Rupee Derailing $1.6 Billion Wind Farm Revival: Corporate India

September 2, 2013 by  
Filed under Green Energy News

The rupee’s biggest plunge in 20
years is endangering the recovery of India’s $1.6 billion wind
power industry as higher finance and import costs negate
benefits from a government subsidy restored last month.

The currency’s 17 percent slide against the dollar this
year has stalled new investment plans, said Mahesh Makhija,
director of renewables at the Indian unit of CLP Holdings Ltd. (2),
the largest owner of farms in India. Turbine makers such as
Suzlon Energy Ltd. (SUEL) and Gamesa Corp Tecnologica SA (GAM), who count
India among their top three markets, may raise prices, he said.

After a record 42 percent drop in installations in the 12
months through March, the industry is set to beat the U.S. for
the first time this year after the government reintroduced a
cash incentive in August. India, which is fighting to reduce
blackouts that hold back economic growth, is seeking to cut
dependence on imported fossil fuels and double clean energy
capacity to about 57 gigawatts by 2017.

“A rapidly falling rupee affects investor confidence in
the Indian economy and is likely to impact our expansion
plans,” Makhija said. “Manufacturers who aren’t hedged in the
short-term could take the increased costs to customers over the
next three to six months. Developers are also likely to be
affected by growing inflation.”

Yield Surge

The local currency dropped as much as 20 percent this year
when it touched an all-time low of 68.845 a dollar on Aug. 28.
Its 8.1 percent slide in August was the biggest monthly decline
since March 1992, according to data compiled by Bloomberg.

A weaker currency inflates overseas debt when repaid with
local earnings, increasing finance costs, while also boosting
prices of imported components and other raw materials. The
average yield for dollar debt of Indian companies jumped as much
as 2.56 percentage points to a 19-month high of 6.32 percent on
Aug. 22 from a record low reached on May 10, according to an
index compiled by HSBC Holdings Plc.

The depreciation may hurt the industry at a time India is
forecast to put up 2,050 megawatts of wind capacity in 2013,
compared with 2,000 megawatts expected in the U.S., pipping the
North American country for the first time, according to
estimates from Bloomberg New Energy Finance. In 2014, that may
rise to 2,300 megawatts, signaling a rebound.

So Steep

“If the rupee doesn’t recover in the next couple of
months, it will start impacting everything from turbine prices
to interest rates, and thus project profitability,” said
Shantanu Jaiswal, a New Delhi-based BNEF wind analyst. “Nobody
would’ve thought that the decline would be so steep.”

Suzlon ceded its position as the top wind-turbine supplier
in India for the first time in at least a decade last year as it
struggled to repay debt accumulated from acquisitions. The
company and its units had about $1.5 billion of debt denominated
in the greenback and owe the equivalent of about 66 billion
rupees in euros, data compiled by Bloomberg show.

The turbine maker, based in the western Indian city of
Pune, is this year’s worst-performing stock in the 98-member NEX
index of clean-energy shares, having dropped 68 percent. Its
shares were up 0.3 percent at 5.97 rupees as of 11:35 a.m. in

A weaker rupee, while posing some challenges to the
industry, may help local manufacturers including Suzlon to
compete in overseas markets, said Chairman Tulsi Tanti. Ramesh Kymal, head of Gamesa’s local unit, didn’t respond to an e-mail
and phone call seeking comment.

“It has some positive aspects for a company like ours,”
Tanti said in an e-mailed response. “With significant
manufacturing in India, this can translate to us being more
competitive in U.S. and Europe.”

More Competitive

The currency’s slump may make wind energy more competitive
against fossil fuel-based power, said Ravi Kailas, chairman of
Mytrah Energy Ltd. (MYT), a developer backed by Henderson Global
Investors Ltd. Wind farms don’t have to deal with the long-term
risk of rising fuel imports faced by coal and natural-gas fired
plants, said Arvind Bansal, chief executive officer of Morgan
Stanley-backed developer Continuum Wind Energy Pte.

“It has brought into focus the intrinsic competitiveness
of wind energy,” Bansal said. Both developers say all of their
debt and revenue are in rupees and they don’t expect delays.

India has installed 19,662 megawatts of wind power,
according to the Ministry of New and Renewable Energy, about a
fifth of the nation’s estimated potential, BNEF’s Jaiswal said.

Rising Demand

The country’s 10 largest developers, including Mytrah,
Green Infra Ltd. and Goldman Sachs Group Inc.-backed ReNew Wind
Power Pvt., have plans to put up 15,000 megawatts of capacity in
the next 10 years, driven by increasing demand for electricity
and wind power prices that are competitive with new coal plants.

Goldman and Morgan Stanley (MS:US) have led about $1.1 billion of
private-equity buyouts, project and company acquisitions in the
industry since 2010 as the cost of generating electricity from
windmills has become lower in some states than from new coal-based power plants.

The benefits offered by the reinstatement of the government
subsidy for windfarms may be blunted by the rupee, said Jaiswal.

The cabinet in August approved the proposal to revive the
generation-based incentive of 500 rupees ($7.6) a megawatt-hour
and also agreed to raise the cap on the total subsidy a wind-based power producer can claim over 10 years by 61 percent to 10
million rupees. Farms built between 2012 and 2017 will be
eligible for the subsidy, Ministry of New and Renewable Energy
Joint Secretary Alok Srivastava said Aug. 13.

The subsidy expired March 31, 2012, stalling turbine orders
and toppling India from its place as the world’s third-biggest
market, data compiled by Bloomberg show.

As Prime Minister Manmohan Singh struggles to revive
economic growth from a decade-low of 5 percent and rein in a
record current-account deficit, UBS AG last month predicted a
drop in the rupee to 70 is possible.

“Rather than the absolute value of the rupee, what is
important for decision making is when will it find stability,”
said Continuum’s Bansal. “That may hold up new investments.”

To contact the reporter on this story:
Natalie Obiko Pearson in Mumbai at

To contact the editor responsible for this story:
Reed Landberg at

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