An ill wind for Suzlon, Inox’s quick recovery hopes

The current standoff between state power distribution companies and renewable energy developers on the renegotiation of wind and solar power purchasing agreements (PPAs), if not handled deftly by the central government, could spell trouble for the renewable energy sector.

The impact will be more pronounced on the wind sector, which is already seeing a paucity of orders and capacity additions due to stoppage of feed-in-tariff based agreements.

Ratings agency Icra Ltd says cancellation or renegotiation of PPAs would not only impact the credit profile of the independent power producers but also affect investment interest from the private sector.

If the situation worsens, then the recovery and normalcy hopes of notable wind-services providers—Suzlon Energy Ltd and Inox Wind Ltd—will increasingly be questioned.

Inox Wind expects order inflows to normalize from next quarter (Q3) onwards and execution to pick up from Q4. Suzlon Energy pegs the market to expand to about 6,000 megawatts (MW) in the next fiscal year. For perspective, India is estimated to add 1,000-1,500MW of wind capacity this fiscal year, compared to 5,400MW last year.

But that assumption faces risks. Reduced interest from the private sector can weigh on market expansion. The central government’s ambitious plans will ensure order inflows, but that alone may not be sufficient for industry capacities. For instance Solar Energy Corp. of India Ltd, a central government body under the ministry of new and renewable energy, is estimated to auction 3,000MW of wind capacities over the year or so. States, key demand drivers, are still finalizing competitive bid mechanisms and are yet to roll out wind capacity addition plans in a big way.

The slow expansion can weigh on industry volume. Inox Wind is already feeling the heat of low volumes. Suzlon Energy has bucked the trend till now. But if the market does not expand as projected, then it can be tough for the company to maintain the execution momentum. That will weigh on its debt reduction plans, delaying the turnaround process.

Of course the scenario will be drastically different if the centre and states come back to the wind market with renewed vigour. Even so, the market needs a bit of convincing.

According to experts who track the sector, investors have been taken aback by recent events. They will want to see capacity additions coming back on track. Materialization of two-three projects with risk mechanisms like payment security, offtake assurance and compensation for backdowns will help improve investor confidence.

The concerns are taking a toll on the stocks. Inox Wind, whose performance has already been affected, lost 40% of its value since 12 May, when it first disclosed its order-book risk. Suzlon Energy has bucked the trend till now with a robust performance. But investor concern is palpable. The stock has lost almost a quarter of its value since mid-May.


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