On 19 June 2024 the Union Cabinet approved a viability gap funding scheme for offshore wind with a total outlay of Rs 7,453 crore. Of that, Rs 6,853 crore is meant to support the installation and commissioning of 1 GW of offshore wind, split as 500 MW off the coast of Gujarat and 500 MW off Tamil Nadu, and Rs 600 crore is a grant to upgrade two ports for the heavy logistics that offshore turbines demand. Private developers are to be chosen through competitive bidding, while Power Grid Corporation of India will build the evacuation infrastructure, including the offshore substations. The Ministry of New and Renewable Energy is the coordinating ministry.
The headline is easy to celebrate. India has talked about offshore wind since the National Offshore Wind Energy Policy of 2015 and has nothing in the water to show for it. A cash commitment from the Cabinet is a change in kind from strategy papers and site maps. Our view, however, is that the scheme should be read narrowly. It is a demonstration subsidy that buys one gigawatt and, more usefully, a discovered price. It does not by itself create the supply chain, the port capacity or the procurement pipeline that a real market needs, and the government's own auction trajectory implies a scale of support that this scheme does not come close to funding.
What the money actually buys
Divide the project component by the capacity and the support works out at roughly Rs 6.85 crore per megawatt. That is a large grant. It is not far from what an entire onshore wind farm has cost to build in India in recent years, and more than a utility solar plant, which tells you how wide the gap is between offshore costs and what distribution companies are willing to pay. The stated purpose of the funding is to reduce the cost of power from offshore projects so that it becomes viable for purchase by discoms. In other words, the Centre is not betting that offshore wind is competitive. It is paying to make it look competitive for a first tranche.
Press reports of the decision put the expected generation from the 1 GW at about 3.72 billion units a year. That implies a capacity factor of a little over 42 per cent, well above what most Indian onshore wind fleets deliver. This is the core economic argument for offshore wind in India: steadier and stronger winds, particularly in the Gulf of Mannar off Tamil Nadu, and a generation profile that can complement solar in the evening and during the monsoon. A unit of offshore power is worth more to a grid that is filling its afternoons with solar than a unit of midday energy. The question is whether it is worth enough more to cover a cost that, before subsidy, is likely to sit at several times recent solar and onshore wind auction results.
The trajectory the scheme does not fund
In September 2023 the ministry published a revised strategy paper with an indicative auction trajectory totalling 37 GW by 2029-30. It set out three development models. Model A covers sites already studied by the National Institute of Wind Energy, with central support, and was to contribute 0.5 GW in 2023-24 and 0.5 GW in 2024-25. Model B allows developers to bid for seabed leases on identified sites, survey them and sell power without central financial support, accounting for 14 GW. Model C, with developers identifying their own sites, makes up the remaining 22 GW from 2025-26 onwards.
The new scheme lines up with Model A. It funds exactly the 1 GW of supported capacity in that table. Everything else in the 37 GW plan is meant to proceed without viability gap funding. That is where our scepticism lies. If the first gigawatt needs almost Rs 7 crore per megawatt of grant support to reach a tariff discoms will sign, it is hard to see how the next 36 GW clears without either a steep fall in costs, a willingness among buyers to pay a premium, or more public money. The strategy paper's seabed lease model assumes developers will take on survey risk, development risk and price risk on unsupported sites. Some will bid for leases because a lease is a cheap option. Fewer will build.
The first Model B tender, for about 4 GW of seabed across four Tamil Nadu sites, was scheduled in the strategy paper for February 2024, with leases initially running five years, a floor rent of Rs 1 lakh per square kilometre a year and a bank guarantee of USD 1 million per site. Those terms describe an option on a site, not an obligation to build. The test of the policy is not how many square kilometres are leased but how many turbines are commissioned within those five years.
Ports and transmission are the real bottlenecks
The Rs 600 crore port component is small but revealing. Offshore turbines now come with blades longer than 100 metres and nacelles that weigh several hundred tonnes. Installation needs quayside space with high load-bearing capacity, deep water, laydown yards and access for specialised jack-up vessels. India has none of this configured for offshore wind. Two upgraded ports will help a 1 GW programme. A 37 GW programme would need far more, and also a domestic or reliably contracted fleet of installation vessels, which are in short supply globally as Europe, the United States and East Asia compete for them.
Transmission is the other piece. Assigning offshore substations and export cables to Power Grid is sensible, because it takes a large and unfamiliar risk off the developer's balance sheet and lets a state utility with a strong credit rating borrow for it. It also means the transmission cost is socialised rather than reflected in the bid tariff. That makes the auction result look cheaper than the true system cost, and anyone using the discovered tariff to argue that offshore wind has become affordable should add the grid cost back in.
Who should buy the power
The scheme says the subsidy is designed to make power viable for purchase by discoms. Indian distribution companies remain financially stretched, and their appetite for long-term contracts at prices above their average power purchase cost is limited. Tamil Nadu and Gujarat, the two host states, both have large renewable fleets already, and Tamil Nadu in particular has struggled at times with wind curtailment and payment delays. A better match may be central procurement with the power pooled and sold on, or contracts with large industrial buyers who value steady clean supply and are willing to pay for it as export markets begin to price embedded carbon.
That leads to our recommendation. The government should treat the 1 GW as a learning programme and publish what it learns. That means disclosing bid tariffs, the cost of the transmission assets, the port costs and the realised capacity factors, so that the next tranche can be designed on Indian data rather than European analogues. It should also decide quickly whether Model B and Model C sites will get any form of revenue support, such as contracts for difference, because developers will not invest serious money in surveys until they know how they will be paid.
Our assessment
The viability gap scheme is a real step and a sensible one. India's long coastline and the strong winds off Tamil Nadu and Gujarat are an asset, and a grid that is adding solar at pace will need generation that peaks at other times of day. But the scheme funds a pilot, not an industry. On current numbers, the 37 GW auction trajectory is an aspiration, and the gap between that aspiration and the support on offer is the most important thing to watch. If the first tenders produce credible bids and the projects are built on time, the case for a second, larger round of support will be strong. If the bids are thin or the projects slip, India should be candid that its money is better spent, for now, on storage and transmission that make its cheaper solar and onshore wind more useful.