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Rational exuberance is in the air

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A lot has changed for the wind industry since the first capacity auction in February, writes M Ramesh

One event changed it all. Until around mid 2016, the Indian wind power industry, which comprises wind turbine manufacturers and their customers, was mumbling and moaning about the future....


A lot has changed for the wind industry since the first capacity auction in February, writes M Ramesh

One event changed it all. Until around mid 2016, the Indian wind power industry, which comprises wind turbine manufacturers and their customers, was mumbling and moaning about the future. Industry representatives were generally incorrigible whiners and they spoke endlessly of uncertainties in demand, vanishing subsidies, difficulties in land purchase and regulatory hurdles. The Indian market for wind turbines used to be around 2,500 MW, and a year that saw the 3,000 MW mark breached was considered a good year. When wind power installations touched 3,470 MW in 2015-16, it was a record.

Then came the event – India’s first auction of capacity – which concluded in February 2017. Till then energy companies (or “developers”) would set up their wind farms keeping in mind the regulator-fixed tariff they would get from various States. The industry was comfortable with that feed-in tariff and it dreaded the spectre of auctions, which would mean that tariffs would be determined by competitive forces, and would consequently drop. When energy companies get lesser price for their kWhrs, the impact would be felt by the turbine manufacturers too.

The industry fought to fend the auctions off, citing some excuse or the other. “We are not against competitive bidding, but…” used to be the unvarying narrative. For nearly three years, the industry succeeded. Then the energy minister, Piyush Goyal, put his foot down. The wind industry narrative abounds with anecdotes of the minister digging his heels in.

And now, post-February auction experiment, the mood in the industry is suddenly buoyant. The talk in the industry has changed from complaining, to capacity expansion, volumes and exports.

So, what did the auction do to upend the mood of the industry?

Soon after he assumed office, Goyal raised the wind installations target for the year 2021-22 to 60 GW, cumulative, so there was promise of a market. Many companies bet on this promise and invested, taking a leap of faith. But few were sure the promised market of opportunities would be delivered on.

The auction delivered the promise. The change of mood from sullenness to euphoria was clearly evident at the Windergy 2017, an international exhibition-cum-conference of the wind industry organised in New Delhi last month by the Indian Wind Turbine Manufacturers’ Association.

The Goyal gambit

Goyal’s idea was to buy wind power from developers and sell it on to electricity distribution companies of non-windy States (the nine windy States were anyway buying wind power). By aggregating demand on behalf of the non-windy States and offering it as a market, the government dangled the ‘volume carrot’ and got the bidders to lower the tariffs. The States have been mandated to buy wind (and solar) power to meet their ‘renewable purchase obligation’ law but the law had mostly been followed in breach because the prices of wind power were high. Conversely, the prices of wind power couldn’t come down unless the market expanded and scale kicked-in.

The auction broke the catch-22. For an additional market of 1,000 MW, the tariffs fell to ₹3.46 a kWhr. By comparison, the regulator-determined feed-in tariffs in various States have all been upwards of ₹4, some going even beyond ₹4. (Tamil Nadu’s ₹4.16 was the lowest.)

And now, the government is talking of auctions of 6 GW this year, meant for non-windy States, and the first 1 GW of that has been announced. The industry did its math quickly. Add to the demand from non-windy States the demand from windy States, add to it the market of ‘captive customers’, add the demand from the public sector undertaking (usually referred to as the “tender market”), what have you? Suddenly the sub 3 GW market looked set to double, or even triple.

Today, the industry is talking of India being a 10 GW market; turbine manufacturers and their component suppliers are lusting after exports.

India as the manufacturing hub

India is fast turning into a manufacturing hub for the wind industry. For sure, investing in the manufacture of wind turbines and their components started well before the auctions. As one industry insider pointed out, they were blind bets on government’s promise of markets.

Today, an impressive number of investments are happening in India in the manufacture of wind power related products.

Danish blade manufacturer, LM Wind Power, which has been in India since 1994, set up a new plant at Vadodara, Gujarat only in April 2016, its second in India. “Our plants are fully loaded with local business,” says Marc de Jong, CEL of the company. Now, the company wants to set up a third plant.

Spanish wind power major, Gamesa, present in India since 2010, built a greenfield plant at Nellore, Andhra Pradesh, investing ₹ 500 crore. An equal amount is to be invested in the plant over the next few years to raise capacity. Gamesa, incidentally, has created a record of sorts by selling 5 GW of wind turbines in the six years to 2016.

Windar, an associate company of Gamesa, is building its second plant at Sri City industrial estate, near Chennai.

Danish wind turbine, Vestas, in its second coming in India, recently commissioned a blade plant in Gujarat, investing ₹350 crore.

German wind turbine company, Nordex, has just commissioned its first Indian plant, at Gummidipoondi, near Chennai.

Brazilian company, WEG, which has been present in India since 2011, manufacturing motors, has announced it would produce wind turbines in India. A product launch is expected in 2018.

Chinese company, Envision, will soon launch a product in India. It is said to be looking at making the turbines here.

Danish supplier of control systems for wind machines, K K Wind Solutions, has just begun to produce ‘low voltage ride-through’ devices, in collaboration with Enerfra, an Indian company.

Owens Corning, an American company that makes range of products, has been selling ‘stitched glass fabric’ for the manufacture of wind blades. The company is expanding its Indian capacity from 50,000 tonnes to 90,000 tonnes, meaning the entire additional capacity for wind blades.

While these are some of the better known foreign names, practically every Indian company in the supply chain is expanding. One example is the ₹200-crore Velmurugan Heavy Engineering Industries Pvt Ltd, a metal fabricator ancillary of BHEL in Tiruchi — the company makes wind towers. It’s Director and CEO, Srinivasan Sampath, says he would need to expand capacity.

Tulsi Tanti, the Chairman and Managing Director of Suzlon Energy, and a doyen of the Indian wind industry, is sure that India will become the global manufacturing hub for wind turbines and components.

The one event – the capacity auction of February – proved that the industry’s leap of faith would not land it in an abyss. The industry has safely jumped into rational exuberance.

(This article was published on May 9, 2017)

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