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Feature | September 2015

Tightening the Knuts and Volts

Touted to be a major market shareholder by 2014-19, the power capacitor sector in India seems to have lagged behind in meeting the high expectations, despite average results. Power Today talks to industry experts about their views on the current situation and the future of this sector.

One of the most versatile electrical products with a wide application spectrum ranging across computers, televisions, appliances, automobiles, aircraft, domestic and industrial equipments, power electronics, drivers and UPS, capacitors are not just energy storage devices, but are also used for signal filtering, processing and power conditioning, power factor correction and transient suppression (harmonic filtering). However, a large unorganised market, lack of awareness about importance of branded and quality products, anarchistic buying practices of consumers with much faith on old specifications, ferocious competition among peers from a largely unorganised segment, sluggish technological advancement and rise in input material costs have constrained this industry.

Current Scenario
Over the last few years, the demand for power capacitors in India has been on the rise and the electrical capacitors market here is expected to grow at CAGR of around 3.6 per cent during 2014-19.

However, the Indian capacitor industry is capitally exhaustive with high break-even levels, dependence on imports of crucial raw materials, dip in the value of the Indian rupee in global markets, stagnant demand, delays in projects and fiscal difficulties faced by EPC contractors and utilities. Moreover, the much anticipated growth from certain emerging segments such as electric agility (EV & HEV), HVDC/FACTS, and local manufacturing of electronic goods came to a standstill.

Explains Saurabh Kumar, Senior Manager, Havells India Limited, ´The industry is optimistic primarily because of the announcements by the Centre about proposed reforms and investments in the infrastructure and power sectors. However, India has very limited base for capacitors, predominately due to the existing technological challenges and lack of skilled manpower.´

Adds Shylendra Kumar CM, Vice President, Capacitors and Filters, Power Products Division, ABB India Limited, ´Core sector performance has remained weak and this has resulted in low capex and opex spends in this industry. So, the demand for industrial and low voltage segment remains muted even though these systems have one of the fastest return on investments.´

Challenges Faced
The power capacitor industry today is facing several challenges like unavailability of indigenous raw material, presence of large unorganised players and lack of proper implementation of technology. Another challenge is the reducing share of Indian manufacturing in export markets as compared to Chinese companies.

´In order to overcome these challenges, proper legislation and regulations must be enforced to ensure basic minimum quality of product and promote indigenous manufacturing. It is also important to promote healthy competition, entrepreneurial initiatives and constant technical changes to meet the requirements of product quality and efficiency,´ believes Saurabh Kumar.

The government needs to focus on areas such as HVDC, high speed traction, electric automobiles etc., which will simulate primary as well as secondary demand.

Enhancing the level of quality and reliability of products and services, will make us globally competitive and help de-risk manufacturing by reducing overdependence on domestic market for survival and growth.

While there has not been any specific initiative to support the growth of capacitors, over the last year, the discussion and focus has increased considerably in two areas-energy efficiency and green energy in utilities and industries, which will boost demand for capacitors. Some states are already introducing technologies to improve energy efficiency, but the efforts are scattered.

´Emphasis from the government on reactive power compensation and filter projects that improves power quality while reducing losses would help drive swifter adoption. Indian manufacturers can address gaps in their product portfolio and upgrade processes to international standards, to give others confidence to invest in developing their energy efficiency portfolios,´ points out Shylendra Kumar.

´There is a huge capacity in the whole industry, but the demand isn´t as much. Secondly, most capacitor manufacturers import a major amount of raw materials and high quality gear. In import, there are duties and the global prices also keep changing, so there is a huge profitability issue,´ points out Venkat Garimella, Director Marketing - Power Solutions Business, Schneider Electric.

Price cuts due to the demand-supply gap and currency fluctuation has an impact on the profitability and stretch on margins. Local companies have to be more technically complaint with the latest international standards, otherwise they may become irrelevant.

Silver Lining
There is a bright side though. Increased focus on grid strengthening has significantly added to the demand for capacitors in the extremely high voltage segment. The number of HVDC projects has gone up to around two projects a year; up from one project every five to six years, in less than a decade. By design, the ratio of the capacity of an HVDC project to capacitors required is 1:1, whereas the ratio for regular transmission is only 1:0.3.

´Such increase drives demand, it will result in higher capacity utilisation. We are the leading provider in the EHV segment and already, the output from ABB India´s capacitor plant has trebled over the last 6-7 years,´ shares Shylendra Kumar. Factors boosting demand are the maximum demand charges, energy charges, charge on the basis of apparent energy (kVAh)--which is a vector sum of kWh and kVArh, power factor penalty or bonus rates, as levied by most utilities etc. With the tremendous industrial growth, demand for capacitors is going to be enormous in times to come.

´As per available production data of capacitors, the capacity installed is under-utilised at present and there is a substantial scope of higher production with the capacity already installed. Therefore, at present, there may not be capacity expansion due to growth in demand, but it will take place sooner or later,´ feels Gupta.

The demand for power capacitors is also expected to increase primarily due to rising demand for consumer durables and infrastructure development. India has seen tremendous growth in the electrical and electronic manufacturing sector and revenue growth here is the key driver for electrical capacitors market in the country.

Observes Saurabh Kumar, ´The importance of capacitors in the power industry is growing with increasing focus on energy efficiency in India. Demand has increased in last six months, due to the new regulations imposed by distribution companies, which in return increase the overall growth of the industries.´

Future Tech
Subhash Gupta,
CEO, Standard Capacitors feels that Indian manufacturers are technologically ahead, ´There is a vast range of capacitors being manufactured in India. Compared to many other countries, we are quite ahead in capacitor technology and a lot of R&D is being undertaken by Indian capacitor manufacturers and we will soon be a global leader in this field.´

While Garimella was spartan in his compliments, ´Some very smart Indian companies and start-ups are getting on board the power quality management business, but, this industry is well developed globally, so if the local companies don´t keep their eyes on innovation, or focus on the trends and changing customer expectation they may become irrelevant.´ He however further qualified, ´I´m not saying it is not being done, but companies who have accessed global trends, technology and components are an emerging trend and there is still a lot of gap in understanding this scenario. It is early to say whether Indian manufacturers are technologically ahead.´

Shylendra Kumar concurs, ´technology implemented in the segment is dispersed, and few have implemented advanced technologies as per global standards. There remain a large number of small and medium sized companies who are yet to bridge the gap.´

´We visualise tremendous potential due to expected industrial growth in view of the plan of setting up of 100 smart cities by the Government of India along the Delhi-Mumbai Corridor.

These smart cities will have industrial hubs, which would be set up on the most modern lines with advanced technology. Domestic players need to grab this opportunity,´ advises Gupta.

Capacitors pump in reactive power. But going forward with more and more non-linear load connections, this reactive power generated by capacitors will not hold good technically. This then gets taken over by the semi-conductor based IGBT devices. Technology is also undergoing a lot of change. The reactive power generation space is going to evolve in the coming years and while capacitors today are everywhere and IGBT is currently just a little thing, this will change.

´Consumer preference, load conditions, IGBT cost, drawbacks of the classical capacitors, etc., will make semi-conductor based IGBT reactive power management solutions the next big thing,´ ends Garimella.

Initiatives to improve energy efficiency will boost demand for capacitors”
Shylendra Kumar CM | Vice President, Capacitors and Filters, Power Products Division, ABB India Limited.
What opportunities should be grabbed by domestic players?
For it to be truly attractive to ´Make in India´, power quality and energy efficiency should be deeply ingrained into our manufacturing. There remains a lot of scope in the field of reactive power compensation, power quality and energy efficiency in India, especially in SVC/STATCOM domain. It is not restricted to any specific industry-from energy intensive cement plants to F&B industry, everybody can benefit.

Recently, ABB delivered a power quality solution to PepsiCo in India, reducing electricity bills at one of its bottling plants by 5-10 per cent annually, delivering a return on investment of less than two years. The innovative technology behind the energy efficient solution is ABB´s dynamic and step-less reactive power compensation equipment, PQC-STATCON.

Are government plans supportive?
While there has not been any specific initiative to support the growth of capacitors, over the last year, the discussion and focus has increased considerably in two areas-energy efficiency and green energy. Initiatives towards improving energy efficiency in utilities and industries will help boost the demand for capacitors. Some states are already introducing technologies to improve energy efficiency, but the efforts are scattered and a concerted effort remains to be seen. Emphasis from the government on reactive power compensation and filter projects that improves power quality while reducing losses would help drive swifter adoption.

To improve reach to the market, Indian manufacturers can address gaps in their product portfolio and upgrade processes to international standards.

This will give confidence for others to invest in developing their energy efficiency portfolios.

Please share your views on reactive power management.
Reactive power management is very crucial in realizing fully the utilisable part of the generated power and also make more power available by reducing losses. Harmonic filtration is an extended part of reactive power management plays a crucial role in industries. While this is used very well in EHV sector in the HVDC and Facts domain, its potential is not fully utilized in HV and MV segment as well as in industries and building/infra sector, where even now reactive power management is still only seen as a means to avoid penalty. Almost every power user-big or small LV, MV or HV has a power quality (power factor, voltage fluctuation and /or harmonics issue) and reactive power management (shunt cap banks (fixed or dynamic) and harmonic filters) must form a part of basic power system planning. These systems most probably have one of the fastest return on investments, when all the factors that are improved are well understood.

What factors are boosting demand for capacitors? Will this growth be converted into actual capacity expansion and higher utilization?
Increased focus on strengthening the grid has significantly added to the demand for capacitors in the extremely high voltage segment. For example, the number of HVDC projects launched has gone up to around two projects a year; up from one project every five to six years, as was the case less than a decade ago. By design, the ratio of the capacity of an HVDC project to capacitors required is 1:1, whereas the ratio for regular transmission is only 1:0.3.

Such increase will drive demand and result in higher capacity utilization. We are the leading provider in the EHV segment and already, the output from ABB India´s capacitor plant has trebled over the last 6-7 years.

How successful have Indian manufacturers been in implementing advanced technology in capacitors?
The technology implemented in the segment is dispersed, and few manufacturers like ABB have implemented advanced technologies as per global standards. There remains a large number of small and medium sized companies who are yet to bridge the gap.

HVDC projects require capacitors that do not compromise on performance over 20-25 years. Manufacturing technology plays a key role in quality, reliability and lifelong performance of capacitors. Processes such as using globally manufactured automatic winding machine, robotic welding, advanced design tools for capacitors and filters, ensure the dependability of ABB capacitors. Our one of a kind application of SCADA reduces human intervention, and thus human error to zero, in the vacuum impregnation process.

What are the challenges pertaining to this sector? Do you see a price war vis-a-vis global players? Have they dominated this space till now?
In markets such as India, where the benefits of capacitors have yet to be fully appreciated (be it for energy efficiency, stability or enabling longer life cycle of loads), little value is assigned to quality. Domestic and international alternatives use less technology or sheer volume to bring down their costs, and lower price realizations make running capacitor plants quite a challenge. There have been some players in the market who have not been able to realize any positive margins.

How has the growth of your company been over these years?
The government´s efforts towards strengthening the grid has brought focus on T&D. This has led to strong performance in the extra high voltage segment driven by filters for high voltage direct current (HVDC) and FACTS solutions. Higher technology adoption in T&D will play a critical role in fructifying the government´s vision of quality power for all-reducing losses in transmission and actively managing load-supply. This, in turn, will help create further demand. In industry, core sector performance has remained weak and this has resulted in low capex and opex spends. And so the demand for industrial and low voltage segment remains muted even though these systems have one of the fastest return on investments.

Kindly share your order book and backlog. Are you working on government projects?
ABB India´s order backlog stood at Rs 7,956 crore as on June 30, 2015. We do not provide segment-wise break up. With the end to end offering-from capacitors and controllers, shunt reactive power compensation banks with and without reactors, stepped and step-less fast reactive power compensators and passive and harmonic filters for voltage requirements ranging from 208 kV to 800 kV; for AC and DC, ABB is well positioned to garner a significant share of the high voltage capacitor market and government projects in the next three years.

“Domestic players need to grab opportunities provided by smart cities”
Subhash Gupta
| MD, Standard Capacitors & Ritika Subhash | Operations Manager, Standard Capacitors.

How has the growth of your company been? Are you working on government projects?
The demand for capacitors has definitely gone up in the last few years, partly because of a push from utility companies to charge on KVA consumed. We have also seen a lot of smaller businesses and even households off late show interest in power management through capacitors. In the last few years, our company´s growth has been in the range of 10-18 per cent. After a slight dip in FY2013-14, our turnover increased 74 per cent in FY2014-15, which is a very positive sign. Every year, we increase our targets to cater to more consumers across the country and are now looking to venture into previously untapped requirements for controlled capacitor banks for agricultural capacitors and residential capacitors too.

We work extensively with many government departments such as Railways, Ordinance Factories, National Hydro Development Corporation, Bharat Petroleum and many others for supply as well as turnkey projects and even annual maintenance to ensure a steady high power factor throughout the year. A new project with the Rail Coach Factory is underway and in prototype stage. The implementation of this will lead to the development of one of its kind power management system for the Indian rail coaches.

How well is this industry doing is the government supportive?
Analysts forecast capacitor market in India to grow at CAGR of 12.46 per cent over 2014-19. We visualise tremendous potential due to expected industrial growth in view of the plan of setting up of 100 smart cities by the Government of India along the Delhi-Mumbai Corridor. These smart cities will have industrial hubs, which would be set up on the most modern lines with advanced technology.

Domestic players need to grab this opportunity.
What factors boost demand for capacitors? Will this growth be converted into actual capacity expansion and higher utilization?
Factors that are boosting demand are the maximum demand charges, energy charges, charge on the basis of apparent energy (kVAh)--which is a vector sum of kWh and kVArh, power factor penalty or bonus rates, as levied by most utilities etc. With the tremendous industrial growth, demand for capacitors is going to be enormous in times to come.

As per available production data of capacitors, the capacity installed is under-utilised at present and there is a substantial scope of higher production with the capacity already installed. Therefore, at present, there may not be capacity expansion due to growth in demand, but sooner or later capacity expansion will take place.

How successful have Indian manufacturers been in implementing advanced technology in capacitors?
There is a vast range of capacitors being manufactured in India. Compared to many other countries, we are quite ahead in capacitor technology. So, as far as implementation of technology is concerned, this answers the question. A lot of R&D is being undertaken by Indian capacitor manufacturers and we will soon be a global leader in this field.

What are the challenges this sector faces? Have global players dominated this space till now?
A major challenge faced by Indian manufacturers is availability of quality raw material at competitive prices. We have to import raw material, especially film, which destabilises the cost of capacitor manufacturing due to currency fluctuations. To be able to compete globally, this factor need to be attended to.

Please share your views on reactive power management.
Electrical machinery as well as electrical devices connected to an alternating current system require both active and reactive power to function properly. A major function of reactive power is voltage control. Some of the major instances of blackouts in first world countries have been insufficient voltage and reactive power support systems. As a result, the onus of supplying reactive power must be shared between the provider and the consumer to ensure minimal transmission losses and better performance of electrical loads. Automatic power factor correction systems play a major role in reactive power management.

Why China pips Indian exports:

  • Financial Sops - Chinese manufacturers are given export subsidies, social security subsidies and access to financing at rates below 6 per cent per annum
  • Chinese manufacturers have access to key raw materials at subsidised prices.
  • In tenders issued by Chinese national power companies, foreign companies, including
  • Indian companies, cannot participate directly, as they need a local presence. No such conditions exist in India.
  • Easy acceptance of performance certificates - Indian utilities accept performance certificates issued by Chinese utilities and do not insist on certification by reputed international agencies.

“The industry is optimistic because of announcements by the Centre”
Saurabh Kumar
| Senior Manager, Havells India Ltd.
How has the growth of your company been?
The company has been growing at a good pace over these years. In the last fiscal, we registered a 13 per cent growth in net revenue and 15 per cent growth in profit after tax. Havells has been continuously investing in upgrading the manufacturing facilities and focus on R&D. We plan to expand manufacturing capacity of capacitors to 5 MVAr/month by the end of this fiscal, and 15 MVAr/month by 2016-17.

How well is this industry doing?
Capacitors are one of the most versatile electrical products and their application spectrum wide. Over the last few years, the demand for power capacitors in India has been on the rise and the electrical capacitors market here is expected to grow at CAGR of around 3.6 per cent during 2014-19.

The industry is optimistic primarily because of the announcements by the Centre about proposed reforms and investments in the infrastructure and power sectors. However, India has very limited base for capacitors, due to the existing technological challenges and lack of skilled manpower.

Are government policies supportive of the sector?
Growth is inevitable in a developing economy and its expanse over the next few years depends upon the Centre´s ability to stimulate domestic demand, create new market opportunities, and facilitates access to the global market.

The government needs to focus on areas such as HVDC, high speed traction, electric automobiles etc., which will simulate primary as well as secondary demand. Enhancing the level of quality and reliability of products and services, to make us globally competitive and help de-risk manufacturing by reducing overdependence on domestic market for survival and growth.

With the increase in overall demand, Havells is initiating multi-tasking activities like educating consumer on benefits for improving power quality (reactive power compensation, harmonic filtering, transient suppression etc) and creating strong representation and following of good practices to improvise standards.

What are the factors boosting demand for capacitors?
The demand for power capacitors is expected to increase primarily due to rising demand for consumer durables and infrastructure development. India has seen tremendous growth in the electrical and electronic manufacturing sector and revenue growth here is the key driver for electrical capacitors market in the country. The importance of capacitors in the power industry is growing with increasing focus on energy efficiency in India.

The demand has increased in last six months, due to the new regulations imposed by distribution companies, which in return increase the overall growth of the industries.

Will this growth be converted into capacity expansion and higher utilisation?
This industry has the potential to meet current and future domestic and export demands based on the power sector´s growth due to strong manufacturing. However, we are facing challenges due to competition from international companies, quality issues and presence of unorganized players. There is a need to upgrade standards that encourage improvement in power quality, processes and maintenance practice.

What are the challenges you face? Have global players dominated till now?
The power capacitor industry is facing several challenges like unavailability of indigenous raw material, presence of large unorganised players and lack of proper implementation of technology.

In order to overcome these challenges, proper legislation and regulations must be enforced to ensure basic minimum quality of product and promote indigenous manufacturing. It is also important to promote healthy competition, entrepreneurial initiatives and constant technical changes to meet the requirements of product quality and efficiency.

Another challenge is the reducing share of Indian manufacturing in export markets as compared to Chinese companies. The reason for their rise is financial sops (export subsidies), easy access to raw material at subsidised rates and non-reciprocal market access.

Have Indian manufacturers implemented advanced technology in capacitors?
In the last couple of years, the Indian capacitor industry has witnessed a number of innovations in the manufacturing of power capacitors. Capacitors grew as one of the most versatile product. In order to address such a wide range of applications, technology upgradation and innovation is required.

Havells´ focus is on advanced capacitors for renewable energy systems (wind power converters, SPV and hybrid systems), that are expected to contribute to a significant portion of global energy supplies. These require special capacitors to enhance their energy capture and integration into the power network.

POWER TODAY suggestions:

  • Market needs to be organised and consumers educated about quality products.
  • Emphasis on energy efficiency, renewables should spur need for quality capacitors.
  • Policies to constrain material cost and encourage local procurement.
  • Policies on par with competitors and financial schemes and aids be worked out.
  • Vertical integration be taken up.
  • Uniform technological implementation across the industry, conforming to global standards.

“Local companies have to be more complaint with international standards“
Venkat Garimella
| Director Marketing - Power Solutions Business, Schneider Electric.

What factors are boosting demand for capacitors?
The trend and how the future technology is changing, but capacitors are not going to disappear overnight. And while there is a bit of growth, there is no big boost, as of now. Mainly, the regulatory issues have still not been changed, which would help the industry.

Bigger companies like Schneider are working towards the next generation trends. So, any company which is in the business of making capacitors, have to think twice, as they may not have a long life, due to issues of volume, profitability, price cut etc., but only capacitors is not a longevity industry.

Have manufacturers implemented advanced technology in capacitors?
Some very smart Indian companies and start-ups are getting on board the power quality management business and so there are small Indian companies that are getting there. This industry is well developed globally, so if the local companies don´t keep their eyes on the innovation, focus on trends and changing customer expectation etc., they may become irrelevant. I´m not saying that they are not doing that, but those how have accessed global technology and components are few. This is an emerging trend and there is a lot of gap in understanding this scenario. The whole space is small and the economics of scale, volume etc. still don´t exist. So, it is early to say whether Indian manufacturers will be successful tomorrow or not. But they are beginning.

What are the challenges pertaining to this sector?
There is a huge capacity in the whole industry, but the demand isn´t as much. Secondly, most capacitor manufacturers import a major amount of raw materials and do not have very high quality gear manufactured in India.

In import, there are duties and the global prices also keep changing, so there is a huge profitability issue. There is a price cut due to the demand-supply gap, the cost is moving because of the fluctuation and there is an impact on the profitability and stretch on margins.

Local companies have to be more technically complaint with the latest international standards and have to be prepared, otherwise they may become irrelevant.

Do you see maximum opportunities for this particular segment in India that should be grabbed by domestic players?
If you see globally, 75 per cent (and increasing) share of the electricity load is on account of non-linear loads (servers, computers, copier machines).

Non-linear loads are very typical in their behaviour and the usual capacitors cannot really work in the increasingly non-linear load conditions, and will instead further add to the instability and poor quality of power. They will thus loose their relevance. Thus, the emerging trend will be for IGBT semi-conductor based power factor and harmonics mitigations solutions, which is what should be picked up by players. At Schneider, we have a very holistic view of power management, and look at the overall comprehensive view of power quality, while approaching this industry.

It was expected that this sector would capture major market share by 2014-19, so how well is this industry doing?
As per my own personal estimates, if we divide the power capacitors industry into two--low voltage (LV) and medium voltage (MV), I think that it is not showing such an encouraging growth. Maybe there has been some growth in LV, but definitely MV is not very strong in the capacitor industry.

Look at the bigger picture of the power sector. First, there is first a power deficit, and secondly--which is very unique to this country--is the very high amount of T&D losses, which as per various reports, is as high as 30 per cent.

The rough estimate is that we need to commission 4,000 MW of power plants, every month, for the next 30 months (2.5 years) to meet our power requirements. Thus, containing this 30 per cent T&D losses and optimising it is what is needed, for which we need a lot of regulatory initiatives from the Government of India.

Frankly, that hasn´t come as yet, but believe me that when these things come up you will see LV and MV capacitors really start to grow.

What should Indian manufacturers and the government do to provide maximum growth opportunities for the sector?
The state distribution companies are not making profits and hence have no money to modernise for tomorrow´s requirements. We need to switch to the kVh billing model from the present kWh one. The latter gives players incentives for having power factor above the prescribed threshold, while penalising those who fall below.

We want kVh billing to happen in more and more states, because it is just started and only 3-4 states currently do this, as it will give a big boost to the capacitors business, especially LV capacitors. In the present regime, only those companies who want energy incentives and have the wherewithal to get what is needed participate, and others just maintain the threshold--opting for no incentive and no penalisation. But, kVh billing, does away with power factor incentive, only keeping the penalties, thus getting each and every consumer interested in improving their power factor. Studies have also proven benefits of kVh billing model for state discoms, but this doesn´t get implemented.

Few of them have already started doing that, and this is the first step. The second step is that it is now time for India to look at power quality. So we are waiting for some regulatory initiatives from GoI to improve the same. Recently, Tamil Nadu became the first state to introduce power quality improvement norms and so others have to also look into this, learn from it, understand and start implementing it.

Please share your views on reactive power management.
Capacitors pump in reactive power. But as I said, going forward, this reactive power generated by capacitors will not hold good technically, when you have more and more non-linear load connections. This then gets taken over by the semi-conductor based IGBT devices. So, the reactive power generation space is going to change in the coming years and while capacitors today are everywhere and IGBT is a little thing, this will change.

IGBT semi-conductors were very expensive, are now expensive and maybe going forward they will become extremely cheap. So, this technology is also undergoing a lot of change, thus consumers, load conditions, IGBT cost, drawbacks of the classical capacitors, etc., will all make IGBT based reactive power management the next big thing.

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