Less than three years after its India entry, Spanish company Gamesa has captured a fifth of the country’s booming 15,000-Mw wind energy market through its domestic subsidiary, Gamesa Wind Turbines Pvt Ltd.
However, much is lacking in state policy if the renewable energy (RE) sector has to grow, explains Ramesh Kymal, chairman and managing director, who also chairs the RE Council of the Confederation of Indian Industry. Edited excerpts of an interview with Sudheer Pal Singh:
What is your assessment of the renewable energy sector’s growth?
In the absence of an all-encompassing RE law, it will be difficult to grow in this sector. The Electricity Act of 2003 does not, by itself, have the teeth to help RE grow. While the Act lays down that a minimum quantity of power has to be bought by distribution companies from renewable sources, the amount has not been specified or enforced.
States have started revising these Renewable Purchase Obligations downwards. Solar power is still three to five years away from grid parity.
We are lobbying hard for a level playing field between wind and conventional power, which is already attracting a lot of subsidies. There is no subsidy for the wind energy sector.
It is a wrong perception that fiscal incentives are available. There are no fiscal incentives for wind energy, except for accelerated depreciation. The government looks at the sector with a magnifying glass. But when it comes to conventional power, it gives automatic approval. This is not a good way of developing this sector. It explains why the power sector is in such a mess.
How is the progress?
Wind power has grown despite all the policy impediments. This is because all the investment has come from the private sector. Even then, there has been no development in those states where the developer is forced to sell power to utilities.
This year, the wind energy industry will install around 3,000 Mw, as compared to 2,000 Mw last year. Whether we can sustain this is a big question. Unless we tweak policies, that growth is not going to happen next year. The real potential is to supply around 10,000 Mw wind energy capacity every year. There is enough production capacity and land available. An issue, however, is transmission.
The growth so far has come from companies with strong balance sheets. But this is not the way to grow. If we need 10,000 Mw capacity addition every year, it will have to come from independent power producers (IPPs), who have no AD benefit and are fully dependent on revenue from sale of power.
The share of IPPs has gone up because of introduction of RECs (RE certificates), which are being traded at a healthy price and, therefore, a lot of IPPs are able to survive. But unless a remunerative price for power is given, the sector will not grow. This is because with the current interest level at 15 percent, a developer expects at least 19 per cent return. The current rates (for supply) are not enough for this.
What part of this year’s wind energy capacity addition of 3,000 Mw would your company capture?
We are targeting 500 Mw and have already exceeded our expectations. Our products were well received and we were able to ramp up orders very fast.
We made huge investments in new factories. Because of this, the customer also sees long-term commitment from Gamesa for India. Within 30 months of entering the Indian market, we have become the second biggest player here.
What is the current order book?
We have already received orders for roughly half the 800 Mw capacity we expect to commission next year. In addition, we have signed some long-term orders with IPPs.
We made the public announcement on the Caparo deal in May. On similar lines, we are going to sign deals with at least two more players, who are big IPPs, before March. Each of these deals will be for supply of around 1,500 Mw capacity turbines for a five-year period.
What is the update on your plans for a domestic manufacturing base?
We already have a manufacturing plant in Chennai. We are building one more there. We also have two factories in Baroda for manufacturing blades and towers. All of this required Rs 150 crore investment, most of which has already been made.
How important is the Indian market for Gamesa’s global operations? How have margins moved recently?
The Indian market accounts for 20 per cent of our global sales and we see it going up to at least 35 per cent next year.
There is increasing competition from low-cost Chinese machines and also the concern on incentives and subsidies. The market has not really recovered from the financial crisis of 2008 and there is over-supply. This has not affected India that much. But because of oversupply, there has been a big squeeze on margins globally.
In the absence of a rate increase in India, IPPs are being forced to reduce their capital cost. So, we are only managing to survive and that is why we are lobbying so hard to increase rates.
How big a threat are Chinese turbine makers in the Indian market?
It is not a threat because we also manufacture in China. But we are worried about the financing options. The Chinese will come with options like low debt of two-three per cent being provided by Chinese banks. We will never be able to match that. The investor takes note of this. So, we are talking to the Indian Renewable Energy Development Agency to have the priority sector’s reduced interest rates applicable to us.