Gujarat Fluorochemicals to Commission 500 Megawatts of Wind Power Generation Capacity in October

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Researched by Industrial Info Resources (Sugar Land, Texas)--Gujarat Fluorochemicals Limited (BSE:500173) (GFL) (Panchmahal, Gujarat) will begin commissioning 500 megawatts (MW) of wind power generation capacity from October this year as part of its plans to diversify into the wind power-generation business. The firm has invested nearly $33 million to establish a turbine manufacturing facility at Una, in the northern state of Himachal Pradesh.

Production is expected to begin next month, with the first set of three turbines scheduled for delivery in March. GFL plans to monitor the performance of the three turbines during the high wind season of April to September, before proceeding with commercial power generation in October.

GFL is part of the $2 billion Inox Group, which has diversified interests in the chemicals, cryogenic vessels, carbon credits, engineering plastics, entertainment, industrial gases, refrigerants, and renewable energy sectors. The firm first announced its decision to foray into wind power generation in October 2007. It already had made a pilot-scale investment of $35.2 million in a 23.1-MW wind power plant at Gude Panchgani in Maharashtra, and signed an agreement with the Maharashtra State Electricity Board (MSEB) (Mumbai) to supply power for 13 years. The windfarm, comprising 14 turbines of 1.65 MW each and based on Danish technology, began operations in April 2007 and displaces 51,618 tons per year of greenhouse gas emissions.

Following this initial investment, GFL planned to focus on wind energy as a separate business unit, with an estimated investment $1.32 billion over a period of five years, a move that was based on a business diversification study conducted by McKinsey & Company (New York). GFL engaged a U.K.-based consultancy company to conduct feasibility studies and scout for suitable partners for technical collaboration and joint ventures. GFL also began to explore the feasibility of developing brownfield as well as greenfield wind power projects in Gujarat, Karnataka, Maharashtra, Rajasthan and Tamil Nadu, as well as in Indonesia and Sri Lanka.

Subsequently, in October 2009, GFL informed exchanges that it had incorporated a new subsidiary, Inox Wind Limited (Noida, Uttar Pradesh), to oversee its wind turbine manufacturing business. Inox Wind already had secured a license in May 2009 from AMSC Windtec GmBH (Klagenfurt, Austria), a wholly owned subsidiary of American Superconductor Corporation (NASDAQ:AMSC) (Devens, Massachusetts), for the latter's proprietary 2-MW, doubly fed induction wind turbine design. AMSC is assisting Inox Wind in setting up its manufacturing line and localizing the supply of key wind turbine components. AMSC also will build and test the first prototype turbines to be manufactured by Inox Wind and provide electrical systems for the turbines. The license provides Inox Wind with the right to manufacture and sell the wind turbines worldwide, while AMSC will receive an upfront license fee and royalty payments. At the time, Inox Wind said that it would begin series production of the 2-MW turbines in 2010.

Deepak Asher, GFL's director and group head for corporate finance, recently said that the firm has acquired land in Gujarat, Karnataka and Rajasthan to commission about 500 MW of wind power in the initial phase, starting October this year. The firm already has developed 50 MW of wind power generation capacity in Maharashtra and Rajasthan. GFL expects to have commissioned 200 MW of generation capacity by March 2011, entailing a total investment of $263.8 million.

The firm plans to fund its foray into wind power generation primarily through internal accruals. Asher said that GFL has liquid funds to the tune of $219.8 million available for initial investment and would leverage that to tap into the debt market. GFL registered a turnover of $241.8 million in 2008-09, and hopes to register a turnover of $275 million to $285 million this fiscal.

GFL is yet to finalize power supply agreements with the respective state electricity boards. It is also exploring other areas across India based on wind pattern studies, scientific site identification, and energy output estimations. The firm is in talks with several vendors to procure cost-efficient wind turbines through international competitive bidding. While Inox Wind will be responsible for the wind turbine manufacturing business, the wind power projects themselves will be managed by GFL.

GFL's foray into the wind power business is aimed at tapping into the growing renewable energy market in India, where the wind turbine business is expected to grow at an annual rate of 30% to 40%. However, the more important reason for this strategic initiative is perhaps the firm's existing carbon credits business, with GFL being certified by the United Nations Framework Convention on Climate Change (UNFCCC) to produce and sell certified emission rights (CERs). The firm's project to reduce greenhouse gas emissions through thermal oxidation of the refrigerant fluroform (HFC 23) at its factory in Gujarat was India's first and the world's third to be registered under the Kyoto Protocol Clean Development Mechanism (CDM), enabling the firm to sell 3 million CERs each year. GFL's wind power plant in Maharashtra is compliant with the Voluntary Carbon Standard (VCS), based on the CDM, with a volume of 36,976 Verified Emissions Reductions (VERs). Climate Friendly (New South Wales, Australia) is the exclusive buyer of all the 2007 and 2008 vintage credits.

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