(Bloomberg) -- Suzlon Energy Ltd., one of India’s largest wind-turbine makers, says the record-low prices paid for power-purchase contracts through India’s wind-energy auctions will pressure margins at equipment makers but may ultimately benefit by sparking growth in the market.
“Due to aggressive auction prices there will be some initial impact on margins for a year but it will unlock a bigger market and I’m very much interested in this opportunity,” Suzlon Chairman Tulsi Tanti said in an interview in New Delhi, adding that auctions could open up as much as 10 gigawatts of capacity.
Suzlon’s optimism is a vote of confidence in India’s auction process -- a first of its kind for wind anywhere in Asia -- which saw prices plunge when the first tender was held in February. Emboldened, Prime Minister Narendra Modi’s government is seeking to step up the pace with plans to offer almost 4 gigawatts of capacity during the fiscal year ending in March.
The cost of power generated from wind turbines in the February auction plunged to 3.46 rupees (5 U.S. cents) a kilowatt-hour, slipping below feed-in tariffs for wind energy ranging from 4 rupees to 5 rupees a kilowatt-hour across India’s windy states.
Several foreign wind turbine makers have increased their focus on India in the expectation that the market is set to expand further along with the broader use of auctions.
Vestas Wind Systems A/S, the Danish turbine manufacturer that inaugurated a new blade factory in March, this week introduced a 2-megawatt turbine in India suited for medium to low wind sites.
“It’s not just about us but about everyone -- our suppliers, customers and banks -- the entire chain has to focus on being competitive,” Agustin Sanchez-Tembleque, Vestas’s head of sales in India, said when asked if auctions will squeeze margins.
German turbine maker Senvion SA, which set up shop in India last year, expects auctions to increase volumes, thus compensating for thinner margins.
“No doubt that auctions are impacting margins but it doesn’t scare me because volume is what matters and I want to compete on the cost of energy, not that of a turbine,” Senvion India Chief Executive Officer Amit Kansal said in an interview in New Delhi.
Kansal said he’s ready with a site to participate in any wind tenders that the government conducts.
Looking ahead, Suzlon’s Tanti expects future wind auctions of six gigawatts by the central government, about four gigawatts through state tenders to meet renewable purchase obligations and 1 gigawatt of tenders from the public sector and retail customers annually, accounting for a market of about 10 gigawatts to 11 gigawatts.
India installed 5.4 gigawatts of wind capacity in the 12 months ending March 31, up 58 percent from the previous year, according to credit rating agency ICRA Ltd.
“Instead of saying we will sell power at 3.50 rupees a unit when the market size is 10 gigawatts, we’re saying it the other way around,” he said, adding that volumes will allow the company to invest faster in technology and its supply chain.
Suzlon plans to introduce its new S128 machine -- a 2.6-megawatt turbine with rotor diameter of 128 meters (420 feet) and a tower height of 120 meters to 140 meters for low wind sites -- in the 12 months beginning in April 2018, Tanti said.