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Tulsi Tanti , Chairman, Suzlon group

01 Mar 2014

Chairman, Suzlon group, Tulsi Tanti speaks to Ankita Sharma about the wind major’s status and the company’s expectations in the current economic scenario. Excerpts.

How will businesses lead India’s energy security? How far do you think can this mission be accomplished?

I appreciate this conference (Delhi Sustainable Development Summit which was held in Delhi on 6-8 February) and the initiative of Teri because like minded people have come together from across the world. Continuous interaction is important for sustainable global development and for creating a sustainable economy which is not there at the moment. We have to seriously work on energy, water and food security to bring about a change. Every part of society will have to make an effort. It will not only be businesses that will lead the way but society will also have to focus on altering its usability pattern. There is a role for everybody – the businessman has to work, political leader has to work and the policy framework has to work, to make it happen. Companies and corporates have more responsibility. The two initial steps to be taken are to bring the technology and to mobilize investment funds. By bringing the technology, environmental risks can be mitigated and investment in renewable energy can become the new way of doing business. Globally, companies are changing their business models to bring this around. They are changing the business to take this opportunity ahead. Take the example of LEDs. Five years ago it was not a profitable business and now this has become the new leading business. The need of the hour is to mould business plans to include environmental initiatives. Scalability will come accordingly.

Where do you see India stand amidst all this?

If there is a market and opportunity, companies will invest in technology. Take the example of the Indian wind market. It is very different from the world market. Nowhere in the world does a similar business model exist. In other countries, components are bought separately to execute a project. However, only a turnkey model works in India, complete end-to-end solutions like Suzlon provides, along with 20 years of maintenance and management for its projects. With such solutions, we have brought down the cost of energy drastically.Suzlon sells its wind turbines in 32 countries; however the capex in India is the lowest, even lower than China. This is due to continuous investment in technology and engineering for the local market. At the same time, the scale has increased to bring down the cost of both energy and infrastructure. In India a 1 mw plant can be set up in Euro 1 million. Nowhere in the world is the cost so low. In the European market, the cost of a 1 mw project is Euro 1.75 million; in the US it is Euro 1.5 million.When you compare the energy cost from wind plants with that from imported coal-based power plants, you will find that wind energy is cheaper. This is the competitiveness coming with technology.

Why is the Indian wind energy market not moving forward?

It is very simple. Two years ago, the industry was doing very well with 3300 mw installations every year. The sudden withdrawal of generation-based incentives(GBI) and accelerated depreciation (AD) brought about a standstill in the market, pulling it down by half. The second problem is pricing. In any state, where tariff is below `5 for renewable energy, it is not financeable. Banks do not support such low prices and believe that such a project is not sustainable. Ultimately it is the state electricity boards which have to do the buying and they should come up with attractive price for renewable energy so that projects are financeable. Another problem is ground execution. Sometimes there are problems with society and the project does not come up in time. This leads to cost over runs, making the project unviable. Lastly, from the perspective of wind companies, the state utility and the state government has to invest in the grid and road infrastructure. This investment has to come three years before such projects. In the present case, even if we build the project, there is no power evacuation. Right now, across the country, development is happening in only two states, Maharashtra and Madhya Pradesh due to their suitable policies and infrastructure. In Tamil Nadu, investment is there but there is no grid. In Andhra Pradesh, the grid capacity has to be allocated. Both these states may come around only next year. In Gujarat and Karnataka the tariff is too low. In Rajasthan there is no policy framework right now, however, with the new government assuring better policies and a reasonable tariff, Rajasthan will also start next year.

With the fall in rupee, how do you see the input cost panning out in near future? What was the impact on business?

We are manufacturing all our capital goods in India and are one of the largest exporters of capital goods from India. The rupee depreciation is always partially beneficial for exporters, however, we are importing a number of components and hence, there is a balancing out. There is a natural hedging situation for the company. But still, for domestic sales the capex has increased by 5 per cent. I do not see the rupee depreciating any further. Therefore, we have to invest more and more in renewable energy so that our energy imports do not increase further.

What major reforms are required in policies to ensure a better future for industry?

Doing business is not very easy in the current scenario as only stop-gap efforts are being made on the governance side. India needs a strong and stable government and it is up to the public to bring about that change. Under policy issues, the first thing required is right prices at the state level to attract investment. Projects should be financeable. The regulator has to come forward with the right pricing. The second is the grid and infrastructure development. States have to invest in this segment so that power can be evacuated in time. Third, we have to set crystal clear targets for states governments that by 2020 a certain percentage has to come from renewable and if that is not the case then a penalty is applicable. The REC mechanism in this space was a good initiative but without strong implementation and mandatory buying, this will not help. Such policies are coming out in certain states but it will take its time.

How is the sector combating financial issues? Are banks and institutional lenders willing to lend money given that it is a capital intensive sector?

In this segment there are no financing issues. If the right project is available, debt is available; there is great equity and globally there is great interest in investment. Unfortunately, projects are not available for investment. Pension funds globally are investing in the renewable market; however India lacks good projects. Equity is not a constraint and even local banks are financing projects. My only suggestion to Indian financing institutions is that in place of 15 years, financing should be for 25 years. This will further bring down the cost of energy.

How is Suzlon faring as a company in the Indian context?

Two years – 2012 and 2013 – were not good for industry. The year 2013 saw a 10 per cent negative growth in the market. However 2014 looks like a very promising year. The global economy is very positive with estimated 3. 7 per cent GDP growth and US economy is also very positive. Globally the financial market is stabilizing which will have a positive impact on the Indian market as well. The wind energy market is going to increase by 25 per cent next year and that benefit will come to Suzlon as well. The current capacity of Suzlon is large and we are using just 30 per cent of it. So for the next two-three years we do not need any capex for development. As growth is coming, we will very comfortably use our existing capacity more and more to make the company profitable. For us the demand is coming from India, Germany, France, the UK, Canada, the USA, Brazil and Australia. Our current debt level is `14,000 crore on the group level. We are optimizing our capital structure to decrease our interest cost and reduce our debt.

What are your company’s plans down the line?

In our total revenue basket, India is giving only 20 per cent right now. Further order of business will largely depend on the next government and how they will start certain policy framework to help the market. We have a market share between 30-40 per cent and we will continue like that. Indian market is planning to grow by 30 per cent in the coming year and Suzlon will grow more than 30 per cent with it. However, AD has to be brought back as it supports the SMEs. This change in policy will ensure an increase of almost 50 per cent in the Indian market. We are the second largest country in the world building offshore wind energy parks in Germany and the UK. We are making a 6.5 mw turbine which is the largest in the world. We are planning to bring those technologies to India in 2016. This year India will do a 1600 mw and Suzlon aims to have a good share in that mix.

Who are your competitors in wind industry?

My biggest competitor is coal and the second is oil. In the renewable energy sector there is no competition. We are together bringing just 4 per cent to the total energy mix and the rest 96 per cent are competitors. All companies in the renewable sector are working together. There can be no internal fighting when the competition is so huge already. Our other contemporaries in the market are GE, Siemens, Vestas and Enercon.