Auctions for wind energy capacity additions are gathering pace and the industry is talking up the business potential. But investors are having none of it. Shares of wind turbine makers Suzlon Energy Ltd and Inox Wind Ltd continue to trend lower. In fact, losses in these stocks deepened, beginning this year, even as the government laid out a road map for auctions and capacity additions.

The government plans to bid out 10 gigawatts (GW) each in the current and next fiscal years, aiming at 60GW cumulative capacity addition target by 2022. One GW equals 1,000 megawatts. “Volumes are set to grow exponentially with ~10-12 GW auctions each year," Tulsi Tanti, chairman of Indian Wind Turbine Manufacturers Association and Suzlon Energy, said in a statement earlier this month.

No doubt things are looking up, especially compared to fiscal year 2018 (FY18) when the industry almost came to a standstill. But the question one needs to ask is how strong and fruitful this recovery is going to be.

If commentaries of foreign firms are anything to go by, it is going to be an arduous one. Many still see 2018 as a year of consolidation. Three companies—Siemens Gamesa, Vestas and Senvion—with presence in India expect their full-year revenues (for the company as a whole) to be either flat or grow only slightly.

The guidance is underpinned by the current transition to auction-based capacity additions and the resultant erosion in prices. “Markets will be more volatile during the transition, resulting in temporary disruptions to demand, such as the hiatus in the Indian market. This is all reflected in the guidance for 2018," said Siemens Gamesa.

Of course, India is not the sole reason for the flat revenue guidance. In fact, some of the foreign firms view the country as a growth market. Also given the favourable base, FY19 may as well turn out to be a better year for local firms compared to FY18.

But the expected pickup in auctions is leading to renewed focus on the Indian market. Firms such as Senvion are looking to gain market share in India. This can maintain the pressure on pricing, crimping benefits. “This transition leads to a highly competitive market, and will likely drive a further consolidation in the industry," Vestas said in a statement.

Gautam Bafna, associate director (corporate ratings) at CARE Ratings Ltd, says profitability may remain lower than historical levels due to high competition, though he expects clarity to emerge in the coming quarters. But the transition to auctions-based project awards can ease working capital pressures as companies execute projects in a time-bound manner, he adds.

So, while things are seemingly improving for the wind industry, much depends on the competition and how they approach the auctions.

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