Slowing growth and mounting execution risks have had a disastrous impact on financial health of wind turbine manufacturers. FY 2022 operational income for Inox Wind and Suzlon, two of India’s biggest OEMs, was down by 86% and 31% respectively in comparison to FY 2016 numbers. Both companies have been consistently reporting losses since FY 2018. Alongside other smaller OEMs, they have had to shut down capacity and undergo multiple rounds of business and financial restructuring. It is worth noting here that India transitioned to wind project competitive auctions in 2017.
International OEMs like Vestas, Siemens Gamesa and GE are facing similar problems. Siemens Gamesa, which reported net loss of EUR 884 million in Q4 2022, more than double over a year ago, has flagged high warranty costs arising from high failure rate in its new 5.X onshore turbines. The company is reorganising the business by cutting jobs and adjusting capacity to match market demand. Vestas expects revenues and profitability to suffer further in FY 2023 due to high input cost inflation and weaker than expected demand.
Figure: Financial results of listed OEMs
Source: BRIDGE TO INDIA research
Note: Financial year for Vestas and Siemens Gamesa ends in December and September respectively. Inox Wind demerged its EPC and IPP businesses accounting for 9% of total revenue in FY 2021.
Stuck between spiralling costs, growing construction risks and downward pressure on prices from project developers, the OEMs are seeking to de-risk their business. No OEM is prepared to offer lumpsum turnkey solution including turbine supply, land acquisition, transmission connectivity, installation, commissioning and O&M. The focus now is to just build and sell turbines. The project developers are therefore having to acquire remaining services piecemeal from other contractors or perform them in-house.
The change has brought about a huge market disruption with emergence of a whole new class of sub-contractors and supply chains. Specialised contractors like Kshema Power, Everrenew, KS Wind and Sanghvi Movers are providing services like resource assessment, government permits, land and ROW rights, transmission connectivity, installation and commissioning. There is another group of companies including Inox Green, Renom, Powercon and Windcare providing a range of unbundled operational and maintenance services. Some developers including JSW, ReNew and Greenko have started performing O&M activities in-house. Some are even seeking to make their own turbines with technology licences from overseas companies. Adani recently announced plans to manufacture wind turbines in Gujarat.
The principal implication of these changes in value chain is transfer of execution and performance risk from OEMs to project developers. The new class of contractors is often too small with nominal risk bearing capacity. Any reduction in costs is insignificant in comparison. The project developers are getting squeezed between low tariffs and mounting execution risks.
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