Suzlon’s Bold Bid to Invest $3B in Mexico Wind Farms

Photo courtesy: Suzlon

The world’s fifth-largest wind turbine manufacturer, India’s Suzlon Energy is making bold bids to expand its business even as it scrambles to raise the funds necessary to meet this year’s bond redemptions. Next for Suzlon in terms of international expansion: Mexico.

Suzlon’s CEO for Latin America, Erik Winter Petersen, has announced a plan to invest some $3 billion in wind energy projects in Mexico’s Baja California and Oaxaca regions, according to a Mexico Today report.

Mexico’s wind energy capacity is growing rapidly as the national and regional governments have been focusing on fostering renewable energy and clean technology development and adoption as a means of generating jobs and economic growth, as well as conserving the natural environment and precious resources. Mexico’s national parliament passed a climate change law earlier this year, and wind energy plays a significant role in Mexico’s National Renewable Energy Strategy.

Mexico Emerging as Wind Power Growth Leader

Mexico had just 3 MW of wind energy capacity in 2005; but its total capacity is expected to reach 2,000 MW by the end of 2012. The Mexican government forecasts that wind power will double to 4 GW by 2015 and triple to 8 GW by 2020. Achieving 2012’s goal would make Mexico the world’s fastest-growing wind power market.

Baja California and Oaxaca are prime locations when it comes to Mexican wind energy project sites. Eighteen of Mexico’s 27 wind power installations are located in Oaxaca alone, with major international wind turbine and wind power project developers (including Acciona, Gamesa, and Vestas) having announced investments in the two Pacific coast regions.

Suzlon has yet to invest in any projects in Mexico, but that’s set to change drastically given the announcement.

Mexico’s onshore wind capacity has been estimated at 71 GW, and the federal government believes that wind power can meet 30% of its electricity needs, according to a Recharge news report. Suzlon and other wind energy developers keen on investing in Mexico face challenges in realizing their ambitions, as does the Mexican government, however.

Suzlon will need to compete against other bidders in wind farm project tenders held by the federal government. Government administrative procedures also need to be streamlined to better promote private investments, as in the procedures regarding issuance of power purchase agreements (PPAs), Petersen told Recharge.

Then there’s the issue of transmission capacity and grid interconnections, a problem that’s held up construction and constrained more efficient use of intermittent wind-generated electricity on electricity grids. A plan’s been put forward that entails wind farm project developers sharing the cost of building them.

Suzlon’s Financial Challenges

Suzlon and other wind energy industry leaders face significant financial challenges even as they embark on major international business development efforts as well. Suzlon has posted losses for three years running now, and it’s been scrambling to avoid a bond default.

The company faces a $358 million convertible bond redemption on June 12, with another coming due in October. Fortunately for Suzlon, a group of around 20 banks have thrown the company a lifeline, having pledged to loan it as much as $300 million.

Carrying nearly $2.1 billion in debt on its books as of end March, management still has more to do to assure the company’s ongoing viability, though. It intends to continue trying to sell non-core assets, as well as raise more capital through the bond or equity markets.