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India's Low Tariffs Hurt Wind Turbine Makers

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Wind turbine makers are staring at a slowdown even as India's government looks to boost renewable energy.

Competitive bidding for solar and wind power has brought down tariffs and power producers are under pressure from sates to renegotiate pricing. The tough bargain is likely to dissuade private companies from investing in renewable projects, credit rating agency ICRA had warned in August. That’s already started hurting demand for equipment.

“Most wind turbine manufacturers have halted production till they receive firm orders, thus toppling plans made by the industry,” said Shantanu Jaiswal, an analyst at Bloomberg New Energy Finance.

The trouble started when the government shifted from feed-in tariff, which guaranteed price protection, to competitive bidding. India’s first wind auction in February 2017 fetched a tariff of Rs 3.46 per kWh. That’s lower than the lowest wind feed-in tariff, Jaiswal said.

The Narendra Modi government targets to install 175 GW of renewable energy capacity by 2022. It plans to auction wind power projects with 4 GW capacity through 2018 and 60 GW over five years, state-run Solar Energy Corp. of India had said in April.

The pace of capacity addition has slowed down this year. Over 5,400 MW of wind power capacity was added in the year to March, said Kameswara Rao, Partner (energy, utilities and mining), PwC India. It was barely 228 MW for the first quarter ended June, he said.

Wind turbine manufacturer Suzlon Energy Ltd.’s revenue fell 46 percent in the quarter ended June over the previous three months. It attributed the decline to falling tariffs.

“Every single country which has seen transition from feed-in tariff to bidding has seen a year of transition where the volumes had gone down,” JP Chalasani, group chief executive officer, Suzlon Energy, had said during an investor conference call earlier. As bidding happens and power purchase agreements are signed in the second half, most orders would come for the next year, he said.

Siemens Gamesa Renewable Energy’s revenue from the sale of wind turbines also fell 9 percent year-on-year in the quarter ended June. This was due to temporary market conditions in the onshore business, the company said.

While bigger companies may manage to tide over the slowdown, smaller units face a risk to their survival. “The impact on wind manufacturing with sudden fall of orders is acute and likely to push a few niche players into insolvency,” said Rao of PwC India.

Smaller wind turbine makers Inox Wind and ReGenPowerTech didn’t respond to BloombergQuint’s calls and messages. Suzlon’s Chalsani didn’t respond to calls. Gamesa is yet to respond to BloombergQuint’s emailed queries.

While the industry is expected to commission 4.1 GW wind projects in 2017, it will struggle to commission even 1.1 GW in 2018, Bloomberg New Energy Finance’s Jaiswal said. “The situation can improve in 2019 but is heavily reliant on having a strong auction pipeline built till March 2018.”

©2017 Bloomberg News

Lead image credit: Bloomberg

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