The economic headwinds currently blowing through Europe are unlikely to buffet Suzlon, India’s biggest maker of wind turbines, too much.
Instead, director Girish Tanti is confident that by leveraging the technology advantage of its German subsidiary, REpower, and focusing on new, emerging markets, the Pune-headquartered firm will find its place among the top three wind energy players globally.
“The good thing is that the markets the group is focusing on are fortunately those which have not been impacted by the Euro crisis. The largest market, if you see today, for the group is Germany, which is actually at the forefront of the bailout,” he said.
Not only does Germany intend to aggressively grow its renewable energy sector —about 21 per cent of Germany’s total power generation for the first half of this year came from renewables — but Berlin’s decision to completely phase out nuclear power by 2022 will further boost non-conventional energy firms.
“And, if you see our entire order book (of about $6.5 billion), these (deals) are with very large utilities of Europe which are very stable and cash-rich. They have a very clear 10-year plan of what they want to do and how they want to grow. I think we have a very robust order book, with good customers and good country presence, so we do not see it really affecting us to that extent,” said Tanti.
While the onshore market is expected to hold ground, Suzlon is now looking to target what it believes will be the next big growth segment in the sector: offshore. Its acquisition of REpower Systems, completed last month, will give it further teeth.
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“One of the most encouraging and profitable segments is the offshore market, where we are amongst the pioneers. There are only two players in the world who have large commercial operations — Suzlon with REpower, and Siemens. And this market in the next five years is going to grow at 30 per cent CAGR (compound annual growth rate),” said Tanti.
In contrast, the overall wind sector is slated to grow at only about 10 per cent CAGR, he added.
Within Europe, two of Suzlon’s strongest markets —Germany and the United Kingdom —are poised to drive growth in the offshore sector. While UK dominated offshore wind installations in 2010 with about 40 per cent of new installed capacity, going forward the two countries could account for as much of 80 per cent of the European offshore market, Suzlon noted in a recent investor presentation.
MARKETS
But with subsidies, once essential for the non-conventional sector, either drying up or being restructured by European governments, Suzlon is now aggressively turning to emerging markets, particularly Brazil and China, apart from its home turf — India.
However, these are geographies where Suzlon already has a strong presence —it is the market leader in Brazil after having set-up shop in 2007 and a major player in China, where is also has manufacturing facilities.
“For us, Brazil has been an important market. It is now taking-off, and there have been good announcements about the targets for installing wind turbines. From that perspective, Brazil is a key market for us and we see good growth over there,” he said, referring to Brazilian governments’ recent auction of 78 wind power projects capable of generating 1,928 MW.
Similarly, the move by Chinese authorities to include the wind sector as part of the seven strategic industries, which could see investments totalling about $1.5 trillion in the next few years, as well as regulations requiring major Chinese utilities to achieve a certain percentage of generation from non-hydroelectric renewable sources by 2020 would help players like Suzlon.
“We have a reasonable presence over there and China has charted out a very ambitious plan for renewable... We have also launched, earlier this year, a new product for the Chinese market which is designed, developed and focused to address that market and it’s very competitive locally there. We are (now) in a much better state as far as taking the China benefit as a group and I think we will continue to develop in that market,” said Tanti.
“Beyond that, India itself is a great story and is doing fabulously well. India has taken off very strongly and is going to grow very fast,” he added. Tanti feels that the Indian wind sector will grow at 25 per cent, compared to 10 per cent that the industry may see globally, and Suzlon is now redoubling its focus on expanding operations in India.
Challenges, though, still remain. “In a slowing down of the market, your focus has to remain on the technology, you have to innovate much quicker, faster and better,” said Tanti, while adding that it will also be crucial to get the cost structure right. “You have to take some tough calls, which we have done, and you have to optimise your structure, your functions and then you have to set priorities in terms of which market, how much resources and how you put things where.”
“So, in the new design of things, we have had to rearrange our focus. And fortunately for us, REpower being based out of Germany and having a strong presence in offshore, and we having a strong presence in Asia, it is working out well,” he added.