Why Suzlon Energy Share Price is Falling

With the increasing focus on environmental issues, the Indian government's support, and substantial investments pouring into the renewable energy sector, it's becoming a prime area for investors.

The recent declarations by the finance minister in the union budget have further established India as a prominent player in the global shift towards sustainable energy, as evidenced by the 21% gain in the BSE energy index, so far in 2024.

However, amid this positive outlook, a surprising downturn has hit the wind energy sector. Multibagger wind energy stocks, which skyrocketed over 300% in the past year, have experienced a sharp 10% drop in just five trading sessions.

Here's what caused this unexpected plunge.

# Reverse Auction

Suzlon Energy witnessed a continued decline in its share price for the fifth consecutive day today.

This decline was propelled by reports indicating that the Ministry of New and Renewable Energy (MNRE) is considering reintroducing "reverse auctions" for the auctioning of wind power capacity to energy firms.

According to reports, the ministry has issued a directive to companies such as NTPC, NHPC, SJVN, and other Public Sector Undertakings (PSUs) through a formal letter. The directive cites reasons including undersubscription and elevated tariff discovery observed in recent wind bids.

As per the report, the MNRE has reinstated the earlier approach of reverse auctions, limited the size to 600 MW for plain vanilla wind tenders and mandated the issue of bids on a pan-India basis by renewable energy implementing agencies.

NTPC, NHPC, and SJVN are Renewable Energy Implementing Agencies for developers like Suzlon and Inox Wind with state agencies.

This is concerning Dalal Street as tariffs coming down would impact returns for developers like ReNew and NTPC and may also lead to margin pressure for equipment suppliers.

Currently, wind power purchase agreements are based on a single-stage, two-envelope closed bidding process. A closed bidding system is where bids are opened, and the lowest bidder is declared as the winner.

The street is concerned as this is a policy U-turn. Highly competitive bids bring down returns for the entire wind energy supply landscape. The move is negative for developers as it is likely to bring down returns.

The BSE and NSE have implemented the long-term Additional Surveillance Measure (ASM) framework for Suzlon's securities.

Such measures are applied by exchanges like BSE and NSE to alert investors to significant volatility in share prices, whether on a short-term or long-term basis.

Strong Growth Prospects

Suzlon is attempting to reclaim its market leadership position and increase its market share in the face of rising competition from other conglomerates, such as Adani and Tata.

In the past couple of years, the company has been looking to reduce debt & deleverage its balance sheet. It has reduced its long-term borrowings by 73% in a year.

Suzlon will work on developing futuristic windmills with even lower Levelized Cost of Energy (LCOE) through better technology and products more specific to the market conditions.

Suzlon will install 16 wind turbine generators with a hybrid lattice tubular (HLT) tower of its new product with a rated capacity of 3.15 MW each.

It has announced the order of the 3 MW product series to develop a 50.4 MW wind power project for Juniper Green Energy.

The project is located in Dwarka district in Gujarat and will be commissioned in 2025.

The company's order book, consolidated at 1.6 gigawatts, is comprised of 55% 3-MW turbines and 45% 2-MW turbines.

In terms of installed capacity, Suzlon currently operates at 3-4 gigawatts through a mix of 2-MW and 3-MW turbines.

India, one of the world's largest energy markets, holds substantial promise. Wind energy, contributing 40.3 gigawatts, represents 10% of the total installed power in the country.

Projections indicate a growth to 140 gigawatts by 2030 to meet the surging energy demand, expected to double by then.

What Next?

Major players in the industry are rapidly expanding their assets and capacity to contribute to India's ambitious goal of achieving 500 GW of installed capacity by 2030.

Reflecting this commitment, the Union Budget for 2023-2024 has significantly increased the allocation for the Ministry of New and Renewable Energy by about 48%, raising it to Rs 102.2 bn from the revised estimate of Rs 70.3 bn in the previous year.

Driven by years of concerted efforts, the industry is on the cusp of significant expansion in capacity additions.

However, it faces a threat from consistent policy flip-flops, such as recent uncertainty around ALMM in solar and, now the shift in the bidding method for wind projects.

There are concerns that future policy changes, such as the waiver of ISTS charges for renewable energy projects beginning in 2025, could disrupt the sector, at least optically.

How Suzlon Energy Shares have Performed Recently

In last five days, shares of the company have been trading 8% lower.

While in the past month, shares are down 19%. In past one year shares have gained 350%.

The company touched its 52-week high of Rs 50.6 on 2 February 2024 and its 52-week low of Rs 6.9 on 28 March 2023.

About Suzlon Energy

Suzlon is a renewable energy solutions provider.

The company is involved in the business of manufacturing, project execution and operation and maintenance of wind turbine generators and sale of related components.

The company's client portfolio includes power utilities and electricity producers in both the private and public sectors.

To know more, check out Suzlon's financial factsheet and quarterly results.

You can compare Suzlon Energy with its peers:

Suzlon Energy vs Siemens

Suzlon Energy vs Inox Wind

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