Offshore wind power in India erupts

Over the next seven years, India plans to install as much as 140 gigawatts (GW) of wind power capacity to source 50 percent of the country's power capacity from non-fossil energy sources by 2030. That presents huge opportunities for European suppliers, says wind energy expert Alok Kumar, director at consulting firm DNV GL in India.

First tender for offshore wind power in India

India's Ministry of Energy (MNRE) recently announced that India's first tender for leasing lots for offshore wind installation will be issued in July 2023.

The tender covers four lots in the Gulf of Mannar, off the coast of India's Tamil Nadu province. All four lots offer space for 1 GW of wind turbines. If an energy company wins the tender, it will be allowed to study the seabed, set up a wind farm and sell the electricity directly to customers.

India has so far focused mainly on onshore wind projects, as adjustments had to be made in the regulations of the various Indian states to allow offshore projects. As a result, India has been slow in terms of developing offshore wind energy projects, even though the country has a 7600-km coastline and significant potential to build offshore wind projects.

India is ambitious on green energy

Alok Kumar, director at consulting firm DNV GL in India.

While India is already currently generating 39.2 GW with onshore wind turbines and plans to double that capacity in the next four years, offshore wind development is only bursting forth this year. "This government is firmly committed to wind power development," Alok Kumar, country manager in India for DNV GL told me by phone. "In cooperation with the EU, over the past five years India, through the Facilitating Offshore Wind in India (FOWIND) consortium, has established a roadmap for the development of offshore wind farms in the coastlines of the states of Gujarat and Tamil Nadu. Because of this cooperation, there is great interest in the knowledge and skills of European companies."

Government support for wind energy

Since offshore wind power in India is more than four times more expensive than onshore wind power, the central government in New Delhi will subsidize offshore wind development. For onshore wind energy, the Indian government changed the policy in 2017. Before that, the Indian government signed a contract with a power supplier to purchase electricity at a fixed rate for a specified term (Power Purchase Agreement). Now, parties must bid for a tender to build a wind farm and the party offering power at the lowest price wins. This policy change initially caused tumult in the market, stagnation of new projects and the disappearance of small market players. "By now the craziness is over," says Kumar. "The development of new onshore wind farms is picking up. The price of electricity that initially halved has now stabilized at 75 percent of the price level."

Know-how from Europe

Through cooperation with the EU, Kumar said offshore wind farms in India will be designed according to the European model. "The production of wind turbines will take place entirely in India, but the know how will have to come from Europe. So there are many opportunities for European parties active in the chain. Some European parties have long noticed this. Take Fugro, for example. In the preparatory phase, they have mapped the Indian seabed to determine where wind turbines can be placed safely. But not all parties are taking the Indian market seriously yet. I expect that to change a lot this year."

Curious about the opportunities for your company in the Indian energy sector?

Outlook India: 'Food & Agri, renewable energy and water management are booming'.

2020 was an eventful year for the Indian economy, with deep lows and a rapid recovery. It brought structural problems in the country to the surface again, but also offered India the opportunity to put itself back on the international map. Rabobank's India men Hugo Erkenhead of International Economics at RaboResearch, and Marcel Heijmanlook back and ahead and analyse the essential steps India must and wants to take in the coming years and the opportunities this will offer European companies.

The coronavirus brought the whole world to a standstill, with major economic consequences. In India, too, the lockdowns had a disastrous effect on economic growth, which fell to a low of -24% in the second quarter of 2020 compared to last year. "But in the third quarter, we saw India rebound to around -8%," says Erken, who has specialised in India for several years. "For next year, we are already expecting another growth of around 8%." But if they want to continue that in the medium term, a lot of structural problems in the country need to be addressed, according to the economist. "Growing from your all-time low is easy, but to sustain it, you really need to roll up your sleeves."

India, the new factory of the world?

One of the ways India is stimulating growth is through its special 'Make in India' programme, which aims to attract more foreign manufacturers to India. The initiative was introduced six years ago, but is back in the spotlight due to political tensions between the US and China and the outbreak of the Covid-19 virus. "India immediately springs to mind because it is still relatively cheap," says Heijman, who has been in India for the bank since 2018. There, he supports international Rabobank clients doing business in the country. "But it's already not as cheap as Vietnam or Bangladesh, which are also trying to knock China off its throne as the world's biggest manufacturing country."

And that, according to Erken, is tough competition. "In 2019, we already listed the best producing countries after China. India made it to the top five, but did not get past countries like Vietnam and Thailand, which offer a better export package and score higher on the World Bank's Ease of Doing Business list. At the same time, the shifting geopolitical balances are again working in India's favour. America, under Biden, will not let go of the reins in relation to China and Germany too seems to be becoming more critical towards China. India can benefit from this, they are politically a safe bet. But whether it will actually work out in India's favour depends on the steps that the Indian government will take in the coming years. 

Protectionism

The recent steps of the Indian Prime Minister Modi seem to be at odds with the opportunities for India on the international playing field. Despite the fact that Modi presents his country as the number one production and export location for Western companies, he simultaneously pushes for more self-sufficiency and rejects regional cooperation. Like the Regional Comprehensive Economic Partnership (RCEP), the largest Asian/Oceanic trade agreement ever. Despite joining in the drafting of the treaty in 2011, India withdrew from it in 2019.  

According to Erken, the decision to keep India shielded from the world for a while is not so crazy. "The current strategy is not sustainable in the long term, protectionism has not helped India in the past. But for now, India has good reasons to protect its market for a while. It could use some time to solve structural domestic problems before it opens up further. For example, the low-yielding agricultural sector needs to be reformed, the (public) banking sector strengthened, the tax base widened and pollution reduced. If India were part of the RCEP, it would bring an enormous amount of additional foreign competition. Moreover, the RCEP's playing field is not exactly level. It is therefore not surprising that India chooses to tackle domestic problems first before opening up to further trade liberalisation".

Keep an eye on the Indian agricultural sector

"Agriculture is a good example of a sector where reforms are badly needed," says Heijman. "Agriculture generates 15% of the added value, but 40% of India's population is employed in this sector. That is 600 million people. So there is a need for professionalisation within the sector and the government should also facilitate that people can quickly and easily become active within other sectors such as services or construction in order to create sufficient employment for the Indian population." Recently, the Indian government introduced two new agricultural laws that were supposed to improve the supply chain, but they were not received enthusiastically by Indian farmers. "In India, they once introduced special government-controlled markets or mandis to ensure that farmers would always get a fair price for their product," Erken explains. "But in the meantime, this means of protection functions as a cartel that structurally underpays farmers." The new law makes it possible for farmers to offer their products outside the mandis and to demand a price more than 40% higher. "But of course the competition is going to ensure that some farmers' businesses are not going to make it and that creates uncertainty among farmers at the moment." 

According to Heijman, it is logical that farmers are sceptical about the change. "Rabobank has many wholesale clients in the Food & Agri sector worldwide and in India. For us, sustainability scoring in the chain is an integral part of the lending process and the challenges in the supply chain, such as fair prices for farmers, are topics we address in all our customer contacts. In India, but also in the rest of the world, it is challenging for them to negotiate a good price directly with the farmers. Our customers need a certain volume of products, but do not have the capacity to deal with a large number of different smallholders. It is therefore necessary to organise the chains as efficiently as possible. The Indian government has taken the first step, but in order for the agricultural sector to reach its full potential, economies of scale must be made possible and the smallholder level must be better organised."

Dutch knowledge can make these sectors boom

Nevertheless, Heijman points to Food & Agri as one of the sectors that offers interesting opportunities for European companies in the years to come. "Reason number one is the gigantic local consumer market in India. In addition, climate change is having an enormous impact on the Indian Food & Agri sector, and it is precisely in the Netherlands that we have all the knowledge needed to make agriculture more efficient and robust, for example. But India also has big plans for water management, including the dredging sector, sustainable energy and healthcare, which offers interesting investment opportunities in the year ahead." Erken joins him: "We have an enormous amount of knowledge with which we can do good business in India. India is already on the Dutch radar, but there is still room for more. Our seed breeders and dredging companies are already there, and of course we are world leaders in those fields, but we have a lot more to offer. The Dutch government could put India in the spotlight a little more as an interesting investment destination."

But according to Heijman, India has already gained popularity among companies and the Dutch government in recent years. "It is simply reflected in our growing client portfolio, which means that more and more clients are undertaking activities in India. Another example is the 2019 Dutch trade mission, which was the largest ever. Bigger than those that travelled to the US or China." According to Heijnman, the pandemic year temporarily broke this investment trend. "2020 was tough. A lot of decisions and deals have been pushed back to 2021, because no one knows what the final impact of the corona crisis will be. But India is such a dynamic and resilient country, it always manages to climb back out of the doldrums." 

Dutchman thrives in polder culture Indian family business

Gosse Wielinga (1964) has been working for the listed Indian family company Suzlon Energy for ten years. Almost every month he visits the Indian factories in Pune and Vadodara (Gujarat) where Suzlon builds its wind turbines. "You have to do your best to understand Indians, otherwise they won't understand you either."

Gosse Wielinga at the production site in India

He is "having a great time" in India, says Gosse Wielinga enthusiastically over the phone. Wielinga is involved in the development of new rotor blades, the blades of wind turbines. He is also the link between the R&D departments of Suzlon and the production locations of the Indian family business. Earlier, Wielinga set up a new production facility in the United States for Suzlon, one of the largest producers of wind turbines in the world.

"Ten years ago, I went in quite naively," says Wielinga. "I had no idea of the Indian business culture. Nowadays, I often describe Suzlon as an onion: at the core is the family and all the shells around it form the organisation. The closer you are to that core, the more influence you have." 

Although Wielinga does not report directly to the family, he is quite close to the fire. "I am in regular contact with family members, often informally when they visit the Netherlands or when I am there. When I meet the big boss, Mr. Tanti, I always tell him what I am doing. It is important to keep the line open - even when there is nothing new to report. It is also important to always treat the family with great respect. Some call Mr Tanti by his first name, but I still don't do that after all these years. I keep that distance very consciously.

Production of wind turbines in India

On paper, Suzlon has a strong, formal corporate culture, but in practice it is very informal, says Wielinga. "Actually, we have an enormous polder culture. Plans are prepared at lower levels and discussed informally between the various departments. This goes back and forth for a while, until there is a proposal that satisfies everyone. In formal meetings, such a plan is then only a hammer piece. Some Western colleagues find it annoying because this way of working is slow, but I find it very pleasant myself. Moreover, Indians look at efficiency in a different way than we Dutch do. That's logical, because labour is not as expensive in India as it is here.

Moreover, Suzlon's approach is bearing fruit. In thirteen years, the company has grown into one of the largest players in the world in the wind energy market. Wielinga: "India is our main market, but we also sell turbines in the United States, Australia and South America. We had a difficult time during the crisis, but with the advent of the Modi government, a real business administration, a huge amount of investments have been made again. Wind energy in India is growing at a tremendous rate." 

Read here the 5 tips from Gosse Wielinga to work effectively in India.