Wind Energy Surges Ahead, Boosting Inox Wind And Suzlon As Solar Struggles

India's wind energy sector is experiencing a welcome resurgence. The sector's revival is being fueled by rising evening power needs, a shift towards wind-heavy renewable tenders, and surging industrial demand.

This translates to big opportunities for domestic players like Inox Wind Ltd. and Suzlon Energy Ltd. These companies are not just wind turbine generators but are also turnkey engineering, procurement, and construction players. This means they can handle the entire wind power project lifecycle, from supplying turbines to engineering, procurement, and construction.

The Indian wind sector saw a slowdown between April 2016 and March 2023. The global drop in solar module prices, which made solar a more attractive option due to lower costs, is responsible for the downtrend. However, the major problem with solar power is that supply shuts off after sunset, a time when power use is imminent.

India's over-reliance on solar power has led to a 4% power deficit during evening and non-sunlight hours. To balance this, wind energy emerges as the solution.

Wind speeds typically increase in the evenings and at night, offering a natural complement to solar. Additionally, wind produces strong output during monsoons when sunlight is weak. Wind power, therefore, strategically fills the gap in India's energy needs during these periods.

The renewable energy tenders also show a preference for wind power, which is also evident in the renewable energy tenders. According to Nuvama Research, there is an increase in round-the-clock, hybrid, and flexible-for-requirement solutions that combine various clean energy sources. In 2024, these solutions accounted for 30% of total tenders, up from 13% in 2021.

The brokerage further added that, within the round-the-clock projects, wind power now holds a significant share of 40–50%.

Nuvama's also highlighted that wind power projects have had a higher success rate for securing signed power purchase agreements, or PPAs, with electricity distribution companies, or discoms, over the past three-to-five years.

This translates to a greater likelihood of wind power projects actually coming to fruition compared to other renewable energy solutions.

India is looking to auction 50 gigawatts of renewable energy annually for the next five years. Nomura estimates the total addressable market, or TAM, for wind power in India to be 8–10 gigawatts annually, based on current trends in "vanilla wind" bids and wind power's shares in multi-source models like  round-the-clock, firm and dispatchable renewable energy, and hybrid.

ICRA's positive demand outlook from the commercial and industrial sectors suggests an additional 4-6 gigawatts of annual wind demand if 20% of their total energy consumption is considered. Combining these factors, the brokerage projects India's annual wind power demand to be around 12–14 GW.

Given that India could see a strong wind power demand of 12–14 gigawatts annually, the country's estimated supply of wind turbine generators is sufficient for the projected demand.

However, "Wind Engineering, Procurement, and Construction Turnkey" supply does not fit this category. The wind EPC turnkey supply here encompasses everything needed to build a wind fall. Here, the EPC contractor takes care of everything from land acquisition and transmission planning to procuring turbines, and the client simply needs to "turn the key".

According to Nomura, the estimated turnkey EPC demand would be 5 gigawatts, while supply stands at 3 GW.

Because public sector undertakings and the commercial and industrial sectors' wind power projects often require "holistic solutions" that require start-to-finish services, companies like Suzlon and Inox Wind stand to benefit as the only two listed turnkey EPC players.

Suzlon Energy Ltd. not only has a 30% market share in the wind turbine generator, or WTG, market, but it is also one of India's only two wind EPC suppliers.

The company's order book stands at 3.3 GW as of May 2024, marking a 5-time jump from March 2023. The current order book has the potential to generate Rs 19,986 crore in revenues over the next two years, according to Chief Financial Officer Himanshu Mody.

While the company did default on its debt obligations in the past, its recent restructuring has led to a significant reduction in debt and lower interest costs.

Even during the sectoral downcycle, Inox Wind defended its 15% market share. As of April 2024, the company's order book stood at 2.66 gigawatts. The order boost mix is 73% from the commercial and industrial segments, with a balance from PSU (25%) and the retail segment.

According to Nuvama, these segments have the potential to fetch higher margins for the company because of the end-to-end turnkey solutions element.

The company's interest-bearing debt has also seen a decline to Rs 6,500 crore in March 2024.