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Feature | December 2016

Towering Opportunities

Environmental policy regulations introduced by the government for the power generation segment are giving the required thrust to the cooling towers market.

India is among the top five global economies with a GDP of over $4 trillion based on purchasing power parity. The high level of economic growth is likely to have a strong impact on the infrastructure and energy consumption levels in the country. Presently, India largely depends on coal to meet its commercial energy demand. The power sector is the largest consumer of coal in India, accounting for nearly 66 per cent (72 per cent including captive) of the demand.

As India continues to depend on coal for its power plants, these installations need large quantities of water for cooling towers. While traditionally unpopular in developing countries, the new environmental policy reforms by the Government of India (GoI), requiring coal-fired power plants to convert their once-through cooling system-based plants into cooling towers is expected to provide a major push to the segment in India. The trend emerging from this is bound to give a boost to the cooling towers segment in the country.

This is a reversal from the government´s earlier stand to go slow on environmental initiatives involving additional costs, when in October 2015, India announced its commitment for the upcoming COP21 global climate talks in Paris in November-end, pledging to improve the carbon emissions intensity of its gross domestic product (GDP) by 33-35 per cent below 2005 levels by 2030.

In terms of the market scenario, Transparency Market Research (TMR) in its study on global cooling towers market, identified India as one of the top locations with heavy demand for cooling towers in the coming five years, stating, ´The US, China and India are expected to be the top locations that show a heavy demand for cooling towers. Besides this, India, China and South Korea are also showing a large demand specifically for evaporative cooling towers.´

Policy Measures
The policy landscape in India has progressively evolved since independence and has led to radical changes in the power sector. Especially in terms of competition generated, private sector involvement and focus on green energy over the last decade, commencing with the passing of the Electricity Act 2003, has had a huge impact.

The Indian power sector has achieved a lot over the last decade in the areas of policy reforms, private sector participation in generation and transmission, new manufacturing technology and capabilities, but there is still much to achieve and a number of challenges to overcome before the opportunities can be leveraged. The cards in play have been in motion for a lot longer, as in May 2015 itself the Ministry of Environment, Forest and Climate Change (MoEFCC) proposed the first-ever federal standards for sulfur dioxide (SO2), nitrogen oxides (NOx), and mercury and stringent water consumption rules, making it necessary for coal-fired power plants to convert their once-through cooling system-based plants into cooling towers.

The air pollution control rule proposes to require the nation´s fleet of plants larger than 500 MW to meet SO2 limits of 200 mg per normal cubic meter (mg/Nm3), and NOx limits of 300 mg/Nm3. New plants commissioned after 2017 will be required to have flue gas desulfurisation to cut SO2 emissions to 100 mg/Nm3, and they would need to meet NOx norms of 100 mg/Nm3.

According to the Center for Science and Environment (CSE), a New Delhi-based public interest research and advocacy group, the limits would imply cuts in SO2 emissions of 80 per cent for existing plants and about 15 per cent in NOx emissions.

And, as stringently, the rule calls for water consumption limits, once-through cooling system-based plants would need to convert to cooling towers and cut water draw to 4 m3/MWh from the current average of around 150 m3/MWh. ´New plants would need to cut water use to 2.5 m3/MWh, which is equal to the average water use of Chinese plants,´ says CSE. ´A global best cooling tower-based plant has water consumption as low at 1.6 m3/MWh.´

The move is expected to result in construction of cooling towers to remove heat from the discharged water - estimated to cost around Rs 200 crore per plant. All these existing power plants, mostly owned by public sector utilities, have been operating under ´once-through cooling (OTC) technology´ which reduces heat by just 2-3 degrees and release it into the atmosphere.

Potential Business
Today, India has a total installed base of 290-330 GW, here the share of coal-based power plants it is somewhere around 180 GW. However, India has a varied vintage of coal based power plants, where more than 20 per cent of these plants are over 25 years old. Furthermore, around 52 per cent of our coal plants run at 15 per cent higher than the designed heat rate, which again gives room for improvement and a varied range of opportunities.

To understand the potential inherent, we can take for example, a power plant which is relatively old, wherein installing emission control hardware would warrant thoughts about the residual life of the plant and how long it can be sustained for. Thus, it is a balance between how much investment the developers want to make in terms of emission control at that point in time, or if they want to retire the present plant and put up a new high efficiency critical, super critical or ultra super critical technology plant. These are the conversations that developers are mulling out, both from capex and op-ex standpoints.

Thus, the real and larger opportunity lies with moderately aged plants, that are somewhere between 10-15 years old. For the overall coal installed base in India, our average coal plant efficiency according to various reports, is somewhere between 29-30 per cent, while the global average is at a 33-34 per cent mark, which immediately indicates an opportunity for up to 4 per cent increase in efficiency. This gives us the spectrum of the opportunity there are within the current installed base and for future plants.

Additionally this is the first time that SOx control has been announced. While particulate matter regulations has been there for some years now, SOx and NOx regulations are uncommon and fairly recent. The unique development for India is that the amalgamation of all regulations is happening at once. This creates a huge need for developers to look at and properly analyse all the varied options available to them.

A look at India´s emission growth charts shows that there has been an almost 30-35 per cent increase in pollution levels from 2005 till 2013, so how we bring down these emissions is key. One method is for customers to see the value in undertaking conversion of once-through systems into cooling towers, especially after due consideration of what procedure would have lowest tariff impact.

Ever since the regulations were announced, developers have been carefully considering the changes required. This is becasue these regulations were initially announced under a targetted two-year window for completion. However, power plant developers, both at state, IPP and Central levels, have expressed their concerns around how difficult implemetation is really going to be. For example, for installed base of 180 GW, there are questions over whether the country has a sufficient supply chain to cater to the demand within the stipulated two-year time frame?

Associated cost is the second huge challenge. A rough estimate about the investment required to fully implement the change shows that the developers will have to turn to various funding mechanisms for support. Here, the government could also look at creating a mechanism for developers to leverage funding and finance from different sources. Another very important aspect to be tackled with are the tariff and policy compliance. As of now, there is no clarity in terms of how non-complaint defaulters will be dealth with by the authorities.

Taking all these concerns into thought, especially those about investment and time-frame, the CEA has recently indicated that they are looking at going about the process in a phased manner, and will pace out the requirements - by setting separate deadline for SOx regulations, NOx regulations, particulate matter regulations and water conservation regulations. This will also heavily reduce the load being felt by developers.

Conclusion Taking an over view of the current scenario and future opportunities in the sector, it is very obvious that there is s tremendous potential for growth in the cooling towers segment in India, especially driven by policy requirements to be met by the power generation segment. All eyes are now on the deliverance of the Centre´s polices to sort out the pending issues and foster growth of this segment. Over the short term, repairs and innovations are likely to drive growth. Going forward, the focus is likely to shift towards usage of better construction materials, improve energy consumption of fans, reduce noise levels, and increasing use of natural cleaning systems to restrain bacterial growth. Adoption of dry cooling towers and air-cooled solutions may also be necessary in the future due to the rapid growth of industry and increasing pressure on water resources.

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