Quality Problems Plague Indian Wind Turbines
India's Suzlon Energy (SUZL: BSE), with 8% market share of wind turbines in the US, is beset by quality issues at home and abroad, according the Wall Street Journal.
Suzlon Energy, with market cap of INR 270B, is a wind power company in India. In terms of market share, the company is the largest wind turbine manufacturer in Asia and the fifth largest worldwide. With headquarters in Pune it has several manufacturing sites in India including Pondicherry, Daman, Bhuj and Gandhidham as well as in mainland China, Germany and Belgium. The company is listed on the National Stock Exchange of India and on the Bombay Stock Exchange.
The window of opportunity for Suzlon opened up with growing demand for green energy amid global-warming fears and the soaring cost of oil, coupled with shortages of turbines from more established players. The company's less-expensive turbines raised hopes for a reduction in the cost of wind power, which currently is subsidized in many countries, including the U.S.
Suzlon's problems in India come as the company also is stumbling in the U.S. Blades on turbines sold to U.S. customers Deere & Co. and Edison International's Edison Mission Energy began splitting last year, leading to a blade recall for strengthening. Indian customers say the turbines have technical problems that make them vibrate excessively when operating at high wind speeds. Some turbines have run out of control in strong gusts, leading to generator blowouts and blades splitting.
The Wall Street Journal reports that Madras Cement has bought 36 units of Suzlon's 1.25 megawatt turbines since 2003. A.V. Dharmakrishnan, executive director of finance for the Chennai-based company, says excessive vibrations at high wind speeds, forcing turbines to run below capacity, are costing the company about $4 million in lost power this year. "The turbines are not capable of producing [electricity] even when the wind is there," he says.
Speaking to Wall Street Journal, Suzlon spokesman Vivek Kher denied the company's turbines have experienced technical problems in its home market. Any drop in performance, he said, is because of falling wind speeds in India in the past couple of years and regular problems connecting to India's shaky electricity grid, which frequently causes turbines to shut down. "There are many companies who are extremely happy with their investment in Suzlon wind turbines," Mr. Kher said.
These latest reports are clearly a blow to a rising Indian company at the forefront of the green energy revolution. How it addresses these issues will clearly determine its future.
The Suzlon shares closed at INR 207.45, down 1.55 from the opening bid of INR 209.00 in latest trading. However, Suzlon is down more than 50% from its 52 week high of INR 460 hit on Jan 9 of this year.
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Suzlon Energy Ltd., the world's fifth-largest wind-turbine maker by unit sales, is facing additional questions about its technology after a 140-foot-long blade broke off a tower in Illinois.
News of the blade detachment, at a project financed by Deere & Co., drove Suzlon's shares down 39% to 47.25 rupees, or 93 U.S. cents, Friday in Mumbai trading.
According to a report in Wall Street Journal, The accident is the latest in a series of cracking windmill blades and other technical problems in the U.S. and India that have hurt Suzlon's image. It has been forced to scrap a $390 million share-rights issue because of the stock-market slide. Suzlon needs the funds that the rights issue would have raised to complete a takeover of Germany's REpower Systems AG. That move is considered key to assuaging investor fears about Suzlon's technological capabilities following a number of turbine-blade failures at U.S. installations.
In a statement, Suzlon said the Illinois incident was "extremely rare and unusual." The company added, "Other turbines owned by that customer and our other customers at various locations in the U.S. are operating without interruption." It gave no further details.
Wind energy, it appears, has never been so competitive. Prices for wind turbines last year dropped below €1 million ($1.36 million) per megawatt for the first time since 2005, due largely to over-capacity, greater manufacturing efficiency and increased scale, according to the market researcher Bloomberg New Energy Finance.
The group’s most recent Wind Turbine Price Index, based on confidential data provided by 28 major purchasers of wind turbines, shows that prices remain under pressure in most parts of the world. The survey includes more than 150 undisclosed turbine contracts, totaling nearly 7 GW of capacity in 28 markets around the world, with a focus on Europe and the Americas.
While the news is good for wind farm project developers hoping to save money, it’s troubling for manufacturers and component suppliers trying to make money – they have seen their margins shrink over the past couple of years. Global turbine contracts signed in late 2010 for the first six months of this year averaged €980,000 per MW, down 7 percent from €1.06 million per MW in 2009 and a peak of €1.21 million in 2008 and 2007.
All manufacturers covered by the survey showed “aggressive pricing, according to New Energy Finance, which was acquired by Bloomberg in 2009. Low-priced power-purchase-agreements in markets exposed to competitive electricity prices – rather than fixed feed-in tariffs – appear to have put additional pressure on turbine contracts. Average prices in Italy, the United Kingdom and the United States were well below €1 million per MW for contracts signed in 2010 and slated for delivery in the first half of this year.
The cost of electricity generated by wind is now at record low levels, according to the survey. “For the past few years, wind turbine costs went up due to rising demand around the world and the increasing price of steel,” Michael Liebreich, chief executive of Bloomberg New Energy Finance, said in a statement. “Behind the scenes, wind manufacturers were reducing their costs, and now we are seeing just how cheap wind energy can be when overcapacity in the supply chain works its way through to developers.”
Overall, the annual 2010 global wind market shrunk for the first time in two decades, down 7 percent from 38.6 GW in 2009 due mainly to a disappointing year in the U.S. and a slowdown in the Europe, according to figures released earlier this month by the Global Wind Energy Council. The U.S. which is traditionally one of the strongest wind markets, saw its annual installations drop by 50 percent from 10 GW in 2009 to just over 5 GW in 2010, GWEC said in a statement.
“Our industry continues to endure a boom-bust cycle because of the lack of long-term, predictable federal policies, in contrast to the permanent entitlements that fossil fuels have enjoyed for 90 years or more,” Denise Bode, CEO of the American Wind Energy Association, said in the same statement.
GWEC secretary general Steve Sawyer believes 2011 will be better. “Orders picked up again in the second half of 2010 and investments in the sector continue to rise,” he said.
On that note, French manufacturer Alstom won a contract this month from Traianel to build Germany’s 80-turbine Borkum West II wind farm offshore farm. The project is scheduled for completion in March 2012.