Why India’s Wind Turbine Makers Are Under Stress
Lower tariffs for wind power developers after India moved to competitive bidding has hurt wind turbine makers.
The situation stems from transition from feed-in tariffs to auctions in 2017 that drove wind energy tariffs to record lows. Earlier, wind power developers would set up projects before signing power purchase agreements with utilities and tariffs, set by state electricity regulatory commissions, varied between Rs 4 and Rs 6 per unit. This changed in February 2017 with the introduction of the auction regime, with power prices falling to Rs 3.46 a unit.
The shift to auctions and low tariffs disrupted wind capacity addition, which fell by half from the previous levels, Kameswara Rao, partner (energy, utility and mining) at PwC, told BloombergQuint in an e-mailed response. This, he said, has put manufacturing supply-chain in stress. “The diminished competition could push up the project costs in future.”
That threatens Prime Minister Narendra Modi-led government’s targets aimed at cutting emissions. India aims to achieve 175 gigawatts of installed renewable capacity by 2022, with wind farms contributing 60 GW.
According to DV Giri, secretary general at Indian Wind Turbine Manufacturers Association, 5,400 MW of manufacturing capacity was installed in 2016-17 and the industry was getting ready for 6,500 MW in 2017-18. With the introduction of competitive bidding, the installation in 2017-18 fell to 1,700 MW, he told Bloomberguint. “The OEMs (original equipment manufacturers) were stuck with component, turbine and mismatched project inventory for around 3,000 MW capacity.”
This led to distress sale to meet the bids for 1GW auction by Solar Energy Corporation of India-I and another 1GW auction under SECI-II. State-run SECI is tasked with implementing the country’s renewable energy targets.
The stress reduced the number of wind turbine makers from around 14 to four or five and caused a lot of job cuts, he said. “One can imagine the stress when the manufacturing capability is around 10,000 MW per annum chasing the current market of 2,000 MW.”
The capex of wind power projects dropped 10-15 percent since the transition from feed-in tariff system to auctions, according to BloombergNEF.
Already, Suzlon Energy Ltd. is battling debt troubles, with multiple defaults. Inox Wind Ltd. reported a debt of Rs 1,092 crore as of June 2019 after posting its second straight quarterly loss.
Suzlon Energy and Inox Wind are yet to respond to queries sent by BloombergQuint.
Competitive auctions, according to Sumant Sinha, chairman and managing director at Renew Power, have led to significant margin compression across the industry. “In this reduction of capacity, tariffs and margins, it has had negative impact on wind (power) manufacturing industry,” Sinha said at a conference in New Delhi.
Stress at the manufacturer level is leading to delays in project commissioning. The ability to fulfil contracts by wind turbine makers is in doubt, Sunil Jain, chief executive officer at Hero Future Energies, told BloombergQuint over the phone. “Bidding and projects are delayed. Their ability to supply turbines is reduced. Overall, from an industry perspective, projects are delayed.”
The government, he said, imposes liquid damages on developers for delays in project commission which is around Rs 10,000 per MW.
Installed wind capacity fell from 4.1 GW in 2017 to 2.3 GW in 2018, according to the data from Bloomberg New Energy Finance.
Yet, the government plans to stick to the auction system. “This was a long-term support and the regime has shifted. With this discomfort, I believe most of us will emerge stronger. It has made renewable energy affordable and sustainable,” Bhanu Pratap Yadav, joint secretary of the Ministry of New and Renewable Energy, said at a conference in New Delhi. Most discoms, he said, are buying renewable energy. “Any sector which is going through a major change, there will be some restructuring.”
Opportunity For Overseas Players
There are always opportunities in crisis, according to Bloomberg New Energy Finance Analyst Atin Jain. “The deeper the crisis, the larger the opportunity can be.”
“The financial stress at companies like Suzlon can create a vacuum in the wind supply chain in India, and nature abhors a vacuum. Global turbine makers like Siemens Gamesa, Vestas, GE or Nordex Acciona could fill that space,” he said in an e-mailed response to BloombergQuint.
In July 2019, Vestas announced in a press statement that it intends to establish a new wind turbine assembly unit in Chennai. “India is the most transformational geography for a foreign investor,” Amar Variawa, director of Public Affairs at Vestas India and South East Asia, said, adding that the country is number one for greenfield investment. “We decided to set up a factory in 2015. In 15 months, we converted a barren land in Gujarat to a fully functional factory.”