The agreement with Caparo Energy India (UK-based Caparo Group of Lord Swraj Paul) for wind power projects worth $1.28 billion (Rs 5,800 crore) is a shot in the arm for wind equipment major Suzlon Energy.

The order comes at a time when the company's business in the US has been lacklustre and the equipment maker has been struggling to improve its financials. The stock of Suzlon Energy reacted positively after the order was announced but ended with a 0.8 per cent decline (the BSE Power index declined 2.4 per cent); falling lesser than broad market on Friday.

Higher price

The agreement entails 500 MW to be commissioned by March 2012 and another 500 MW by March 2013. The deal value places the per-MW sale at around Rs 5.8 crore, marginally higher than the average clocked in the Indian geography for the half-year ending September.

This suggests that Suzlon Energy has not only managed to keep volume upbeat in the Indian market but has also improved its pricing power. Reports state that Caparo agreed to pay a higher price to Suzlon for some models of turbines to reflect the increasing cost of wind power assets in India. The Indian market is increasingly becoming more lucrative for renewable energy players, what with the Government making renewable energy tariffs more attractive.

The Central Electricity Regulatory Commission also announced revised tariff for different renewable energy sources, thus requiring individual States to align their respective State tariff to the CERC tariff.

Levelised wind energy tariff for instance varied between Rs 3.75 and Rs 5.53 per unit depending on the wind zones. This has led a number of new players such as Caparo Energy to enter the renewable energy market in India.

Suzlon Energy too has in the last year and a half been focussing on the Indian market as well as other emerging markets such as China and Australia for new orders, even as it saw order inflows from the US – a key market – dry up.

The current order is significant as it will increase the company's standalone order book of Rs 8,285 crore (as of September 2010) by 60 per cent. But this also means that over two-fifths of the total order book will be titled towards one client.

It is not unusual for power companies to place orders but defer delivery when financing becomes tough. To this extent, the risk of non-delivery and locking of working capital remains for Suzlon Energy which is already faced with debt obligations.

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