Suzlon, Inox Wind see another 5% lower circuit as reverse auction move weighs

Shares of Inox Wind Ltd. and Suzlon Energy Ltd. are both locked in a lower circuit of 5% on Wednesday. While this is the third straight lower circuit for Inox Wind, its the second one for Suzlon.

Both these stocks are declining on reports that the Ministry of New and Renewable Energy (MNRE) is looking to bring back "reverse auctions" for auctioning wind power capacity to energy companies.

The ministry sent a letter to companies like NTPC, NHPC, SJVN and other PSUs with the directive, citing reasons of undersubscription and higher tariff discovery in recent wind bids, according to the reports.

Speaking to CNBC-TV18, Devansh Jain, Whole-time Director at Inox Wind said, “All RTC, hybrid, and fixed dispatch renewable energy tenders over the past 15 months have all been under the reverse auction route and they continue to be under the reverse auction route. So frankly, this is just a theoretical thing, which is happening. I mean, the Ministry announced this a year and a half ago, but to date, only one such tender took place last month, which was also under-subscribed.”

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, SJVN are Renewable Energy Implementing Agencies to developers like Suzlon and Inox Wind, along with state agencies.

Analysts on the street believe that the MNRE directions are a negative for equipment suppliers and developers. They further said that 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 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.

Brokerage firm JM Financial believes that the current changes will have limited impact on the sector, with high probability of policy reversal in due course.

Both Suzlon and Inox Wind shares are locked in a 5% lower circuit at ₹38.7 and ₹498.8 per share respectively.