The equipment industry, valued at around $28 billion, forms a vital component of the power sector providing direct employment to 500,000 people. However, its growth has been highly inconsistent, as is evident from its performance over the last decade-and-a-half.
The Indian electrical equipment industry, broadly classified into two categories-generation equipments and transmission and distribution (T&D) equipments-manufactures diverse products ranging from high technology equipments to low technology electrical components.
The industry´s half yearly growth, which was 14.6 per cent in 2007-2008, declined to 8.57 per cent in 2008-2009. However, it saw positive growth curve of 9 per cent in the first half of 2011-2012. This was again followed by a decline to 4.14 per cent in the second quarter FY2012, from 13.82 per cent in the first quarter of FY2012. ´Such inconsistency in the industry´s performance can be attributed to several factors. The major one being growth in inflow of imports from China, South Korea, Germany and other EU countries by nearly 20 per cent. This has seriously damaged the indigenous electrical equipment industry and led to a significant hike in prices of imported raw materials, making the finished product uncompetitive,´ reveals Vishnu Agrawal, President, Indian Electrical and Electronics Manufacturers´ Association (IEEMA).
In 2013, the Central Electricity Authority (CEA) submitted a report to the Power Ministry on the impact of import of power equipments, which revealed that many power plants using Chinese equipments, have come up in violation of operational and safety norms.
Apart from increasing imports and rising costs for raw material imports, factors like delayed implementation of several power projects and decreasing orders from utilities are often cited as the major causes slowing down the industry´s progress, despite a good demand and supply position.
Slow adaptation of new technologies by equipment manufacturers and low industry-wide expenditure on R&D are the other barriers.
The industry is also crippled by issues like non-adherence of payment terms with customers and power utilities, non-standard procurement guidelines in terms of pre-qualification criteria and technical specifications and the gap between Indian and international standards and tax related issues.
Notably, despite these bottlenecks being in the backdrop for decades, the industry has been marching on, albeit slowly. Rising domestic demand and increased exports have managed to keep the industry afloat.
´There is no shortage in quantity or quality for power generation equipment as far as Indian suppliers are concerned.
In fact, we are facing under utilisation manufacturing capacities because new orders have decreased. This is largely because discoms are not procuring new power at the same pace as earlier due to some large generation capacities, which have got commissioned in recent years, as well as due to the financial situation of some state discoms, which are unable to pay for new power,´ avers Santosh Kamath, Partner - Infrastructure and Government Services, KPMG Advisory Services Private Limited.
Opportunities for the power equipment industry now are undoubtedly vast and wide and moreso in the future with new focus areas aver industry professionals. Concurs N Venu Head-Power Systems, ABB India Limited, ´The market environment is tough today. But, we are cautiously optimistic this year and are here to take this new upturn in the economy and the power sector.´
He further explained their plans,´The focus areas would be renewable energy as there is lots of action and ground momentum here. Projects are getting converted into orders and ABB has several products i.e. converters and control systems, for this segment. Another area would be energy efficiency, as we are looking to make our power plants more efficient and reduce losses.´ As per the erstwhile Planning Commission projections, installed capacity for electrical power generation between 2012-2017 is expected to grow by 80,000-100,000 MW. Some progress in power transmission and sub-station projects and power generating stations, especially in the renewable energy, R-APDRP projects and orders from select core sectors like construction and real estate have helped in the industry´s moderate growth. Additionally, there are several new areas like smart grids, renewable energy and the large untapped potential of nuclear power.
However, nuclear power plant equipments need to meet certain set specifications, performance standards and environmental factors/issues as evinced by Dr RK Sinha, Chairman, Atomic Energy Commision and Secretary, Department of Atomic Energy, GoI.
´Equipment specifications for the nuclear sector, from materials and manufacturing process to testing requirements differ from those of thermal or hydro power, as most of them need to operate in a radiation environment, apart from differences in various process parameters. Furthermore, the design of nuclear equipment is conservative, as part of the defence in depth approach adopted to ensure the highest level of safety,´ Dr. Sinha adds.
´The Indian industry is presently able to meet the demand of nuclear power plants of indigenous design. In respect to nuclear plants being set up with foreign cooperation, bulk of the equipment is currently imported, with some sourced from within the country,´ he further points out.
Exports are another major avenue the industry is looking to. The export growth rate of the industry has been growing at a Compound Annual Growth Rate (CAGR) of 57.28 per cent as compared to the CAGR of 32.25 per cent in the last decade. ´We see large opportunities for our boilers in India, South East Asia and African countries.
Also, referable to greater availability of coal reserves in India, coal fired power plants will continue to be made here.
Our boilers have gained acceptance in South-East Asian countries and also captured the interest of various African nations,´
says Sivasubramanian Natrajan, Managing Director, ThyssenKrupp Industries Pvt Ltd. No doubt then, that these opportunities are attracting several new Indian and international players into the market. For instance, in June this year Transphorm Inc, an early stage semiconductor company announced a $70 million investment round led by leading global investment firm KKR. Transphorm will use this funding to support its growth, product innovation and expansion. It is the leading company producing GaN-based power conversion products that have the same positive impact on the energy we witnessed with LED-based lighting.
Dr. Umesh Mishra, Chairman of Transphorm Inc states, ´By merging the technological leadership of Transphorm and semiconductor business expertise of KKR, we are taking a major step forward in solving the global energy wastage problem.´
´There is a very large market for our products as its ultra-efficient power devices and modules can eliminate more than 40 per cent of all electric conversion losses through use of Gallium Nitride (´GaN´), a new semiconductor material that switches at far higher speeds than traditional components,´ he adds.
There is significant latent demand for power equipments in India, which has not been converted into real demand yet. Evidently opportunities are galore, but they need to be explored and exploited through several measures by the government and the industry.
Kamath explains the reasons behind this, ´There does exist latent demand, but this demand often cannot pay the full cost of power and needs to be subsidised. Utilities lack finances for the same, besides having transmission and distribution network issues. However even where consumer demand does exist, they cannot be served due to network bottlenecks.´
The Indian government has been taking measures to provide a fillip to the industry. In 2013, the Department of Heavy Industry (DHI), in consultation with IEEMA and other stakeholders, prepared the ´Indian Electrical Equipment Industry Mission Plan 2012-2022´ with a view to develop the domestic industry.
The mission plan identified industry competitiveness, technology upgradation, skill development, exports and conversion of latent demand as the five key areas for action with a vision to enhance industry output to $100 billion by 2022. No doubt several positive measures are required to realise this dream.
´In order to accomplish the set target of $100 billion by 2022, a comprehensive short term and long term strategy will have to be evolved and goals have to be set and achieved,´ points out Agarwal.
´It calls for strong, forward looking political will and stability, investment friendly policies, their fast implementation and higher budgetary spending in capital expenditure for infrastructure projects. On the other hand, the industry will have to focus on project innovation, superior product quality and skill development etc,´ he elaborates.
Providing a level playing field for domestic manufacturers to compete with imported equipments, focus on international standardisation, upgradation of testing facilities, standardisation of product ratings and specifications, equitable contract conditions and reducing transaction costs of exports are some of the measures put forward by industry professionals.
Another equally concerning area is the issue of stranded power purchase agreements (PPAs) which become unviable due to regulatory changes and fuel side issues.
´This has resulted in decrease of investment cycle for new plants going down and has impacted demand for power equipments. Secondly, the government should speed up transmission and distribution investment to resolve network issues with the help of strong network planning and project management´ advises Kamath.
Evidently, the power equipment industry, along with the government, must tackle several challenges to make the most of emerging opportunities.
´The opportunity for higher size CFBC boilers will be more´
ThyssenKrupp provides its own CFBC boilers. What solutions do you provide in terms of USC?
Given India´s huge reserves of low quality coal, our technology of CFBC boilers, which can operate on an assortment of fuels, including low and high quality fuel, lignite and pet coke among others, without washing or further processing, plays a vital purpose in addressing the industry´s power needs. While we are currently not present in the large super critical boiler category, we do hold the technology to cater to requirements up to 150 MW and are concentrating our energies on scaling up our size. Larger size CFBC boilers will be really beneficial for Indian market and we are working on building up the same.
How does your technology bring down the usage of coal per MW?
The challenge is to apply the technology to burn low quality coal available in India efficiently. It is not the quantity of coal used, but how we handle the high ash content and low calorific value of coal through our technology that makes a difference. Our CFBC boilers are ideally fit for any form of coal. We have our boilers working with 60-65 per cent ash content. We also have boilers working with less than 10 per cent ash content, with pet coke, and the same boilers working with lignite. The other aspect is to burn such low quality coal and still keep emissions under control. The cold cyclone CFBC boilers compete favorably with other technologies in thermal efficiency.
Can you render us an instance of how you have cut down the emission within norms?
We currently have about 55 operational boilers in India. We also supply boilers in international markets like the Philippines and Indonesia among others and are looking at Africa as a possible market. All the boilers that are operating have recorded emission levels lower than the prescribed norms. For fuel with higher sulfur content, we have adopted limestone dozing to control the SOX emission.
We have avoided any use of desulfurising units. The technological highlight of our invention is its built-in ability to fire a mixture of low and high quality fuels efficiently, reliably and in an eco-friendly way at any facility.
When can we expect orders?
Need for power rises in tandem with industrial growth, be it in steel, cement or other manufactures. Small and medium size power plants can be effectively applied in smaller villages and towns where the large transmission grids are not present. On the whole, we will witness ground movement once the industry sentiment picks up, which should be in the next 12-18 months. We´re confident that orders will start.
How is the marketplace for small boilers? What could be your market share in this place?
At the moment, the market is somewhat watery. However, I think that the market should pick up in the next 12-18 months. At present, we possess a marketplace share of over 20 per cent in this blank.
Do you think Chinese players have eaten into Indian shares?
Yes, certainly. This is because Chinese players have been able to offer the customers attractive terms like longer credit period and innovative financing solutions. They also have huge support from their government. The Chinese economy is looking at huge amount of exports. Since their market is getting saturated, there is a huge push in the form of large incentives for exporting provided by the regime.
What is your export share?
This varies year-on-year. However, our ideal exports across the business would be around 20-25 per cent. NTPC is trying to get out tenders for about 76,000 MW for super critical and ultra super critical, why is ThyssenKrupp Industries India not targeting that market? Primarily, super critical power projects make use of PF technology boilers. We do not make PF boilers. However, we strongly believe that both PF and CFBC boilers will continue to be installed in India.
´Increasing imports have assumed very threatening proportions´
Please provide an overview of the Indian electrical equipment industry.
The size of the electrical and industrial electronics industry is valued at around $28 billion, a fourth of which is made up of power generation equipment, with transmission and distribution contributing the rest. It provides employment to about 500,000 people directly and to about 1 million indirectly. The industry has witnessed 13 per cent growth in Q4 of FY 2014-15 and the overall growth in this fiscal is 9.98 per cent. Although higher imports continue to plague the industry, policy changes and initiatives undertaken by the industry and government have eventually shown signs of revival for the sector.
The major drivers behind this growth are cables and conductors, LV and HV switchgears. Power transformers, LT Motors and even capacitors continue to show a declining trend. Rotating Machines also showed negative growth due to huge rise in imports. Demand from power generation, sub-station completions, infrastructure and realty sectors coupled with exports is helping the industry remain competitive.
Why has growth been inconsistent?
The period of 2011-2013 has been extremely volatile for the industry in India. There was a positive growth curve of 9 per cent in the first half of 2011-2012. However, this was followed by a decline to 4.14 per cent in the second quarter of the year from 13.82 per cent in the first quarter. Such inconsistency in performance can be attributed to a number of factors. A major one has been the 20 per cent growth in inflow of imports from China, South Korea, Germany and other EU countries.
China´s share of Indian imports of electrical equipment has dramatically increased from 15.26 per cent of the total imports in 2005-06 to 44.92 per cent in 2012-13. In the last seven years alone, Chinese imports have grown at a CAGR of 24.67 per cent and assume very threatening proportions having captured 38.26 per cent of the Indian market share.
While there is significant under-utilisation of installed domestic capacity. These imports have damaged the indigenous industry. In addition, there has been significant hike in price of imported raw materials making the finished product uncompetitive.
What measures are required to boost the domestic industry?
In order to stimulate demand for domestic electrical equipment, the government should provide a level playing field for Indian manufacturers to compete with imported equipment. There is an urgent need to improve fund availability to the power sector and provide fuel linkages and faster regulatory clearances for timely completion of power projects. Model procurement guidelines for utilities, with standardised and fair contract terms and conditions should be framed. Due weightage should be given to the entire life-cycle cost of a product while evaluating the bids.
The electrical equipment industry mission plan 2012-2022 has set a target output of $100 billion by 2022. What measures are required to achieve this target?
This ambitious target is difficult, but not unachievable. However, it can be met only with the government´s active support through investment friendly policies coupled with the industry´s focused efforts. It calls for strong political willingness and stability, investment friendly policy decisions and their fast implementation, higher budgetary spending in capital expenditures for infrastructure projects.
The industry on the other hand, will have to focus on project innovation and superior product quality. We in India spend a lot on research, but have low focus on development. We should also focus on superior manufacturing process, technologies and skill development. Innovation is the key to competitive advantage, while technology helps lower the cost and risk levels. Increased spending in R&D will help develop cost effective technologies.
Facts and figures
- Industry size: electrical and industrial electronics industry is valued at around $28 billion.
- Provides direct employment to about 500,000 people and indirect employment to about 1 million.
- The electrical and industrial electronics industries witnessed a 13 per cent growth in Q4 of FY 2014-15. The overall growth is 9.98 per cent this fiscal.
- Major growth drivers are cables and conductors, LV and HV switchgears; while power transformers, LT Motors, capacitors are on a declining trend. Rotating machines also continued to show negative growth.