The grand U.S. ambitions of Indian wind-turbine manufacturer Suzlon Energy Ltd. are facing mounting problems.
The Indian company – the world’s fifth-largest wind-turbine maker by sales – earlier this year acknowledged that 65 giant blades on turbines it had sold in the U.S. Midwest were cracking because of the extreme gusts in the region. The company is reinforcing 1,251 blades, almost the total it has sold in the U.S.
Now, other problems are emerging, in part because the company quickly ramped up U.S. sales to meet burgeoning demand for alternative energy.
Suzlon turbines installed at wind-farm projects managed by Deere & Co., one of its largest U.S. customers with 250 Suzlon turbines, aren’t producing enough power to meet Suzlon’s sales contracts, according to people familiar with the matter. Like other turbine producers, Suzlon promises its customers that turbines will be available to produce power at least 95% of the time the wind is blowing, with only limited downtime for maintenance and repairs. But in some cases the so-called “availability rate” has been significantly lower than this, potentially exposing the company to penalties, these people say.
Some turbines have failed to produce enough power because of incompatibility with the U.S. electricity grid. The power grid in India, where Suzlon has most of its operations, runs on a power frequency of 50 hertz. (A hertz is a unit for measuring frequency at which power is transmitted from a plant to the user.) U.S. electricity grids run on 60 hertz. Suzlon quickly converted turbines to work in the U.S. without extensive testing, these people say.
In written answers to questions, Suzlon said it has a 60-hertz version of its main turbine that is suitable for the U.S. grid. It declined further comment.
Other Suzlon turbines have broken down because of cold weather in the Midwest, says one person familiar with the matter. Suzlon engineers had to install heaters for the control panels, which sit just behind the blades atop the windmill’s 264-foot tower. Those heaters caused electrical problems, the person said.
Suzlon, based in Pune, India, said it was committed to fixing the troubles it has encountered in the U.S. “In the initial stages of entry in a new market, it is common to have some teething problems and we are fully geared to take care of these,” the company said. To date, Suzlon has disclosed only the problems with the turbine blades, which it is spending $30 million to fix.
A spokesman for Deere declined to comment.
Suzlon shot into the top ranks of global wind-turbine manufacturers in less than a decade. Founder Tulsi Tanti saw an opportunity to license European technology and manufacture at cheaper rates in India. Suzlon’s international expansion has tapped into the soaring global demand for green energy, which in many countries, including the U.S., is promoted through tax breaks.
Three years ago, 90% of Suzlon’s sales were in India; today, international sales account for 60% of the total. Suzlon’s presentations to investors predict exports will jump to 75% of total sales next year, with the U.S., China and Europe accounting for an equal share. Since it began its push into the U.S. in 2005, Suzlon has secured an 8% share of the U.S. wind market, the world’s fastest growing.
Mr. Tanti has been able to exploit a shortage of turbines from more-established manufacturers like Vestas AS of Denmark, the world’s largest wind-turbine producer, and General Electric Co, whose order books are full through 2010. At about $3 million each, Suzlon’s turbines sold in the U.S. are priced about 25% cheaper than those of major competitors.
Mr. Tanti “knew the window was open so he charged like crazy,” said Ashish Dhawan, managing director of ChrysCapital, an Indian private-equity group that invested in Suzlon before the company sold shares to the public in 2005.
“The product issues notwithstanding, we don’t expect any major impact upon our sales,” said Vivek Kher, a spokesman for Suzlon. In its financial year ended March 31, Suzlon revenue jumped 71% from a year earlier to $3.19 billion.
The company remains committed to an ambitious plan to double annual production capacity to 5,700 megawatts by 2010, which would make it the fastest-growing wind-turbine manufacturer globally.
But Suzlon’s order books were hit earlier this month when Edison Mission Energy, another big U.S. customer, said it was canceling orders for 150 turbines because Suzlon had been unable to work out what caused its blades to crack. Edison Mission is a unit of Edison International of Rosemead, Calif. In a filing with the Securities and Exchange Commission in February, Edison said it may claim compensation from Suzlon because of delays to three wind-farm projects in Iowa and Oklahoma.
Suzlon said it “provides for all obligations as per the terms of the contract with its customers.” Suzlon is expected to release an extensive study into the cause of the blade cracks soon.
By Tom Wright
30 June 2008
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