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Vestas gambles on India coming good on wind with 4X nacelle plant

We often say that the Wind industry is all about distribution of jobs, and that each key market needs to somehow “acquire” it’s fair share of jobs from the major suppliers.

But India has been a real issue for the renewables industry, and we go back to one head of a major multinational in another sector – Nokia – when it was the phone leader pre-iPhone – when it arrived in India. An executive related to us a story in which he told a local businessman what the phones would cost and he answered, “Let us make the phones for India, then they will cost less,” and that lead to Nokia employing a vast number of Indian workers and exporting phones from there to China and Africa.

Denmark’s Vestas this week has gone down the same path, as its business still relates back to consumer prices – for Nokia it was the amount someone could pay for a phone, now it is how much their electricity can cost, which in turn informs the cost of labor and materials for making renewable energy and makes India’s LCOE prices so low that many companies struggle to live with them.

Vestas now says it will establish a new nacelle and hub factory in India, and that this will quadruple (4X)the local manufacturing jobs in the region. But what will happen is that this act alone will bring down the price of using Vestas equipment in any India auctioned wind projects, and in turn it will become irresistible to keep making nacelles there for the foreseeable future, potentially for the entire South East Asian region.

Wind has a checkered history in India – on the one hand there are plentiful auctions, on the other the prices are savagely low, reported sometimes down at $20 per MWh. Again on the one hand costs for permitting, testing, financing and customers acquisition are all far lower in India, but on the other many permits failed to get processed in time, and the likelihood that you can build out on schedule can be prevented because transmission connections are severely delayed.

Both China and India are at the low end of the global wind cost structures due to lower labor, raw material and commodity costs and their access to cheap, local manufacturing hubs. But equally prices have fallen faster in India than elsewhere and the rewards are perhaps less easy to realize.

The final factor is that you can move the jobs there as an act of faith, with the potential of threatening to take them away again if transmission deadlines move too aggressively, but on the other hand you can construct nacelles for the entire region while you are waiting. Something like 50% of the wind capacity awarded in the country’s first auctions in 2017 remain incomplete today due to transmission problems. Wind projects have also been delayed due to problems obtaining land. Of course Vestas does not undertake this directly as its developer partners are always in the firing line – but it only gets orders if they are successful and investors are now hyper-aware of this weakness, and only local investors remain keen, making it harder to find investors for each project.

Vestas said in its announcement that to improve competitiveness and expand it supply chain footprint in India, it intends to establish a new nacelle and hub assembly factory in Chennai in the state of Tamil Nadu. The new factory will combine Vestas’ two existing facilities in the state of Tamil Nadu, creating an expanded, optimized and scalable production hub with four times as many local manufacturing jobs in the state. Tamil Nadu contains almost 30% of the country’s wind farms.

Vestas also said it would improve its global manufacturing footprint and increase its export capabilities from India, making it a global manufacturing hub. Vestas now has 20 factories around the world and this one will come online by the end of 2020 and add to the 3,400 people it already employs in the country.

Developer companies frequently bidding in India include Enel Green, Engie and EDF and locals Adani Green Energy and ReNew Power, but other local companies like Hero Future Energies, Inox Wind, and Mytrah Energy are now largely ignoring wind auctions.

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