Potential blowin’ in the wind
Kishore Jayaraman, CEO, GE Energy India, Sri Lanka and Bangladesh talks about GE’s second innings in the wind energy Market.
GE Energy is making a comeback in the Indian wind energy space. Why did you exit the market in the first place?
In India, the wind energy business has had many resurrections. The first time was in the 1970s and somehow BHEL was involved in it but it soon died because of the tariff structure and also because the market was nascent. In 2004 when textile companies wanted captive power and Tulsi Tanti figured out wind as a source for captive power so there were subsidies, tax holidays and an 80 percent depreciation as the turbine turns so the market in 2004 was primarily a fiscal benefit model and we sold about 14 units between 2004 and January of 2005; one of those which operates in Chitradurga generates the highest Plant Load Factor (PLF) in the world.
Unfortunately in 2005 we were just saying that let’s build this business when the Production Tax Credit (PTC) came about in the US which was a generation based incentive.
In India, when you have somebody who is willing to take something that is not technologically attractive, there is no differentiation for products because if there is no technology then it becomes a commodity. It didn’t make sense for us to participate in that market because it was a price sensitive market without any acknowledgement for technology.
We are not in the business of providing equipments for fiscal benefits, we cannot support that kind of a system because at the end of the day GE’s reputation as an energy portfolio company would be diluted. We would become somebody that will do anything for you to make a buck and support whatever your needs are. I want to be called the guy that has put the wind turbine in the ground and it is still working 20 years later.
Today, we have sold more than 10,000 wind turbines and actually our 10,000th wind turbine was shipped out of our factory a couple of months back. So, we are the number one turbine manufacturer in the United States, the number two globally but unfortunately our presence in India has been literally zero in the last four years.
Why this comeback now?
We used the timeframe to position India similar to the US and we need to work out how to get generation based incentive. And we have been lobbying a lot with MNRE and with a lot of state governments saying that look the tariff has to be more competitive so that people come here for technology that provides reliable power into the grid. We work with state utilities and say do you know how to look at it from a consulting basis.
We have found customers who want to be in this game long term and have signed a deal with them with more in the pipeline. More and more people want to be energy producers and developers. So that’s why we are re-entering the business.
What do you think will be the benefits of the Generation Based Incentive?
The 50 paisa generation based incentive (GBI) helps because for the last three years we have been working on the generation based incentive and also on tariffs. Over the next 15-20 years we will be operating either on par or still in the deficit mode. If India is growing at 6-7 percent then adding 200 GW will not be sufficient and any form of energy will be welcome and creating the right incentives to make this sustainable and reliable source of power.
Once the GBI comes in place a lot of our global customers/developers are interested in India. A lot of developers are looking for a model wherein you have the cost of electricity that represents the true cost of power; they are looking for a Power Purchase Agreement (PPA) that is firm and in place. They are looking for incentive programmes to address the renewable space that can be given in a sustainable fashion. The fiscal benefits, the foreign players do not see any value because they do not have local balance sheets. Companies like Vestas and Enercon were here but look who became the biggest player in India, Suzlon. Why?
Because they were an Indian company and they could cater to the Indian market the way the Indian market wanted. The global companies were looking at it and saying we are energy companies…we want to participate in the energy sector not in the fiscal benefit sector. I think that was the major difference and with the GBI coming in the developers will start coming in. I have seen feelers from a lot of companies locally. And with the Indian economy picking up people will start getting cash. It has slowed down a bit because the cash is gone. Once these people want to be developers, technology will have a play.
At the end of the day we have to create a profitable, sustainable model. Companies cannot grow and the market forces have to be enabling for that and we always look for those markets that have that driver. It took about three years for wind to evolve and now people are being more careful; in the sense that they all see that if you put up a good wind turbine not only do you get your depreciation benefits but you are also able to generate sustainable revenues over a period of time which means that your profitability goes up by that much.
Those guys who think technology plays a vital role will be here. Because we have a different market force in play, there is a generation based incentive proposed by the government and we have been working very closely with the government on the generation based incentives concept. In the US we have seen what it can do to the power sector, what it can do the wind business. So now what you become is a technology provider and that’s what gives me the optimism.
What are the challenges to your plan?
The biggest challenge I find in the market place is what I call it the ‘say do ratio’. Most of the times lots of things that should happen when they should happen as per what your customer or people you deal with tell you never happens in India. For example, this deal is going to happen now, could slip by three months or six months or never happen. You can go through history and you will see that there were projects that were brought out but they never happened. There is a way to grow in India, a way to put up a plant in India and that takes time. But, I think we have reached a point where the team here knows how to project the market, how to deliver to the projections of the expectations.
