Windmill Equipment Manufacturers to Compensate Customers for Cracked Blades

by Gopalan on  July 11, 2008 at 9:32 AM Corporate News
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Windmill Equipment Manufacturers to Compensate Customers for Cracked Blades
Suzlon, the world's fifth-biggest wind-turbine makers, have set aside a huge $139 million dollars to compensate customers for cracked blades.

Windmill energy is more of a scam in India than any meaningful contribution. There is a nexus between manufacturers, end users and electricity board officials everywhere. They all make a neat pie in the name of government subsidies for alternative energy, it is generally said.

But in these days of skyrocketing crude prices, wind energy is beginning to be taken seriously the world over. It is in such a backdrop Suzlon, a turbine giant, have come forward with their offer to compensate disappointed customers.

Suzlon will pay John Deere Wind Energy and Edison Mission Energy for output losses resulting from defective turbine blades, Chief Financial Officer Kirti Vagadia told investors in Singapore today. About 6 percent of its 1,251 V-2 series, 2.1-megawatt blades are cracked, he said, according to Bloomberg news agency.

Ahmedabad, India-based company's shares have fallen 46 percent this year because of concerns that blade defects may prompt customers to cancel orders. Last month, a unit of Southern California power company Edison International declined to take delivery of 150 turbines after it complained of receiving faulty equipment, Suzlon said.

According to recent reports, Suzlon's turbines installed at wind farms of John Deere were not producing enough power due to technical issues such as inability to adapt to the US power grid. Suzlon had supplied over 250 wind turbines to John Deere and Co.

Edison Mission Energy reported to its investors in January 2008 that some of the blades wind turbines supplied by Suzlon were cracking.

Suzlon confirmed this in January 2008 and wrote off Rs 19 crore in the third quarter of the last year for replacement of 34 blades of its 2.1-mw turbines installed in the US that developed cracks.

Later Suzlon provided for a further provision of Rs 100 crore in the next quarter to strengthen 1,251 blades. Edison also cancelled an order for supply of 315 mw in 2009, numbering about 150 S88-2.1 mw turbines.

''Making provisions for retrofitting and for possible claims from clients about loss of production was the right thing to do,'' said Krishnakant Thakur, Mumbai-based analyst with Edelweiss Capital Ltd., who recommends investors buy Suzlon shares. ''They've stopped making the entire series of blades.''

Suzlon shares fell as much as 8.1 percent to 191.65 rupees in Mumbai, and closed 0.2 percent lower at 208 rupees. UBS AG yesterday cut the stock's price estimate to 225 rupees from 305 rupees, citing slower sales and increased cost of provisioning and raw materials. UBS maintained its ''neutral'' rating.

Deere and Edison are ''the most affected'' by the V-2 series blades, Vagadia said at the Nomura Asia Equity Forum at Singapore Thursday. The two companies use 70-80 percent of these wind turbines, according to Deven Patel, senior manager for corporate finance.

The company has already set aside 1 billion rupees to retrofit all its V-2 series blades by November, Patel said. A coating will be applied to the 24 meter-long (79-foot) blades to prevent further cracks, which appeared closer to the root, Vagadia said.

Suzlon has launched a new V3 series of 2.1 megawatt turbines this January and has had ''no problems'', Patel said.

The company has secured a 14 percent share of the global wind-turbine market after buying a stake in rival Repower Systems AG in May 2007, he said.

Source: Medindia

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