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Analysis: Indian turbine market shifts from turnkey model

INDIA: There are changes afoot in the Indian turbine sector as the country's industry shifts away from the turnkey model it has historically used.

Good in 2014… Spain’s Gamesa has done well under turnkey and as supplier, taking top slot last year
Good in 2014… Spain’s Gamesa has done well under turnkey and as supplier, taking top slot last year

Indian project owners have tended to buy finished wind farms. These owners range from small businesses to large public-sector organisations and some of the country's large independent power producers.

Under the turnkey concept of project development, the turbine manufacturer offers a ready-made project to investors. This requires the manufacturer to be involved in all aspects of development, from land prospecting, acquisition and development, to wind-resource monitoring, supply, construction and commissioning and, finally, operation and maintenance support.

However, this is beginning to change with the growth of pure renewables developers and independent power producers backed by private equity. Cost is all important in India - some estimate the country's cost of energy is even lower than China's. For these developers, taking control of project procurement is an easy way to keep costs down.

This is also changing the dynamics of the market and bringing into play new suppliers who are looking to sell turbines rather than develop projects.

"There is a new game in town," said Hiren Shah, CEO of Reliance Ming Yang, a joint venture between Chinese turbine maker Ming Yang and Indian conglomerate Reliance Group. "GE has become very active and is doing well. This is because GE never wanted to do the turnkey model. Now customers are looking to do it all themselves, so they just want to buy the turbine."

According to Shah, others doing well in the industry include Gamesa and Suzlon, although both of these also offer a turnkey service. Another major European manufacturer was struggling because its turbines were too expensive, he added.

Gamesa was the top manufacturer in India in 2014, taking a 32% market share, according to Make Consulting. GE came sixth. To illustrate the move away from the turnkey model, Gamesa was awarded six contracts worth a combined 194MW in April — only two of these were for turnkey projects.

It is also worth noting that GE and Gamesa have both brought out turbines for the Indian market in the last year. GE launched the 1.7-103, based on its 1.7-100 turbine and suitable for low-wind conditions. Gamesa has a new variant of the G97 with a 104-metre tower height, designed for low-wind speed sites in India.

Root cause

But in the view of those familiar with the Indian market, the shift away from turnkey is down to local manufacturer Suzlon's financial issues prior to the sale of Senvion. Lack of access to funds meant Suzlon was unable to secure project financing to build the projects. It is capital intensive to develop a project from beginning to end. And it is expensive to borrow money in the Indian market.

Overall, this may have had an impact on wind development in India as the company owns a land bank of prospective wind sites.

Manufacturers in India also face the problem of oversupply, which has made turbine purchasing a buyer's market. Shah estimated overcapacity to be as high as 50%.

Despite these possible issues, India is likely to be a major growth market in the region. Make Consulting partner Steen Broust Nielsen backed this up. "We see the Indian market as a growth market. It has a strong economy moving forward and is still an energy-demand market," he said.

"It has high growth in electricity consumption and attractive government targets, supported by obligations on state level to implement renewable-power generation, generation-based incentives (GBI) and accelerated depreciation (AD), which has been re-introduced."

But India is not without issues. Shah referred to its wind industry as "nomads moving from one state to another", thanks to government policy promoting wind. Currently, Maharashtra is the place to be.

Inefficiencies

The system is not as efficient as it should be, said Nielsen. "India has not been so successful in meeting its targets in the past," he said. "A more diligent enforcement of state obligations, overhaul and improvement of interstate renewables certificate and power trading are key prerequisites for reaching targets."

Another potential area for upheaval is operations and maintenance (O&M). Currently, all turbine owners are tied into O&M deals with the manufacturer and there are no third-party alternatives.

However, if India resolved its problems, said Make, especially with regard to targets, it would do well. The turbine market may bring in new manufacturers, but Nielsen said: "I expect turnkey will continue to be an important part of the market."

GAMESA AHEAD OF SUZLON

Top five manufacturers in India in 2014

Place Manufacturer Home country
1 Gamesa Spain
2 Suzlon India
3 Wind World India India
4 Inox India
5 RegenPowertech India
    source: Make Consulting

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