Monday, May 28, 2012

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Indian Wind Energy World Leader Fights for Survival

Posted: 28 May 2012 09:16 AM PDT

Photo courtesy: Suzlon

Wind, solar and other renewable energy markets and industries continue to grow at faster rates than those of their respective national economies. Yet, in large part still developing their businesses, their staying power, or financial sustainability– be they involved in wind, solar, geothermal or other industry segments– remains in doubt.

This poses serious problems for customers and market demand. Wind turbines, solar panels and such are built to provide decades worth of clean, renewable energy. Issuing warranties on these products is common practice, but how confident can customers be that vendors will be around as long as their products and warranties. It’s a vexing problem, yet this is the case even when it comes to some of the leading, or formerly leading, names in their respective businesses.

Take India’s leading wind turbine manufacturer Suzlon, for instance. India’s wind power market and renewable energy industry have grown tremendously in recent years, driven by the enactment of renewable energy legislation, targets and incentives and the establishment in 2006 of the top-level government Ministry of Renewable Energy.

Though still largely dependent on imported fossil fuels, India’s wind energy market is now the fifth largest in the world. Some 2,400MW of wind power were expected to be installed in 2011-12, adding to an accumulated total of 16,179MW as of the end of January this year. Suzlon’s been a prime beneficiary, yet, the company’s been on the verge of default and possible insolvency.

Back from the Financial Brink

Fortunately for Suzlon, its recent operating and financial performance has inspired bankers and investors’ confidence. A group of some 20 banks has stepped up and pledged to loan the company as much as $300 million. Facing convertible bond redemptions of $358 million on June 12, and another round of redemptions in October, the loans bring Suzlon back from the brink.

On May 25, Suzlon reported fiscal year 2012 revenue grew 18%, to $3.75 billion, while its cash flow, as measured by EBITDA (earnings before interest, taxes, depreciation and amortization), jumped 74%, or 274 basis points (2.74%).

The jump in EBITDA was due to a change in accounting policy, however. Management decided not to align the revenue recognition policy of REpower, its main international subsidiary, with that of the parent company. Had they done so, its EBITDA margin growth would have shrunk, The Economic Times of India reported.

Looking forward, the wind turbine manufacturer’s order book grew to $7.4 billion, its highest level ever. Management expects to see revenue of around $4.8 billion in 2013, while improving EBIT cash flow margin to 6%.

In addition to securing the loan pledges, management has had to take some additional steps it might not otherwise have taken, however. In April, Suzlon announced it would generate some $40 million in cash through the sale of a block of wind energy assets, the majority of which are located in the southern Indian state of Tamil Nadu.

"I am pleased to announce that we are divesting in certain non-core assets and are set to raise approximately US$40mn as per our plan outlined in February this year. This is a modest – but important – step forward in our strategy to optimize our capital structure and meet our repayment obligations in this year,” commented CFO Kirti Vagadia.

"In addition to divesting these non-core assets, we believe our consistently improving business performance and outlook, particularly our strong revenue visibility for FY13, puts us in strong position as we begin the new fiscal."

A Wind Energy World Leader Struggles for financial Survival

Suzlon’s quickly forged itself into a major player in the global wind power market. The announcement of loan pledges and its recent performance will no doubt prove reassuring to its growing customer base, which directly or indirectly extends to national governments, such as that of India and South Africa, embarking on ambitious renewable energy development programs.

Just last week, Suzlon was chosen as the preferred wind turbine supplier by Cennergi, a 138MW wind power project and joint venture between South Africa’s Exxaro Resources and Tata Power Co. Ltd., India’s largest utility. Per the terms of the as yet unfinalized engineering, procurement and construction (EPC) contract, Suzlon is to supply 66 of its S97-2.1MW wind turbines for project, which is scheduled to start construction in South Africa’s Eastern Cape Province early next year.

Nonetheless, Suzlon remains on the fine edge dividing financial sustainability from default and possible bankruptcy. It’s debt burden totaled nearly $2.1 billion as of the end of March. Management continues to pursue a variety of options to restructure its capital base, including selling more non-core assets and issuing more equity or additional debt. Hence, as the Economic Times wrote, “investors and bondholders will be anxiously waiting to see whether it will eventually manage to fulfill its commitment.”

The same can be said of growing numbers of wind and renewable energy companies across the international landscape. Europe’s been the world leader when it comes to installing wind and renewable energy, instituting innovative, market-based mechanisms to stimulate and foster demand. Facing another recession, European countries are pulling back the Feed-in Tariff rates that have been the key growth factor, however.

In the midst of its own debt problems and a slow, still fragile recovery, the U.S. Congress appears unable and unwilling to extend key wind and renewable energy investment and production tax credits. With the economies of its largest export markets weakening and concerned about rising inflation, growth has also slowed in China.

As a result, things are likely to get worse before they get better. More economic carnage can be expected across the renewable energy marketscape barring significant new impetus to stimulate demand.

Middle of Lake Michigan an Untapped Reservoir of Wind Energy

Posted: 28 May 2012 02:45 AM PDT

The winds of Lake Michigan — and the rest of the Great Lakes — are an untapped reservoir of renewable energy, according to a project which recently monitored the wind over the Lakes at the height of commercial turbines.

Led by Grand Valley State University's Michigan Alternative and Renewable Energy Center and funded primarily by the US Department of Energy and the Michigan Public Service Commission, the project set a six-tonne buoy at three locations across Lake Michigan — two points near the Muskegon shoreline and about 35 miles off shore.

The buoy shot three laser beams into the air to sense wind speed and direction. These lasers take measurements 1,000 times a second at six elevations — from 20 metres to 175 metres above the water, heights a commercial wind turbine might reach — average the data at one-second intervals and then every 10 minutes send a report home via cell or satellite connection.

An illustration of the buoy used to study the wind above Lake Michigan. The three red lines represent the laser beams, which measure wind speed and direction 1,000 times a second. Axys Technologies illustration

"This is really quite an instrument," said Guy Meadows, formerly of the University of Michigan and now the director of Great Lakes initiatives for the Great Lakes Research Center at Michigan Technological University who was called in by Grand Valley State to analyse the data stream. Meadows called the results “very interesting” nothing that “in particular, winds measured close to the shoreline were very turbulent, because of the presence of land. But the farther the buoy was from shore, the more the fluctuations were reduced."

Anyone who knows anything about wind energy will realise just how important this is: the less turbulence and more consistency you have, the more efficient your wind farm will be, and the less stress you’ll place on your turbines.

Understandably, these new results do not necessarily mean we’ll be seeing wind farms sprouting up all over the Great Lakes anytime soon.

"The Great Lakes in general are very wind rich, second only to the Pacific Northwest," Meadows said. "The question is, how do you capture that energy in an environmentally conscious way? And from an engineering standpoint, how do design equipment that will capture it and survive our most severe weather? These are big challenges."

So, Michigan Tech and Grand Valley State plan to answer those questions in the next phase of their research, and they are currently seeking funding from the US Department of Energy for the initial engineering and design of floating turbine technology.

Their plan is to design wind turbines and advanced floating platforms that can be installed miles out in the lake. "We want to know, 'Does it make sense to harvest this from all perspectives?'" Meadows said. "Michigan Tech's role will be as provider of unbiased data."

And while the outcome of this new research may provide direct help towards the renewable wind industry, the results are also set to go beyond the feasibility of commercial wind development.

"The Great Lakes behave just as the oceans do, but with one major difference: we drink the water," Meadows said. "The buoy gives us a tremendous ability to forecast winds and weather, which means we would be much better at telling cities when they need to shut down water intakes because of pollutants."

And with better wind measurements you’ll also end up with better wave and current prediction, a step helpful for all of the Great Lakes.

"This has been so successful that Michigan Tech is leading an effort to acquire a second buoy for Lake Superior," Meadows said. If anything, the results should be even more promising than in Lake Michigan, he added. "Throughout the Great Lakes the wind speed increases as we move farther north."

Source: Michigan Technological University

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