Why This German Wind Company Made India Its Manufacturing Base For Exports
This German wind turbine company has chosen a rather unique business model: contract manufacturing in India solely for export. No significant initial investments, no national sales. In 2022, its first year of operation, it forecasts an export turnover of around ₹800 crore.
Enercon GmbH is no stranger to India. In an earlier round, he partnered with Yogesh Mehra for the Indian market and had respectable business, but a legal fracas (which he later won) caused him to pull out of the country. But now Enercon is back in full force, but with a different approach.
In a conversation with Activity area, PKC Bose, Vice President and Managing Director of Enercon Windenergy Pvt Ltd, observed that wind tariffs in India are extremely low. Therefore, wind energy companies expect turbine manufacturers to sell the machines at ultra low prices.
Bose believes it would not make sense for Enercon to sell wind turbines in India unless wind tariffs are around ₹3.50 per kWh. In contrast, tariffs discovered through competitive bidding (capacity auctions) hover around ₹2.6 per kWh (however, direct sales to customers, either through bilateral agreements or through through the energy exchange, get a much better price.)
But that hasn’t deterred Enercon from restarting operations in India. It quickly struck contract manufacturing deals with Indian MSMEs – Coral Manufacturing of Erode, Tamil Nadu, for generators, Toolfab of Tiruchi, Tamil Nadu, for lathes, and Indutch Composites, which has a factory in Sulurpet, Andhra. Pradesh, a little north of Chennai, for the blades.
Bose said these MSMEs were chosen through a detailed process for three parameters – technical and financial capacity, and a track record of trust. Coral Manufacturing has just supplied ten generators to Enercon for sale in South Korea and Canada.
“Our plan is to export more than 100 generators, 125 blades and 35 towers in 2022 (financial year of the company),” Bose said, adding that the value of all this would amount to ₹800 crore.
Notably, all of these products are bulky. The generator, intended for turbines with a nominal capacity of 4 MW, is large enough to occupy an entire bus. Coral will soon start manufacturing generators for 6 MW machines. The towers will measure 138 meters on site but are being shipped in four sections. The blades are 84 meters long. Still, it makes commercial sense to manufacture in India and ship them across oceans.
The technically complex product
Of the three, the generator is the most technically complex and of the highest value. “Erode has given us tremendous cost advantages,” Bose said, observing that Enercon’s business opportunities are bringing a supply chain ecosystem to the Erode region, giving the region economic momentum.
When asked why Enercon chose India over China, Bose said Enercon never chose China over India for reasons of “trust, intelligence, profitability and ‘long-term commitment’.
The Indian wind industry has enough facilities to manufacture at least 12 GW of machines per year, but the market has shrunk to around 1 GW. Manufacturers try to use their factories to export. Almost all export. However, Enercon does not have its own manufacturing base – at least not yet – and its machines are manufactured solely for overseas markets.
May 16, 2022