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Financing Likely to be a Challenge under Newly Approved Offshore Wind Policy : Ind-Ra

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Projects to be rolled out under the newly approved offshore wind policy are likely to face challenges in achieving financial closure unless backed by the public sector, says India Ratings and Research (Ind-Ra). The policy guidelines have proposed offshore wind generation capacities through public private partnerships. Ind-Ra believes a rollout through the engineering, procurement, construction (EPC) route in the initial phase will be a viable option to attract private participation, given the inherent complexities of these projects and the uncertainties around an unexplored area of offshore wind generation. Private sector participation as developers would be restricted to sponsors with strong balance sheets wherein financing may be with recourse. 

Ind-Ra believes that the policy, if implemented well, will provide an impetus to the falling wind capacity additions as offshore wind generation involves limited use of land, and lack of land has been a major impediment to its growth. The policy could also help the country achieve the national installed wind capacity target of 60GW by 2022.

Offshore wind projects could be attractive propositions from a return perspective (18%), given the risk return profile. However, these are contingent on timely executions which in Ind-Ra’s opinion could face challenges in the initial phase. While globally offshore wind power generation has been in existence across Europe and China, the total capacity set up till date is only 11GW. Given the limited experience, the sector may witness entry of international players with technical expertise to bid individually or in collaboration with Indian EPC players to gain an early mover advantage.

Offshore wind projects typically operate at higher capacity utilisations of 45%-50% than 18%-25% for onshore projects. However, capital costs for the former are 1.5x-2x of the onshore ones. The large scale size of these projects (50-1,000MW and above) and the long gestation period of seven to eight years may generate keen interest, in private sector developers, but the ability to raise finances could act as an impediment. Ind-Ra therefore believes that private participation in the initial phase of offshore wind generation will only be restricted to EPC services, and capacity additions by and large would come from public funding from state and central utilities. State-run oil & gas and port players already having rights over coastal fields may express interest in a move to build captive plants, should their field be identified as potential wind sites.

With at least 10 ministries involved in the clearing process, a high degree of coordination among them would be necessitated to ensure the timely execution of these projects. A favorable regulatory framework designed specifically for the development of offshore wind projects is crucial for the success of the programme. With the high capital cost and technical complexities involved in the generation, private investment will flow only if a strong regulatory framework is laid down with the sole objective of fast track clearance of projects.

Business | News published on 08 / 10 / 2015 by Rashmi Nargundkar

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