Wind energy sector: Identifying the Indian market entry strategy for a MNC client

Abstract

The wind energy space is an emerging industry in the Indian context. World over, there are very few countries (mainly in the European Union) where the industry is able to sustain without any government incentives. In the Indian context, the government has offered 2 broad incentivesGeneration Based Incentive and Accelerated Development. The latter is expected to lose its relevance with the introduction of the Direct Tax Code (DTC) from the next fiscal. The annual capacity addition in the wind energy space is about 4,000-5,000 MW and installation of larger turbines to the tune of 2.1 MW are being witnessed. The client (the project is a live project and has been prepared for a German Pitch Control systems manufacturer) is into manufacturing of electrical pitch control systems. The client has 3 customers in India but is currently not catering to the larger players like Suzlon, Vestas and Enercon. The project was carried out for a period of 4 months and the last phase of providing detailed recommendations to the client are set to begin in December (and hence have not been mentioned in this report). The pitch control systems are broadly used to rotate the blades in the direction of wind to help in the safety and power aspects of the turbine. Largely, pitch control systems are imported into India, as there are limited technologies in India to manufacture the same. The large international players for the same include our client, Deif, Moog, Mita and ABB. The client manufactures from Germany and currently there is no indigenous production. Pitch component manufacturers can avail an import customs benefit and the customs is reduced from 25% to 5%. Pitch systems constitute about 3-5% of the total costs of a wind turbine. Though as an individual component the costs of the same are not as significant, the Indian wind industry being competitive and operating on wafer thin margins, also look at buying these systems from a cost angle apart from the reliability. The selection of component suppliers is a lengthy process and it typically takes about 1.5 years to freeze on a supplier. Hence buyer-supplier relationships are more long term and the switching between suppliers is not too common.