Wind is flowing in favor of Suzlon Energy and Inox wind

Categories: Blog
January 18, 2017Posted By Admin

Renewable energy installations in India are fast pacing to achieve the aggressive target of 172GW of renewable power installations by 2022. Out of 172GW, government is targeting to do 60GW grid solar, 40GW of rooftop solar, 60GW of wind energy and 12GW of installations from other sources. According to ministry of power, current installed capacity of wind power in the country stood at 28GW till Nov, 2016. FY16 saw a record growth of wind power installations surpassing all its previous records and set to add 4.3GW during FY17. In the coming years, the annual run rate is expected to be around 5GW of installations per year to achieve 60GW of wind power installations by 2022.

Aggressive push by the government, conductive policy environment coupled with improvement in turbine technology have opened up huge opportunities for different players in the industry. The potential of India’s wind power capacity is around 300GW.  The majority of growth is expected to come from high wind states like Andhra Pradesh, Tamil Nadu, Gujarat, Madhya Pradesh, Karnataka and Rajasthan.

To encourage industry players, the government has come up with various incentives and new policies like, Renewable purchase obligations(RPO), Renewable generation Obligation (RGO), Accelerated depreciation, Generation based incentives, Wind-solar hybrid policy, Interstate transmission scheme, Renewable energy evacuation corridor, and state level feed in tarrifs.

The business of wind power is land intensive in nature and mainly driven by government policies and subsidies. The supply chain includes players like turbine manufacturers (Suzlon, Inox wind), power producers (PSU’s, IPPs, and Industries) and distribution companies. Suzlon and Inox wind manufacture blades, towers and generators and provide installation services to power producers along with procuring power purchase agreements from state governments.

Typical Economics of wind power  
Capacity 1MW
Equity:Debt 30:70
Interest Rate 13%
Operation & Maintenance/MW 1 million
O&M Escalation/Annum 5%
Depreciation Rate 15%
Accelerated Depreciation 40%
Receivable Days 60
Project Lifecycle 20 years
PLF 35%
IRRs* 16-25%

*IRRs depends on wind availability, project location and energy yields etc.

The supplier and service providers part of the industry became oligopolistic in nature with 75-80% market being consolidated among large three players (first two are Suzlon Energy and Inox wind). These players manufacture blades, towers and generators based on orders they receive from power producers and provide installation services. Suzlon has 3.6GW of manufacturing capacity and Inox wind has 1.8GW of capacity. Typically it takes 12-15months of time from receiving order to completion of project installations. Both the companies’ order book stands at more than 1.3GW and orders are continuously flowing.

Suzlon after went through debacle restructured its operations by selling overseas assets and raised funds from Sun pharma promoter Dilip Sanghvi. Now Suzlon is taking steps to achieve its lost market share of 50%. Its market share for FY16 stood at 26% improved from 19% in FY15 and for FY17, the same is expected to move to 30-35%. We believe that company has enough strengths to retain its market share in the coming few years.

Inox wind is the second largest player. Though the external market is good, Inox wind has suffered from internal problems like insufficient capacity and Inventory mismatch in the products. The same led to fall in share price in the last 2 years. Company has taken steps to resolve these issues by starting new blade capacity and by synchronizing products.

Both Suzlon Energy and Inox wind are the major beneficiaries of fast growing wind power industry. With large capacities and product innovations, two companies are in the forefront to grow theirs revenues at more than 25% rate. With large order books which are to be executed during next few months, the near term outlook is very bright for these two companies.