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On 19th June 2024, the Union Cabinet, chaired by Prime Minister Shri Narendra Modi, approved the Viability Gap Funding (VGF) scheme for offshore wind energy projects at a total outlay of Rs.7453 crore, including an outlay of Rs.6853 crore for installation and commissioning of 1 GW of offshore wind energy projects (500 MW each off the coast of Gujarat and Tamil Nadu), and grant of Rs.600 crore for upgradation of two ports to meet logistics requirements for offshore wind energy projects.
India's new offshore wind push, the VGF scheme, is seen as a boon for renewable energy companies and the economy overall.
Impact of VGF Scheme on Companies
Increased Investment: The government funding will create opportunities for companies involved in offshore wind energy development, including turbine manufacturers, construction firms, and engineering companies.
Job Creation: The construction and operation of offshore wind farms will create new jobs in manufacturing, engineering, construction, and operations.
Development of Domestic Industry: The focus on upgrading ports and developing domestic manufacturing capabilities will create opportunities for Indian companies to participate in the supply chain.
Impact on Stocks
It's important to note that predicting the stock market is complex and depends on many factors. However, the announcement of this scheme could positively impact the stocks of companies involved in the offshore wind energy sector. Investors may be more likely to invest in well-positioned companies to benefit from this new initiative.
Despite a lack of detail on how the initial target of 1 gigawatt capacity will be funded, wind turbine maker Suzlon Energy Ltd. jumped as much as 5.1% in Mumbai on June 20th, 2024, the biggest intraday gain in almost three months, which indicates the same.
Additional Impacts
Increased Offshore Wind Capacity: The VGF scheme will financially support the installation of 1 GW of offshore wind energy projects, significantly boosting India's overall renewable energy capacity.
Boosts Clean Energy Production: Offshore wind farms generate electricity with minimal greenhouse gas emissions, helping India achieve its clean energy goals.
Technological Advancements: The growth of the offshore wind industry can encourage further research and development in this field, leading to more efficient and cost-effective technologies.
However, companies that can position themselves well within the offshore wind supply chain will likely see benefits. This could include those with expertise majorly in:
Wind turbine manufacturing
Marine Construction
Port operations
Engineering
The impact of VGF at 0%, 10%, 20% and 30% on water generation, electricity generation, IRR, NPV and payback are found. It is found that as the VGF increases, there is a bettergeneration cost for electricity and water, with an improved IRR. However, with the VGF trend and corresponding reduction in electricity and water production costs, it will be ideal to have the VGF close to 15% to keep the electricity sale price at approximately INR 8.5 kWh−1 and water pricing at INR 46 m−3.
Environmental and Economic Implications
1 GW projects will generate 3.72 billion units annually, reducing CO2 emissions by 2.98 million tons annually for 25 years.
Expected to kickstart India’s offshore wind sector, supporting initial development of 37 GW capacity with an investment of Rs. 4,50,000 crores.
Creates an ecosystem for ocean-based economic activities, contributing to India’s energy transition goals.
India's Prime Minister Narendra Modi is targeting 30GW of offshore wind by 2030.
Funds for the upgrade of two ports that will play a role in the projects are included in the VGF. Under the scheme, two ports in the country will be supported by the Ministry of Ports, Shipping and Waterways to enable them to meet the requirements of offshore wind development.
The above graph depicts the real (adjusted for inflation) total amount of money the Indian government provided as subsidies for energy sources in fiscal years FY 14 to FY 23 (2013-14 to 2022-23).
The graph shows that subsidies for fossil fuels (oil and gas, coal) were consistently higher than subsidies for renewable energy sources (biomass, biofuels, electric vehicles, transmission and distribution) over the period. Moreover, here are some key points to take note of:
The total subsidy amount increased each year from FY 14 to FY 23.
The subsidy for fossil fuels reached a high of about 350,000 crore rupees in FY 23.
The subsidy for renewable energy sources reached a high of about 150,000 crore rupees in FY 23.
VGF scheme can bridge the gap between economically beneficial and commercially viable infrastructure projects. By providing financial support, the scheme can incentivize private sector participation in social and economic sectors. This could lead to the creation of important infrastructure that improves citizens' lives. However, it's important to monitor the scheme's effectiveness and ensure it delivers on its goals.
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