VZCZCXRO0174
PP RUEHAST RUEHCI RUEHLH RUEHPW
DE RUEHBI #0463/01 2680707
ZNR UUUUU ZZH
P 240707Z SEP 08
FM AMCONSUL MUMBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 6600
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0125
RUEHRL/AMEMBASSY BERLIN PRIORITY 0010
RUEHCP/AMEMBASSY COPENHAGEN PRIORITY 0002
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RUEHMO/AMEMBASSY MOSCOW PRIORITY 0073
RUEHBI/AMCONSUL MUMBAI PRIORITY 1750
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 04 MUMBAI 000463 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB A/S SULLIVAN 
STATE FOR EEB/ESC DHENGEL, SGALLOGLY, MMCMANUS, DHENRY 
STATE FOR OES PDAS RHARNISH, GTHOMPSON 
STATE FOR STEVE MANN, GMANUEL 
DEPT OF ENERGY FOR U/S BUD ALBRIGHT, DSCHWARTZ 
DEPT OF ENERGY IP FOR A/A/S KFREDRIKSEN, RCOOPER 
DEPT OF ENERGY IP FOR TCUTLER, CGILLESPIE, GBISCONTI 
DEPT OF ENERGY FE FOR DAS JMIZROCH, MGINZBERG 
 
E.O. 12958: N/A 
TAGS: ENRG SENV EINV EFIN EIND PGOV IN
SUBJECT: SUZLON POWERS CAPACITY BUILDING IN WIND ENERGY IN INDIA BUT 
PITFALLS LOOM AHEAD 
 
REF: 08 NEW DELHI  2386 
 
MUMBAI 00000463  001.2 OF 004 
 
 
Summary: 
¶1. (U)  Suzlon Energy, which accounts for nearly 50 percent of 
the India's installed wind-power generating capacity, told 
Congenoffs that wind power's potential in India is far greater 
than Government of India estimations.  Company boosters claimed 
that Suzlon has "popularized" wind energy in India by developing 
wind parks to facilitate easy operation and maintenance of 
multiple wind turbines in one location.  In addition, Suzlon 
representatives believe that government subsidies for wind power 
generation will help this nascent industry attract foreign 
investors.  Notwithstanding Suzlon's rosy picture, company 
representatives and industry analysts admitted that many 
challenges threaten to slow the development of wind energy in 
India, including problems over land acquisition for windparks, 
inadequate infrastructure, poor grid connectivity, low and 
seasonal wind speeds, costly maintenance of offshore wind 
turbines, and design and quality issues.  In particular, reports 
of Suzlon's continuing quality control problems will also impact 
their overseas expansion.   End Summary. 
 
Untapped Wind Power Potential Creates Huge Opportunities 
------------------------------------- 
 
¶2. (U)  I.C. Mangal, Head of Business Development of India-based 
Suzlon Energy, which is the fifth largest wind turbine 
manufacturer worldwide, believes that the wind energy business 
is experiencing a worldwide uptrend.  India is the world's fifth 
largest market for wind energy generation, with a current 
installed capacity of 8.8 GigaWatts (GW).  The Ministry of New 
and Renewable Energy (MNRE) estimates the potential of wind 
energy in India at 60 GW (reftel).  However, Mangal considers 
this a gross underestimate and does not reflect the industry's 
technological advancements.  For example, he noted that the "hub 
height" for wind turbines has increased from 40 meters to over 
60 meters to capture more wind power.  He estimates that the 
"true" wind power potential in India is 100 GW.  He noted that 
the untapped potential for wind energy allows "space for 
everyone," especially given India's growing energy demand. 
(Note: In reftel, GOI power and planning officials pointed out 
that the best wind areas may have already been exploited for 
power generation, and they estimated that only around 2 GW of 
power is currently being generated from the 8.8 GW of installed 
capacity.) 
 
¶3. (U)  The Indian government projects that total electricity 
demand will reach 200 GW by 2012, up from the current total 
installed power generating capacity of 144 GW.  In such a 
situation, all sources of energy are urgently required and 
"carbon-neutral" energy like wind should be the first choice, 
Mangal argued.  At an average cost per unit of wind power of INR 
3.5 (around 7.7 U.S. cents) per kilowatt-hours (kWh) , wind 
energy is not expensive compared to thermal power, which 
averages around INR 2.4 (around 5 cents) per kWh. 
 
¶4. (U) Ramya Venkatraman, Energy Analyst at McKinsey & Co, noted 
that, despite the competitive cost, the wind power had not yet 
gained popularity with large power utilities/companies.  No 
large power company has a significant presence in wind so far, 
she said, though most large thermal energy players are now 
planning to explore wind energy, she claimed.  With tax 
incentives and carbon credits, Venkatraman believes that wind 
energy was earlier considered a source of "tax breaks" rather 
than electricity.  This sector is now being regarded as a 
revenue-generator as well  as an alternative renewable fuel 
source.  Suzlon Energy, with its large global footprint, has 
demonstrated the commercial viability of wind energy, she added. 
 
Suzlon's Wind Parks Transformed India's Wind Energy Landscape 
--------------------------------------------- - 
 
MUMBAI 00000463  002.2 OF 004 
 
 
 
¶5.  (U)  Suzlon Energy has constructed 50 percent of wind power 
installations in India, or about 4 GW of the country's total 
8.8GW of wind power capacity.  Mangal said that Suzlon gained 
dominance in the wind power market despite being a late entrant 
in the sector.  When Suzlon forayed into wind power development 
in 1995-96, however, the wind industry was in the doldrums: 
proper techno-viability studies were not conducted and companies 
sold wind turbines but did not provide after-sales service or 
maintenance, he claimed.  Most of the European vendors of wind 
technology had either gone bankrupt or had split with their 
Indian joint venture partners.  Moreover, the wind energy units 
were scattered in different locations across India, making 
servicing difficult and not economically feasible, he explained. 
 Mangal argued that Suzlon Energy's unique "end-to-end" solution 
approach transformed the wind energy space in the country.  He 
said that Suzlon is the only vertically integrated wind energy 
player with R&D, design, manufacturing, construction, and 
operations under one roof. 
 
¶6.  (U)  Mangal also claimed that Suzlon pioneered the concept 
of a "wind park,"  where several wind energy units are located 
together in one place.  This makes servicing and support of the 
units easier and allows multiple players in a single area to 
leverage on cost and economic efficiencies, he explained.  By 
constructing wind turbines in wind parks, Suzlon can provide 
"round-the-clock" operation and maintenance support to the 
installed wind turbines, minimizing downtime and maximizing 
machine availability, he maintained. 
 
Generation-based Incentive Will Attract Foreign Investors 
------------------------------------------- 
 
¶7.  (U)  Mangal applauded the Indian government's announcement 
in June 2008 allowing wind energy operators to switch to a 
generation-based incentive of Rs0.50 per kWh  (about 1.1 US 
cents) produced by  wind power as an alternative to the current 
system of allowing accelerated depreciation of up to 80 percent 
of capital costs for wind energy projects.  (Note: The Indian 
government also gives a 10-year income tax holiday and excise 
duty exemptions to wind energy operators.  Analysts believe that 
these incentives reward investment and ignore the quantum of 
wind energy actually generated.  End Note).  Mangal pointed out 
that apart from increasing the amount of wind power generated, 
the generation-based incentive will also attract foreign 
investors who do not have operations in India and therefore 
cannot avail of the tax incentives given to wind power 
operators. 
 
¶8.  (U)  Ravindra Utigkar, Sr. General Manager (International 
Business) of Suzlon, noted that most of the investors in wind 
energy in India are single turbine owners, mostly medium and 
large companies, who are taking advantage of the accelerated 
depreciation benefit.  A generation-based incentive which 
rewards actual generation of wind energy will attract "serious" 
investors and promote the development of wind energy in the 
country, he argued.  In a separate discussion, Mangal disagreed 
with Utigkar and claimed that private corporations who invested 
in wind energy in India often invested in more than one wind 
turbine unit and are concerned about the returns on their 
investment in wind energy. 
 
¶9.  (U)  Utigkar noted that the renewable purchase specification 
(RPS), which requires power companies to source a minimum 
specified percentage of electricity annually from renewable 
sources, also helped promote wind energy in India.  However, he 
complained that Indian distribution companies often preferred to 
pay "penalties" rather than invest in renewable energy projects. 
 (Note: The Maharashtra Energy Development Agency (MEDA) fined 
four electricity suppliers in Maharashtra, including Anil 
 
MUMBAI 00000463  003.2 OF 004 
 
 
Ambani's Reliance Energy, for not meeting their RPS obligations 
for 2007-08.  According to the MEDA, Reliance Energy sourced 
just 0.01 percent of its total energy input from renewable 
sources as compared to the RPS obligation of 4 percent and was 
fined USD 41 million for the shortfall.  Tata Power was the only 
electricity supplier in the state to meet and exceed its RPS 
obligation.  End Note). 
 
Challenges Inhibiting Wind Energy Development 
----------------------------- 
 
¶10.  (U)  Mangal said land acquisition is the main obstacle to 
the development of wind energy capacity in India.  Multiple 
clearances, objections from the environment and forest 
ministries, and opposition from local residents make land 
acquisition and site development a challenge.  The state 
government, although aware of the potential of wind energy, does 
not assist in the land acquisition process, treating it as a 
commercial issue and, therefore, the responsibility of private 
enterprise, Mangal complained.  For this reason, Suzlon needs to 
create eco-awareness about wind energy, he added.  At present, 
Suzlon is having a lot of problems in the development of wind 
energy sites in Maharashtra.  Mangal said that the company has 
completed the capacity expansion of the wind farm at Dhule in 
Maharashtra to 680 MW but will not proceed with further capacity 
expansion to 1,000 MW until the company resolves land 
acquisition problems and opposition from local residents. (Note: 
 At one wind park outside Pune, Suzlon had implemented a robust 
Corporate Social Responsibility program, turning wind park land 
into grazing land, and investing in a holistic irrigation system 
for neighboring villages.  End Note.) 
 
¶11.  (U)  Suzlon's largest turbine has a capacity 2.1 MW.  Its 
recent acquisition of German-based RE Power Systems brought 
larger wind turbines with a capacity of 5 MW into its product 
portfolio.  However, these larger turbines will be constructed 
in India's offshore coastal waters and will not be brought into 
India, despite the high cost of maintaining offshore wind sites. 
 Utigkar noted that India's existing infrastructure cannot 
support wind turbines greater than 2 MW of capacity.  Turbine 
blades with a capacity of over 2 MW measure more than 40 meters 
in length and cannot be transported on Indian roads, he 
explained.  Utigkar also noted that winds in India are seasonal; 
around 60 percent of total wind energy generated through the 
year is generated in the four monsoon months of June, July, 
August, and September.  Wind turbines can operate at winds as 
low as 3.5-4.5 meters per second, but the generation of wind 
energy is not economically viable at such low wind speeds.  Wind 
turbines can operate in high wind speeds of 65 meters per 
second, but not in a sustained manner, he continued.  (Note:  At 
the Pune wind park, engineers told Congenoff that due to 
variable wind speeds, those turbines generated only about 25 
percent of their installed capacity on a regular basis.  End 
note.) 
 
¶12.  (U)  Utigkar also pointed out that grid connectivity and 
the distance between load centers where the electricity is 
consumed is another inhibitor for wind energy generation.  Land 
is cheaply available in remote areas but cables are required to 
connect the turbines to the main consumption centers to off-take 
the wind power generated, which is extremely expensive, he said. 
 At the Pune wind park, engineers told Congenoff that since most 
grids are small and self-contained, wind energy can often go to 
waste if it is generated at night, or when the electricity is 
not needed, especially as there is no way to store the excess 
energy. 
 
Reported Quality Problems with Suzlon Turbines 
--------------------------------------------- - 
 
 
MUMBAI 00000463  004.2 OF 004 
 
 
¶13.  (U)  In the last few months, press reports indicated that 
Suzlon's turbine blades had cracked, especially at U.S. 
windmills.  Mangal claimed that the company was being 
"maliciously" and "unfairly" targeted and that the stories were 
mostly untrue.  However, Rajiv Samant of Tata Power said that 
his company prefers to source its wind turbines from Suzlon's 
Indian competitor, Enercon, which is a joint venture between the 
Mehra group and Enercon GmbH of Germany.  He claimed that the 
Suzlon wind turbines had a "design flaw" and "are not able to 
withstand high wind speeds."  They are based on gearbox 
technology, he added.  Gearless technology, which is what 
Enercon offers, is better suited for variable wind speeds, he 
continued.  Samant added that Suzlon is not able to switch to 
gearless technology as Enercon holds the patent rights to this 
technology. 
 
¶14.  (U)  Comment:  While Suzlon is understandably bullish about 
the potential of wind energy in India, the facts on the ground 
must temper this reality somewhat.  Wind power generation is not 
easy to accomplish in any country, and certainly not without its 
India-specific challenges.  Many of Suzlon's problems - land 
acquisition issues, grid connectivity, and inadequate 
infrastructure - are symbolic of the challenges that the power 
sector faces in India.  Bold state-government intervention and 
regulatory reform is needed to attract investment in the power 
sector to stem India's energy crunch.  Mere provision of 
subsidies and tax incentives is no longer sufficent.   End 
Comment. 
Kauffmann