Suzlon Energy Limited (532667-BY)

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See all Bulls Reasons Bulls: Reasons To Buy Global market for wind energy is expanding 100% agree Global market for wind energy is expanding The global market for renewable energy is quickly expanding due to environmental issues like the threat of global climate change; wind power may be a huge part of this market because it is the cleanest energy source, and Suzlon is well-positioned in the global wind market. View or Edit Reason 4 votes 100% agree Produces the widest range of turbines 100% agree Produces the widest range of turbines Suzlon produces the widest range of turbines, from low- to high-capacity generators, allowing the company to meet a broader range of energy needs. View or Edit Reason 1 votes 100% agree Takes advantage of exchange rates and price levels 100% agree Takes advantage of exchange rates and price levels Suzlon's expansionary strategy takes advantage of exchange rates and price levels in customer countries, allowing for higher profit margins. The strategy is also focused on expanding markets for wind power, thus increasing earnings potential in the future. View or Edit Reason 1 votes 100% agree See all Bears Reasons Bears: Reasons To Sell If prices for oil and gas fall, wind energy will lose significant demand 66% agree If prices for oil and gas fall, wind energy will lose significant demand If prices for oil and gas fall, wind energy will lose significant demand. The demand for Suzlon's products arer correlated with the price of oil, making the company relatively dependent on the state of the fossil fuel market. View or Edit Reason 3 votes 66% agree Dependent on government support for clean energy 100% agree Dependent on government support for clean energy Much of Suzlon's revenue is dependent on government support of clean energy; if worldwide popular support swings away from renewables and governments stop supporting a clean energy movement, sales could drop dramatically. View or Edit Reason 1 votes 100% agree Suzlon does not produce a generator larger than 2.5MW 100% agree Suzlon does not produce a generator larger than 2.5MW Suzlon does not produce a generator larger than 2.5MW. The two largest wind energy producers both produce primarily in the high-capacity range. Suzlon's lack of a large turbine product could cause the company to miss out on a significant portion of the expanding market. View or Edit Reason 1 votes 100% agree Send the authors a comment or suggestion Greetings I am working for an NGO in Swaziland. My task is in resource mobilisation. I am interes... more [Dismiss] [Done] can some info on wind energy % of clean energy market and clean energy as % of total Energy market. [Dismiss] [Done] See All Suggestions

Top Contributors Avinash Gandhi Related Articles Clean Coal Wind Energy Carbon Trading China's Coal Power Pollution General Electric Company (GE)

Suzlon Energy Limited is a wind energy company based in India that produces wind turbine power generators, wind park packages, and product servicing and has an aggressive expansion strategy based on low-cost production, regional price discrimination, and a concentration on high-growth wind markets. The company generated about $850 million in 2006, nearly double the take from the previous year. Suzlon currently owns a 6% worldwide market share and is responsible for over half of the wind energy market in India.

The success of Suzlon is based on the demand for renewable energy by consumers and businesses, a demand that is driven by environmental issues such as global climate change as well as rising oil and gas prices (wind energy becomes more attractive when . Suzlon's profits are greatly affected by government support for renewable energy. While there is heavy competition from a number of multinational companies like General Electric and Vestas, Suzlon's broad product mix and expansionary focus keep them competitive.

[edit] Company Overview

Suzlon is a multinational energy company based in India, specializing in the production of wind energy solutions. It makes money by selling equipment that converts the kinetic energy in wind to electricity, and their customers include governments and corporations such as utility companies. The company produces turbines and generators, and offers comprehensive wind power packages, including servicing for all its products. The demand for renewable energy has increased in response to a confluence of several factors, including rising energy prices, rising worldwide demand for energy (especially in developing countries) as well as a social shift toward "green" thinking has positioned wind as a energy source for the future. Suzlon will be poised to benefit as the fifth largest wind power producer in the U.S. and the largest in India, and is aggressively expanding its market reach all over the world.

Suzlon's business has been highly successful since 2005. Both revenues and profits increased by an average of 100%, and it should be noted that the increase in profits was greater than the increase in revenue, indicating Suzlon's ability to lower its costs and increase profit margins.

[edit] Turbines

Suzlon produces two major lines of turbines: the Megawatt series and the Multi-Megawatt series. Watts are a measure of power, and the main differences between the two series is the power-generating capacity. Suzlon's wind parks are multi-turbine parks that allow the company to increase profit margins through economies of scale. In addition, once turbines are produced and installed, Suzlon maintains a low level of revenue through servicing their products.

[edit] Globalizing Strategy

Suzlon is focusing on globalizing through a number of methods. First, it benefits from India's depreciating currency, as its products are seen as cheaper by the rest of the world. Second, Suzlon offers varying packages in different places depending on the price levels; in China, where prices are low, they offer full power plants, but in the U.S., they install cheaper turbine generators. This price discrimination allows Suzlon to cut their costs while maximizing margins. Finally, Suzlon is increasing its global reach, with its R&D branch in Europe, production in India and China, and a sales focus in the top global wind markets. China is actively seeking other energy alternatives to its coal plants.

The company is aggressively pursuing an acquisition strategy to absorb smaller competitors, as seen in its recent acquisition--in conjunction with France's Areva--of the German wind power company REpower, in order to cut down on competition and acquire new product lines. Thus, Suzlon is preparing itself to climb towards the top of the market and take advantage of possible global shifts toward clean energy sources.

[edit] Trends and Forces

Suzlon is heavily affected by changing energy paradigms. Rising prices of fossil fuels, increasing environmental awareness and the possibility of significant global climate change all are contributing to changes in the social, political and economic views of how energy should be produced.

[edit] Problems with Suzlon's Turbines Threaten Long-Term Viability

Suzlon's turbines have acquired the reputation of being faulty. In early 2008, U.S. customers complained of cracking turbine blades; in August 2008, the company came under fire by Indian customers for having control issues, shaking in the wind, and even producing far less than expected - incurring large costs.^[1] If the company cannot correct these problems quickly and efficiently, it will suffer irreparable damage to its reputation, at a time when the industry is becoming increasingly competitive.

[edit] Consumer Demand for Renewable Energy and Clean Energy

Fossil fuels and coal are not considered to be renewable because there is a limited quantity of both resources on the earth, and the replenishment of these resources takes hundreds of thousands of years. As oil becomes more rare, prices increase and new energy sources become increasingly feasible from a financial perspective.

Wind power is a fully renewable source--it cannot be used up. Furthermore, current energy production methods release pollutants such as smog and carbon dioxide gas, which arguably contribute to the greenhouse effect and global warming. Wind energy production produces little, if any, pollution or emissions, making it one of the cleanest sources of power.

The world market for wind energy is growing very quickly, at a rate of 25% in 2006 and 24% in 2005. India, where Suzlon has over 50% market share, saw a 41% growth in turbine installation in the past year, and is projected to keep growing. As the largest manufacturer in India and fifth largest in the world, Suzlon has great potential to take advantage of this market growth.

[edit] Pollution Control

Oil and coal combustion release carbon dioxide and monoxide, as well as nitrogen oxides, sulfur oxides, ozone, and other pollutants that contribute to acid rain, smog pollution, as well as asthma and respiratory problems in the general populace. Increasing awareness of these issues has led to movements to push for government regulation of pollution; higher energy prices, coupled with increased consumer demand has driven development of clean coal technologies. However, coal and oil can only be burned cleanly up to a certain point and, as a result, there is growing support for government investment in clean energy sources such as wind power. Suzlon is poised to benefit from this trend as it is already an established producer of wind power technology.

[edit] Global Climate Change

One of the most pressing issues associated with energy production is the advent of global climate change, caused by the warming of the earth's atmosphere. Climate change is predicted to have apocalyptic effects on human civilization, especially in developing countries, due to, among other things, its disruption of agriculture and fresh water distribution. The vast majority of climate scientists agree that global warming is human-caused AND can be stopped by drastically reducing the amount of greenhouse gas (carbon dioxide, ozone, water vapor, etc.) emissions. Increased popular education on the issue is driving a massive environmental and social movement to pressure the government and energy companies to regulate greenhouse emissions. This movement is having a worldwide impact on energy regulation in the form of increased government subsidies for clean energy sources and global emissions caps - both positioning Suzlon extremely well in the long run.

[edit] Oil and Gas Prices

Oil and gas prices have fluctuated heavily over the past few years, though the most recent trend is a rise in prices - over $65 a barrel. As rising oil and gas prices lead to more expensive commercial electricity, consumers may start to demand new, cheaper sources of power. Since the cost of a wind turbine is about 85% of the total cost of producing wind energy, wind power companies like Suzlon are may benefit from the demand for energy that is cheaper over the long run.

[edit] Objections to Wind Power

The main objections to wind power stem from other environmental costs. Many wind parks are shut down for part of the year because of bird migration patterns and numerous turbine-related bird deaths. Furthermore, turbines take up land; though larger turbines produce more power, they also take more land to operate safely and effectively, and since any man-made installation can have adverse effects on terrestrial ecosystems, hardcore environmentalists may object to the installation of wind parks, lobbying the government to look for other sources of energy. Obviously, the oil and coal industries will lobby against government subsidization of clean energy sources; given the enormous financial resource base of these industries, effective lobbying could greatly reduce the amount of government support given to the wind power industry.

[edit] Government Regulation of Energy Markets

Clean energy companies are highly dependent on government subsidies and support to bring in revenue, given that oil, coal, and nuclear power are cheaper, well-established energy sources and hold oligopolistic control over the world-wide energy market. Given this dependence on the government, many environmental and social movements are focusing on pressuring the government to pave the way for a transition to renewables. Furthermore, many government endorse local renewables as an alternative to foreign fossil fuels, in an attempt to create energy independence. Government support of renewables is taking place on local, national, and global scales.

[edit] The Kyoto Protocol

The Kyoto Protocol is an international agreement to reduce greenhouse gas emissions in a global effort to stop climate change. The method by which Kyoto achieves this is by mandating emissions caps and through cap-and-trade systems of trading carbon credits. This has the potential to benefit Suzlon as many countries make the transition to renewable energy such as wind power.

It should be noted that the U.S. has not ratified the treaty and has no plans to do so. China, while part of the treaty, is classified as a developing country and therefore has no obligation to lower its emissions. The country will soon be the largest polluter in the world.

[edit] Domestic Legislation

Given the increasing amount of fear of global warming and pollution, which has led to increasing social support for clean energy sources, many governments all over the world have implemented legislation that could indirectly lead to increased revenues for Suzlon. Examples include:

• California's mandate that 25% of electricity will come from clean sources by 2020 and 75% by 2050
• U.S. Energy Regulations, like a bill being pushed through Congress over the summer of 2007 mandating that 20% of the United States' electricity will come from clean sources by 2020
• The European Union is looking to get 22% of its energy from clean sources by 2010
• China's Renewable Energy Law is planning on raising the total percentage of renewable energy used in the country to 10% by 2020

Legislative mandates like these benefit renewable energy companies because they force utilities companies to turn to other power sources, allowing companies like Suzlon to enter a crowded energy market. Also, such legislation usually leads to government support for renewables companies in the form of fiscal incentives.

[edit] Fiscal Policy

Because clean energy companies depend so much on the government, fiscal policy is often extremely important in generating revenue for businesses like Suzlon. For the most part, the current government subsidy trend is beneficial towards Suzlon, with the U.S. government providing tax credits for wind energy producers and India giving tax breaks and financial incentives . Furthermore, government imposed carbon credit trading schemes are making renewable energy more attractive as a way for corporations to cut costs.

[edit] Capacity Growth

Once a wind turbine is installed, it does not have to be replaced for years; servicing is the largest cost associated with production of wind energy after turbine installation. Thus, once the desired energy production capacity is met by a consumer, more turbines will not be needed. While wind energy has experienced an increase in demand for its turbines, capacity goals beng met by individual countries can decrease the demand for wind energy. The growth of Suzlon, then, is intimately tied to an expanding need for energy capacity; currently, the need for energy is expanding faster than the world economy (which is expanding exponentially). Therefore, there is a great need for energy in the future, and, combined with other trends like environmentalism, Suzlon is well-positioned to take advantage of the growing energy market.

[edit] Competition

Suzlon, which owns a 6% global market share, competes with a few major competitors in the wind energy sector, including Gamesa (13%), Vestas (29%), Nordex (3%), Enercon (13%), Siemens (6%) and General Electric (18%). While most of these companies are well-established on the global market, Suzlon's ability to produce in low cost countries and its focus on high-potential energy markets may give it a powerful competitive advantage. Its growth over the past two years suggests that the business is taking full advantage of expanding markets while improving its efficiency to increase profitability; with a tremendous market lead in India (>50%) and a position as the number five worldwide producer, Suzlon has the ability to expand past its current competitors. Suzlon also offers the most turbine models, one for each general wattage category (except for the very highest capacities). The chart below illustrates the wide range of generating capacity that Suzlon has in comparison to its major competitors.

It should be noted that the two largest manufacturers, GE and Vestas, produce high capacity turbines. Suzlon produces most capacities, except turbines over 2.5MW, while GE and Vestas produce over 3MW. Low-energy turbines take less area to operate while high-energy turbines produce more power but take up more physical space.

[edit] References

1. ↑ WSJ: "India's Suzlon Energy Encounters Headwinds at Home"