In line with expectations, the interim budget 2024 focuses on clean energy transition and distribution reforms. As India is gearing up for its target of having non-fossil fuel based installed capacity of 500 GW, wind energy will be playing a crucial role in achieving the same. Consequently, the finance minister has announced the viability gap funding arrangement for offshore wind energy.

This apart, higher allocation to the scheme relating to distribution sector was another highlight for the sector.

Benefits for off-shore wind projects

In order to harness off-shore wind energy potential, viability gap funding (VGF) shall be provided for the initial capacity of 1 GW as per the announcement during the Budget. Wind turbines installed off-shore enjoy the benefits of higher quality wind and more efficient wind conversion. However, installation of off-shore wind energy plant is far more capital intensive than on-shore ones. As per a CEA report, per MW cost of offshore wind projects can be around ₹13.7 crore as against an average of ₹6 crore per MW for onshore projects. This makes the case of support from the central government and thereby VGF comes into play.  

Through VGF, the government aims to fund a balance portion of the project which is not feasible for the developer. VGF is expected to be provided on the plants to be installed on the coasts of Gujarat and Tamil Nadu. While taking the first step of setting up 1 GW of off-shore wind energy capacity, the government targets of setting up 30 GW of off-shore wind energy capacity by 2030.

Listed domestic wind turbine manufacturers such as Suzlon Energy and Inox Wind and unlisted companies such as Greenko, Sterlite, Mytrah and Shell India can be the beneficiaries. These companies are now better placed to tap in the opportunities in the wind energy space with wind tariffs set to increase on account of shift from competitive bidding to closed bidding.

Distribution allocation rises

The Finance Ministry has increased the allocation to the Reform Linked Distribution Scheme by nearly 45 per cent to ₹14,500 crore. 

The scheme aims to improve the financial sustainability and operational efficiencies of state discoms by reducing their Aggregate, Technical, and Commercial losses and bringing down the cost-revenue gap. The assistance here is typically based on meeting pre-qualifying criteria and achievement of basic minimum benchmarks by the distribution companies.

Ultimately, the improved financials of the discoms can further aid them in timely payment and reducing their dues to power generation companies such as NTPC, NHPC and Adani Power who are having PPAs with state discoms.