Why Suzlon, Inox Wind, NTPC Green may face earnings risk - ‘Nightmare for wind industry’

Shares of renewable energy players including Suzlon Energy Ltd, Inox Wind Ltd and NTPC Green Energy Ltd are expected to  remain under scrutiny following the Central Electricity Regulatory Commission's (CERC) revised deviation settlement mechanism (DSM) norms.

Brokerage firm Bernstein, according to a report from NDTV profit, has described these changes as a potential 'nightmare' for the wind energy sector due to tighter deviation limits and increased penalties effective from April 1, 2026. The updated framework requires renewable energy producers to more strictly adhere to scheduled power supply.

Specifically, the solar deviation band has been reduced from 10 per cent to 5 per cent, while the wind deviation band has been cut from 15 per cent to 10 per cent. Penalty calculations have also been tightened, resulting in a significant rise in charges for deviations.

These changes mean that any deviation from the planned supply will attract substantially higher penalties, raising financial risks for developers. Wind generation, unlike solar, is inherently less predictable, which makes it challenging for developers to consistently meet scheduled supply requirements.

Bernstein emphasises that without significant improvements in forecasting, wind energy developers could face a double-digit revenue impact in the coming years. This places portfolios with a heavy reliance on wind assets in a structurally vulnerable position under the new regulations.

The revised DSM norms are likely to affect the earnings and internal rates of return (IRRs) of companies like Suzlon Energy, Inox Wind and NTPC Green Energy Ltd. Increased penalties may erode profitability and make financial performance more sensitive to forecasting accuracy. Bernstein notes that the economics of wind projects could deteriorate if deviation levels remain high.

The new rules may influence capital allocation decisions by renewable energy developers, with a shift expected away from wind capacity towards solar-plus-storage solutions. In competitive bidding scenarios, hybrid models might be preferred over standalone wind projects due to the lower penalty risks involved, highlighted the brokerage firm.

This development comes amid ongoing efforts to improve forecasting accuracy for renewable sources. The Ministry of New and Renewable Energy (MNRE) has involved agencies like the Central Electricity Authority (CEA) and the India Meteorological Department (IMD) to enhance wind forecasting and unlock the sector's potential.

Overall, the tightening of DSM norms marks a significant regulatory shift for the wind energy sector, with implications for developers’ strategies and financial outcomes in the years ahead. Majority of the renewable energy stocks were rallying higher on Wednesday, in line with the broader markets.

Inox Wind led the gainers, surging nearly 7 per cent to Rs 86.31 on Wednesday, while Suzlon Energy jumped more than 5 per cent to Rs 43.68. Inox Wind and Indian Renewable Energy Development Agency Ltd (IREDA) jumped nearly 5 per cent. Shares of Clean Max Enviro Energy Solutions Ltd and NTPC Green shares gained more than 3 per cent each.