Is there enough for wind energy firms?

Experts are bullish, given capacity creation target of 60 Gw by 2022

Even as the ongoing price war in solar energy rates throws up questions on the sustainability of the sector at rates such as Rs 4 a kilowatt, there are questions on whether the wind energy space will retain its sheen. Although experts believe aggressive solar rates might trim the internal rate of return of these projects, solar power emerges as a more efficient alternative in the renewable energy space, thanks to its cost effectiveness.

Rating agency Ind-Ra says solar energy requires lesser land at five acres per megawatt against 29 acres per Mw for wind. The construction period, too, is shorter for solar power (six-eight months versus 12-18 months for wind power). That said, with wind power accounting for about 60 per cent of total renewable energy generated, the pace of addition in the solar segment could be faster in the medium term.

Although the plant load factor (PLF) of wind energy at 25-30 per cent scores over solar (18-22 per cent), the gap could narrow for new projects. As key states such as Tamil Nadu, Maharashtra and Rajasthan contributing around 65 per cent of capacity are significantly exploited, the wind energy sector needs to bank on higher participation from less windy states such as Karnataka and Gujarat (a pain point that is absent in solar power), which could pull down PLFs.

These aside, for investors wanting to explore India’s renewable theme (and having fairly high-risk appetite), stocks such as Suzlon and Inox Wind - pure play wind energy component makers - are options that surface. These stocks, too, have corrected significantly year-to-date. In Suzlon, even as it reduced its losses, appreciation of the dollar could hurt the conversion of its foreign currency bonds ($283 million) currently underway and this is a near- to medium-term risk.

As for Inox Wind, it ended the December quarter posting flat revenue and profit growth. As growth in order inflow was stagnant, the Street will closely watch the pace of execution, order inflows and working capital levels. HDFC Securities recommends ‘buy’ on Suzlon and Inox Wind with target prices of Rs 28 and Rs 475, respectively, which is double the current levels.

On the downside, since alternate energy as a whole has been dependent on incentives and tax sops, any withdrawal of these can put the sector on the back foot. However, for now, that seems unlikely.