Shares of wind power firms Inox Wind and Suzlon Energy have hit new lows in June
The government may exude confidence about exceeding its 2022 renewable energy capacity addition targets but stakeholders are lowering growth expectations.
Shares of wind energy equipment providers Inox Wind Ltd and Suzlon Energy Ltd hit new lows this month. A survey of project developers, contractors, equipment makers and financiers by Bridge to India, a consultant, points to an easing of growth expectations.
Tracking the strong capacity additions targets set by the government, most respondents expect their businesses to see strong growth by 2022. But the share of respondents who foresee rapid growth in their businesses has come down. In 2017, roughly one-third (32%) of respondents expected their business to grow more than five times by March 2022. This year, only one-fifth (21%) expect it to grow at that pace. A larger portion of respondents now expect their business to grow at a relatively slower pace of less than three times, and by between three and five times.
The survey results reflect challenging market conditions. The shift to auction-based capacity additions and entry of deep-pocketed investors has resulted in more competition. “More than 70% of respondents feel that the current bidding environment is irrationally aggressive,” points out the Bridge to India report.
Changes in taxation and confusion about the imposition of duties slowed execution and created uncertainty about project costs. “The response on various operational challenges paints a bleak picture,” adds Bridge to India.
According to Mercom Communications India, a clean energy communications firm, the uncertainty around trade-related cases is also holding back investments. “The industry needs clarity on the safeguard duty,” Mercom said in a recent note.
On the positive side, prices of solar modules have begun easing. With China looking to cap solar project installations, many see prices falling further. This should reduce costs. Also, after a lull in 2017-18, wind power capacity additions are expected to gather pace this year.
Investors are being circumspect about the sector’s prospects, as the decline in Suzlon Energy and Inox Wind’s stocks show. Deepak Agrawala, senior vice president (utilities and industrials research) at Elara Securities (India) Pvt. Ltd, says a combination of external (such as the sell-off in mid-caps and wind installations falling in FY18) and internal factors (lower execution and pricing pressure) are responsible for the correction in prices.
But a healthy auction pipeline should see the industry return to the growth path in the current fiscal year. Their execution ability and financial performance are factors to watch out for, adds Agrawala.
Issues such as the uncertainty over import duties and a transition to auction-based capacity additions for the wind sector may be transitory. But intense competition and pressure on profitability means that benefits from the current wave of renewable energy capacity additions will not be evenly distributed.