The Hindu Business Line : Favourable winds

Given the reality of power shortages and the thrust on developing alternative sources of power, wind energy is gaining significance. One Indian name that stands out as a major enabler in the global wind energy market is Suzlon Energy.

A market leader in Asia, Suzlon is the world’s third-largest manufacturer of Wind Turbine Generators (WTG), with a 12 per cent market share, and is a leading supplier to major power generation companies worldwide. It has manufacturing and research facilities in India, China, the US and Belgium, with a 14,000-strong workforce.

Since its inception in 1995, it has come a long way thanks to its offerings across the value chain and global delivery capabilities.

Though wind power is a booming industry, there are several challenges for the equipment supplier. The technology is relatively new, so customers expect the supplier to provide the knowhow and project management. Suzlon realised this early and upgraded itself to an end-to-end solution provider. Its expertise now spans wind resource mapping, front-end engineering, site planning, procurement, and operation and maintenance of power projects. Further, it offers customised training programmes to help customers manage their projects better.

Given the thin margins, economies in sourcing and delivery make a critical difference in the wind power business. Therefore, Suzlon has located its major manufacturing facilities in low-cost countries such as India and China to derive critical cost advantage. Wherever suitable it has resorted to mergers and acquisitions to access global facilities. It acquired Hansen, the world’s second-biggest switchgear producer, from which it sources one-third of its requirements, resulting in scale economies. Another interesting acquisition is REpower, Germany’s leading WTG supplier. Applying Porter’s five forces to the company:

Bargaining power of suppliers: High.

The key raw materials for WTG are glass fibre, epoxy resin and foam, whose prices fluctuate greatly in line with global demand-supply. There have been instances of costly project delays due to supply-side constraints. Thus, suppliers hold the bargaining chips.

Bargaining power of customers: Medium.

Demand for wind energy is upbeat, and Suzlon carries the reputation of executing large-scale wind energy projects which gives it some amount of pricing freedom.

Threat of substitutes: Medium.

The key substitutes for wind power among alternative energy sources are solar and biogas, which however have not taken off yet on a meaningful scale. But governments world over these segments through subsidy and tax breaks, and hence they may in future compete with wind energy for investment dollars.

Threat of competition: Medium.

Suzlon offers a range of services and products, which not all players can match. Further, burgeoning demand for wind energy offers room for growth for all players. Thus competition might not be an immediate worry.

Barriers to entry: High.

Survival requires global project management skills, strategic raw material sourcing, high technological skills and an appetite to scale up inorganically. New players will find it difficult to acquire these capabilities.

(The authors are Chennai-based chartered accountants.)

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