With its recent debt restructuring and recapitalization, Suzlon Energy, the giant Indian wind-turbine company, is in a position now to lend major impetus to the country’s energy-sector transformation.
Wind will play a significant role in this transition, which is not just being promoted aggressively by the Modi government but is also unfolding with growing speed as we speak. Plans call nationally for installation of 60 gigawatts of wind-powered electricity alone by 2022, and the momentum suggests this goal is in sight.
Suzlon’s regrouping is just part of a larger trend toward achieving greater Indian energy security through diversification of the country’s domestic electricity supply, which is over-reliant on coal. The wind-energy sector—like the solar sector—is showing considerable spring in its step as it attracts more and more foreign equity capital. Earlier this year, the Singaporean conglomerate Sembcorp acquired Green Infra, with its 700 megawatts of Indian wind farms. In June, SunEdison acquired Continuum Wind Energy, a Singaporean owner of 242 megawatts of wind farms in the Indian states of Maharashtra and Gujarat. And just this month SunEdison added to its Indian wind-energy portfolio by acquiring 102 megawatts of Indian wind farms from Fersa Energias.
Suzlon, the country’s largest-wind-turbine manufacturer, sees where the market is going, and is building on these events. In emerging finally from its massive restructuring, it has downsized some and sold previously core businesses so as to halve indebtedness and make its overhead more manageable.
IN A HUGELY IMPORTANT ENDORSEMENT OF THE INDUSTRY, DILI SHANGHVI—WHOSE FAMILY IS SAID TO BE THE RICHEST IN INDIA—HAS TAKEN A 17 PERCENT EQUITY STAKE IN THE RECAPITALIZED COMPANY. Its makeover complete, Suzlon is now a bankable proposition once again, and its recent activity bears this out.
In June, the company reported that it had won a 90-megawatt turbine order from ReNew, with Suzlon as the turnkey partner on a project in Andhra Pradesh that will produce 2.1 megawatts of electricity. This deal follows a 90-megawatt order from ReNew in May 2015 and a 98-megawatt order from Mytrah Energy for a project in Telangana scheduled for commissioning in 2016. Customers can see a company now that will deliver on its contracts.
We’re highlighting Suzlon’s comeback because it illustrates that—while Indian energy-sector restructuring are still rare—they are necessary, feasible, and can rejuvenate the downsized business that emerges.
Markets will be markets, but political forces can help shape them. This is where Prime Minister Narendra Modi is a force, making it clear that power companies with unsustainable debt levels that are waiting for a government bailout aren’t likely to get one. Suzlon has taken its medicine, and as a result can now deliver on its growing role in the Indian electricity-sector transformation.
WHAT WE’RE WITNESSING IN INDIA NOW IS THE DECLINE OF AN OLD INDUSTRY AND THE RISE OF A NEW ONE. Coal is the industry in trouble, of course; renewables are on the upswing.
Markets will always create winners and losers but overall market forces today are on the side of renewables. So long as markets can form and reform in a healthy way we can expect to see newly emergent companies, new companies, and new business models arise from the old ones.
While Suzlon has recapitalized, coal-centric energy companies like Adani Power, Tata Power, Lanco and GVK have not. The coal-fired industry in India, to put it bluntly, is head deep and dark in the hole—as everywhere in the world—waiting for a recovery that will never come.
Tim Buckley is IEEFA’s director of energy finance studies, Australasia.
