Unlocking the Key Reason Behind Suzlon and Inox Wind’s 5% Drop

On Monday, March 4, 2024, wind energy stocks dropped. Suzlon shares dropped by more than 4% to an intraday low of ₹41.75 per share on the NSE, while Inox Wind fell 5% to its lower circuit at ₹552.65 per share.

Why Did Suzlon and Inox Wind Shares Drop?

The drop in the share prices of Suzlon and Inox Wind resulted from news that the Ministry of New and Renewable Energy (MNRE) is planning to bring back “reverse auctions” for auctioning wind power capacity to energy companies.

The MNRE has already sent notifications to companies like NHPC, NTPC, SJVN and other Public Sector Undertakings (PSU) with the directive, stating reasons for undersubscription and higher tariff discovery in the latest wind bids.

What Is the Reverse Auction Mechanism?

In the reverse auction mechanism, the bidders bid against each other until a counter-offer does not challenge a bid. Though the tariffs decreased as a result of reverse auctions, this method did not result in sufficient wind capacity installations, which led the Ministry to discard the method in January 2023.

Thereafter, the Ministry implemented the closed bidding system, resulting in an increase in the tariffs. They modified the auction process for wind energy projects. They also set a target to invite bids for 8 gigawatts (GW) projects each year till 2030.

Currently, the Ministry has reinstated the earlier approach of reverse auctions. They even set a limit of 600 MW for plain vanilla wind tenders and mandated bids to be issued on a pan-India basis by renewable energy implementing agencies. NTPC, SJVN and NHPC are Renewable Energy Implementing Agencies for developers like Suzlon and Inox Wind, along with state agencies.

Market analysts think that the ministry’s directions can be negative for equipment suppliers and developers. They believe that tariffs coming down would impact returns for developers like NTPC. This can also lead to margin pressure for equipment suppliers.

Both Suzlon Energy Ltd and Inox Wind, which are involved in the business of manufacturing Wind Turbine Generators (WTGs), were impacted after the notification from the MNRE. After hitting lower circuits on Monday, Suzlon and Inox Wind are trading in red on Tuesday as well.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.