The Indian upstart will be entering a hot domestic market with formidable competition from established turbine vendors, particularly Vestas, Enercon and Suzlon. It is taking the challenge in its stride. "Taking into consideration the demand-supply gap, breaking through is not the issue. The challenging issue is to give the investors the right technology and good return on investment, which I'm very sure of doing," says Shrenik Ghodawat, managing director of the family owned business.
Ghodawat will initially invest about $25 million in technology fees, components for the first turbines, and ramping up manufacturing at an existing industrial facility in Maharashtra. Over time, that investment is planned to top $100 million in the manufacturer of core components and achieving economies of scale production. Its goals are to produce 50 turbines in 2009, 120 in 2010 and move on from there. Talks are underway with three investors for next year's output.
Roughly 30% of the planned turbine production will be for developing markets. Sri Lanka and Bangladesh will be early targets, but the company is also eying South Africa, Egypt and Oman. "Our teams are already working on finding potential partners in these particular countries," says Ghodawat. "The countries that we have selected are barely aware of the wind potential lying in them. We have done our market research and on that basis have selected them. There is a huge scope and also the first mover advantage."
Ghodawat already makes wind turbine towers, supply about 20 a month to Vestas, Suzlon and Enercon from its Maharashtra base. Though it will technically now be competing with its customers, Ghodawat believes the market is big enough and demand strong enough for new entrants. "At present we have two years tower booking in advance so, yes, we will supply them." It plans to expand tower production to one a day.
The company also owns 100 MW of wind plants in four states: 40 MW in Maharashtra, 40 MW in Karnataka, 12 MW in Gujarat, and 8 MW in Rajasthan, a business it plans to continue.
For AMSC, the deal represents an initial multi-million dollar cash infusion for the upfront licensing fee, an ongoing royalty payment for each unit Ghodawat sells, and a right of first refusal to provide the full electrical systems and core electrical components for all of the wind turbines manufactured by the company. AMSC's Jason Fredette says the right to sell AMSC electrical technology for use in the Ghodawat turbine is a valuable asset. Most of AMSC's wind turbine know-how comes through Windtec, which it bought just over a year ago.
AMSC's strategy is to continue targeting developing wind markets through similar license deals and other arrangements with local partners. "We are incentivised to make them successful. That's a big part of our job to help them do that. It's not just design; we are there providing support throughout the whole process from conception to sales of turbines. We hold their hand through the whole process and help them localise the supply chain," says Fredette.
AMSC is expecting revenues this year of $100 million, nearly double the $52 million achieved in 2007. It is projecting an increase to $150 million next year. Some 65% of company revenues stem from the wind business.