India tops wind energy table

Since changing course in 1994 Tanti has become Asia’s foremost wind man and one among India’s growing crop of new billionaires. Suzlon Energy makes wind turbines, industry jargon for modern windmills, to generate electricity. The 70 per cent stake that Tanti and his three brothers own in their Bombay Stock Exchange-listed company is worth $4.3 billion. The stock has risen 60 per cent since Suzlon’s first daily close last October, giving Tanti an entrée into the billionaire ranks.


Now situated in Pune, a city known for its engineering skills, Suzlon is a prime example of India’s emerging story in manufacturing, less told than the technology- services tale. A fellow Pune billionaire, Baba Kalyani, has built Bharat Forge, which makes auto chassis, into a world beater. Tanti wants a similar status for Suzlon.

The company already ranks as the world’s eighth-largest producer of wind energy in terms of installed capacity to date. Tanti is aiming high and wants to close the gap with Suzlon’s biggest European competitors, Denmark’s Vestas Wind Systems, Germany’s Enercon and Spain’s Gamesa. Suzlon’s surging revenues are only one-fifth those of Vestas, but the Indian outfit has been consistently profitable for six years. Vestas made losses in the last two years.

At home, where it still makes 90 per cent of its sales, Suzlon has 35 per cent of the market. The country is among the top five wind power users, which collectively account for 70 per cent of global capacity. With its mission to provide "Power for all by 2012" India’s federal government has introduced legislation making it compulsory for electricity distributors to get a specified quantum from renewable energy sources.

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There is a separate ministry for nonconventional energy, which has estimated the country’s capacity to generate wind power at 45,000 megawatts, more than ten times current installed capacity.

Wind power has its critics, one beef being the noise that neighbors of turbines have to endure. But densely populated India in fact has large tracts of open land, mostly in remote rural areas. About 15 to 20 acres are needed for a 1-megawatt installation.

Suzlon has built Asia’s largest wind farm, with an installed capacity of 500 megawatts, near Kanyakumari, on India’s southernmost tip, where trade winds of 15mph are common. The ministry of nonconventional energy has created a "wind atlas" for picking the best sites.

India itself could easily keep Suzlon busy in the years to come. But Tanti is keen to expand abroad. "This is a global business, and we want to also grow in the global market," he insists. Worldwide the wind energy industry is worth $11 billion, growing 27 per cent a year for the past five years. BTM Consult ApS, a renewable energy consultancy in Denmark, predicts that global installed capacity for wind power will more than double to 124,000 megawatts by 2009. Tanti is positioning Suzlon to get a fair chunk of that growth by being a low-cost producer and is collecting engineering talent so Suzlon can continually improve technology.

"Tulsi is a tiger with a burning desire to play on the global stage. He wants Suzlon to be among the top three wind energy companies in the world," says Ashish Dhawan, senior managing director, ChrysCapital, a private equity firm in Mumbai that made a timely $11 million investment in Suzlon in 2004. (ChrysCapital bought shares at 27 rupees, selling part of its then 7 per cent stake just before the IPO for a slight discount to the 510-rupees-a-share IPO price. Dhawan remains on Suzlon’s all-Indian board.)

Can a relative newcomer seriously challenge the Europeans, who have dominated the modern incarnation of the industry for 40 years? Until the IPO Suzlon was virtually unknown and had to hard sell its credentials. "Now we can tell our potential customers that we’re a $6 billion [market cap] company!" beams Tanti. In a marketing drive led by Tanti’s younger brother Girish, an electronics engineer, Suzlon has established a marketing outpost in Denmark to canvas for customers outside India. The company has made headway in the US and China and, more recently, in Australia.

Suzlon started selling in the U.S. in 2003 when it landed a contract with DanMar & Associates, a Minnesota development firm, to supply 24 turbines in southwestern Minnesota. Suzlon clinched the deal not only because it could supply at prices 10 per cent cheaper than its European rivals.

"Their design and technology was better suited for our wind resources in the US Midwest and 10 per cent more efficient than that of competing providers," says DanMar’s founder Dan Juhl, who has followed up with repeat orders. Turns out that Suzlon’s robust turbines could best withstand extreme weather conditions.

Customers like John Deere Credit got sold on Suzlon’s willingness to execute even the smallest of projects. To serve its customers, Deere figured out that renewable energy was another "crop" that farmers could be harvesting. "We felt that Suzlon, which was learning to become a global supplier, was the best option for our small community-based projects," says David Drescher, vice president of the wind energy group at John Deere Credit.

With orders worth $600 million in hand from US, Chinese and Australian customers, Suzlon has invested in a service support facility and a workshop in Pipestone, Minnesota to manufacture rotor blades. At 140 feet these are longer than the wing of a 747 plane, so they are too expensive to transport across continents. Building them closer to the customer location obviates the logistical issues of transporting them from India."We’re an Indian company that’s creating 300 jobs in the US," boasts Tanti.

Expansion isn’t expected to require a dilutive follow-on equity offering anytime soon. Banks are now chasing such projects, so getting bank loans is no problem for Suzlon. Besides, it generates cash profits that are put back in the business.

The same kind of venturesome spirit that drives Tanti now was what set the Suzlon train in motion. Spurning their father’s construction business in Gujarat, Tanti and his three siblings moved into textiles in the late 1980s. They started processing polyester yarn, then graduated to making furnishing fabrics.

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The decision to shift again, into wind energy, was a brave one. The industry was in the dumps, as it had been given a bad name by unscrupulous companies that lured customers with the bait of tax breaks. But projects were ill conceived, often left incomplete with no maintenance or service support to speak of. Banks wised up and stopped lending for wind power projects.

The brothers saw the opportunity for a producer not only to build the wind turbine but to provide maintenance and service support–even operation–as well.

The experience seems to have kept the brothers tight. "We have a common store, but our kitchens are separate," is how Tulsi Tanti puts it, though even today they host each other daily at their respective flats.

Selling some family property, the Tantis put together $600,000 as seed capital to start Suzlon. They shopped around for technology in Europe, but no one was willing to give it without having an equity stake in the venture.

Finally, Sudwind, a small German company agreed, provided Suzlon bought ten turbines. Tanti convinced IPCL, a petrochemicals company that had been supplying raw materials for his yarn business, to sign up as Suzlon’s first customer. Suzlon completed IPCL’s 3.5-megawatt project using Sudwind’s turbines within the three-month deadline. Tanti claims that ten years on, this first wind farm continues to run at 97 per cent efficiency.

WIND POWER MARKET SHARE LEADERS

Suzlon is growing fastest among the world’s biggest turbine makers.
COMPANY/COUNTRY TOTAL INSTALLED MW % GROWTH 2004-2005 MW
Vestas/Denmark 20,766 15%
Enercon/Germany 8,550 18%
Gamesa/Spain 7,912 23%
GE Wind/US
7,370 14%
Siemens¹/Denmark 4,502 13%
Nordex/Germany 2,704 7%
Repower/Germany 1,522
22%
Suzlon/India 1,485 28%
Mistubishi/Japan 1,252
21%
¹Wind Unit. Source: BTM Consult ApS.


But the brothers, all four engineers, wanted to prove their technical prowess by crafting their own turbine. Their research efforts got a boost when Sudwind went bust in 1997. They hired Sudwind’s engineers and created an R&D center in Germany. The subsequent acquisition of a manufacturer of rotor blades in the Netherlands gave them access to technology for a key component.

Electricity-Generating Capacity by Type (2003)

Fossil fuels remained dominant sources of power in the latest available year.

MW (THOU)
Combustible Fuels
Coal and Coal Products 488
Natural Gas 376
Other Combustibles 710
Hydro 421
Nuclear 313
Wind 35
Geothermal 6
Solar 1
Other 1
Source: International Energy Agency
Note: Numbers are for OECD countries only. Emerging countries such as India, China not inlcuded.

By 1999 Suzlon had introduced its partly homegrown turbine into the market. Today the company has three research sites, in Germany, the Netherlands and India, which are linked together. One important mission: to find ways of increasing output so cost per kilowatt of energy-generated decreases.

At the same time, Tulsi Tanti is shrewdly consolidating his hold on component supplies, a critical success factor in this business. In March Suzlon acquired Hansen Transmissions Intl., a Belgian maker of wind turbine gearboxes, for $565 million, thereby securing supplies of another key component. (Suzlon now makes two-thirds of its turbines in India; the remaining third are imported.)

Traditionally, wind power has depended on tax breaks to make it an attractive alternative to conventional energy. But Tanti insists that with the price of conventional power climbing, production costs today are almost the same. Suzlon’s technology innovations and ability to substitute for expensive imports with cheaper domestic components has reduced costs in the last ten years. "We don’t need government handouts to survive," he declares.

However, Indian investors in wind power can claim an accelerated depreciation of 80 per cent starting from the first year. "Wind energy projects tend to be viewed as tax-saving devices, but they make business sense as firms can reduce their power costs," says Karthik Ranganathan, an investment manager at Baring Private Equity Partners.


As often, the breaks create suspicion. Suzlon, along with other firms, is being investigated by the Indian income tax authorities for creating fictitious projects as a tax dodge.

Tanti insists Suzlon is as clean as the power it generates. He’s also confident the run-up in oil prices is putting the wind at his back. "This is only the beginning," he promises.

By the Numbers

  • 200,000 megawatts: Estimated production (installed capacity) of electricity in India by 2012, up by 60%. 0.69% The share of wind power in total global electricity generation.

    $10 trillion: Investments required to meet global electricity demand in 2030.

Sources: Company reports; IEA.

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