necessary incentives to kick-start a major new industry in Tamil Nadu, one with excellent long-term growth opportunities.
Graph – European Offshore Wind Pricing Trends
Source:“A Case Study of Tamil Nadu Electricity Sector Transformation in India.” Tim Buckley, Director of Energy Finance Studies, Kashish Shah, Research Associate, Institute for Energy Economics and Financial Analysis (IEEFA)
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