The March quarter results of Suzlon Energy and Inox Wind indicate a dichotomy that persists in India’s wind power sector.
Suzlon Energy Ltd did not reflect any of the pressures Inox Wind Ltd reported in the March quarter. In contrast, the former reported a strong growth in revenue and profit and exuded confidence that its order book is not facing any risk of cancellation.
To recap, Inox Wind, which released its results earlier than Suzlon, has said that a large part of its order book has turned redundant due to the ongoing transformation in the wind energy market from feed-in tariff-based system to auction-based market.
What explains the dichotomy? The results and the management commentary indicate that Inox Wind has been aggressive in recognizing order inflows.
Suzlon, which has been in the system for quite some time now (more than two decades), has been more cautious.
According to Kirti Vagadia, group chief financial officer, Suzlon reduced the risk of contract or order failure through risk management practices such as better planning and other processes.
Suzlon did not give the break-up of the order book. It, however, said that most of its non-auction based order book has power purchasing agreements (PPAs) and is executing them. The rest of the orders are in the process of obtaining PPAs. So, the whole 1,562-megawatt (MW) order book (231MW solar and 1,331MW wind) is intact and executable.
According to Pawan Parakh, an analyst at HDFC Securities Ltd, some states are willing to sign PPAs for projects for which documentation began in 2016-17. Hence, Suzlon’s current orders face less risk of cancellation.
What’s more, Suzlon expects to do well in the current fiscal year, too.
In terms of commissioning volumes, the market is expected to see slower growth in the current fiscal, compared with the year gone by. But Suzlon expects to continue to gain market share—it aims to increase it from 32% in 2016-17 to 40% in the current fiscal—helping it outdo industry performance.
The stock is reflecting the optimism. It gained 4.6% in the past four trading days and 48.7% since the beginning of this calendar year. For the stock to continue to do well, the company will have to keep up the momentum.
Suzlon has the problem of too much debt. Last fiscal, almost half of the company’s operating profit was eroded by finance costs. According to Parakh, the key is to keep up the business momentum and use the earnings proceeds to meet debt covenants. Suzlon is doing this. Debt has come down from peak levels. But more needs to be done.
Since 2010, the UK has invested an impressive £52 billion ($66 billion) in renewable energy, dramatically shifting the country's dependence on fossil fuels. On a global scale, wind turbines, tidal power and solar panels are fast becoming the energy generation methods of choice in most developed countries.
But making this transition is not as simple as it seems. The technology required for creating a renewable-friendly network is available, but almost all the world's existing energy infrastructure is designed specifically to distribute the highly predictable and controllable energy generated by fossil fuels.
Renewable energy sources are typically located in remote and often difficult-to-reach places. To efficiently manage and monitor these facilities, operators need to be able to connect and respond remotely. There are many different communication networks required for projects with geographical constraints, but a cloud-based application can alleviate this problem by using a VPN over leased lines, ensuring the systems are fast and responsive.
Using cloud-based process control software, operators can obtain data from these decentralized locations in real time. This information can be accessed by engineers on their mobile phones, enabling faster reactions to alarms, events or generation reports. Naturally, this consistent and remote plant monitoring hugely reduces maintenance and operational overheads.
Traditionally, the grid was designed as a one-way system to transfer energy from a power station through a transmission network and, eventually, to the end user - and the majority of the world continues to rely on this outdated network structure. However, the introduction of renewable energy sources adds a new layer of complexity to standard grid operations.
Renewable power sources are variable by nature and as a result, the amount of power they generate cannot always be accurately predicted. In a smart grid, two-way communication should be introduced by deploying intelligent process control software.
For renewable energy to be successfully fed back into the grid, generation sources must be able to communicate with utility providers to determine whether the energy generated will fulfil the current, and future, requirements of end users. This can ensure that the renewable energy that is being generated is optimized.
This allows utility companies to predict and monitor the amount of energy that is being pushed back into the grid through these sources and to utilize other generation sources should the demand be unfulfilled.
Renewables are also forcing utility companies to handle the unique situation of microgeneration. With smart devices and software readily available and affordable, homeowners are selling renewable energy back into the grid through feed-in schemes. Smart grid technology provides an information channel in which generation data can be exchanged between utilities and their customers.
Similarly to the requirements of a smart factory, the smart grid requires controls, computers, automation and intelligent software to respond digitally to the country's energy demands. To meet today's needs, experts predict that the world's energy industry requires a colossal investment of $12.9 trillion in smart infrastructure. However, the benefits are undisputable: delivering electricity in a more optimal way, from source to consumption. The benefits of a smart grid are improved efficiency and reliability of the electricity supply and, as a result, the reduction of carbon emissions.
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