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Feature | April 2017

Green Shoots for BoP

The stagnant state of industrial output has resulted in lower demand for electricity. From the inactive state, when the economy starts picking up, it is expected that there would be a demand surge in the long term.

Power capacity addition continues to fight its battle for a revival. It is expected that the policy level interventions to address major concerns like fuel supply, transmission issues, and restructuring of discoms, would bring back the lost sheen.

If we go by government estimates, the power sector requires an investment of $250 billion over the next five years and $1 trillion by 2030. In other words that indicate the large opportunity available for investors in the Indian power sector.

The major portion of the generated electricity in the country comes from thermal power plants wherein coal is the dominant fuel. In February 2016, the government had addressed the long pending issue of fuel linkage. The shortfall in supply is addressed with e-coal auctions coming into the picture.

As on February 28, India's total installed capacity is 315.42 GW. Of the total installed capacity, thermal contributes 68.2 per cent, and 30.0 per cent come from renewable energy. The per capita consumption also have increased to 1,075 units in 2017. World average per capita consumption is 15,000 units, while the neighbouring China has 4,000 units of per capita consumption. This was all possible because of the planned capacity additions happened in the last decade.

The lag in the sector had affected many allied segments, one of which is the Balance of Plant (BoP). When there are no new projects announced, it is natural that all supplying to the segment will feel the heat of its ripple effect.

Of the total cost of the power plant, on an average, BoP constitutes 40-45 per cent. And according to industry experts, the BoP market size is conservatively estimated at approximately Rs.1,400 billion during the 12th Plan period (2012-17).

With the improved business climate in India, it was believed that the power sector would show some real capacity addition in the coming days. According to the Draft National Electricity Plan 2016, there is 50,025 MW of thermal power is already under construction that is likely to yield benefits during 2017-22. This, according to the sector experts will improve the conditions for players in the BoP segment as well.

When asked a key player about the projection for BoP player for the next five years, the response was, 'In the capital power plant (CPP) segment, there is negligible presence of BoP players and is expected to remain so. In IPP sector, BoP orders might see an uptake if government plans to create more UMPP materialise. Going ahead the opportunity for BoP might emerge in refurbishment jobs of old power plants. Over the next five years, the outlook is not very positive as other than the plants already in execution, India plans to add zero thermal power plants till 2027.'

It is true that the electricity sector in India has undergone significant change in past few years. The generation capacity has increased from a mere 1362 MW after independence to reach 302 GW by the end of 2016. To meet the ever growing electricity demand, renewable based generation capacities are being enhanced. However, coal-based thermal power plants are still the primary sources of generating electricity. Wind and solar generating capacity have increased many folds over the past few years.

According to Subhash Sethi, Chairman, SPML Infra Limited, 'The BoP business has also transformed from coal and thermal to include solar, wind, hydel and other renewable energy projects. SPML has executed a number of civil construction and balance of power plant packages besides developing optimum design for auxiliary packages like coal and ash handling, HVAC, water systems, fire fighting systems, electrical and control and instrumentation, etc.'

He adds that with the changes happening in past few years, their power division has integrated its strength in basic and in-depth engineering, process technology, project management, procurement, fabrication and erection, construction and commissioning to provide highly specialised services to power sector.

Method
In India, the developers opt for different types of contacting options, in the recent past, a majority of developers started looking at:
a)Multiple packages contracting method which allows the developer flexibility - the project is broken into small packages and awarded to different vendors. The integration is being done by developer, with construction as a separate package;
b)BTG-EPC & BoP - multiple packages - wherein the power plant is divided into two parts i.e. BTG and BoP. In this case the BTG is awarded based upon EPC and again BoP is awarded in multiple packages, with the integration being done by the developer;
c)BTG-EPC and BoP-EPC - Though it similar what is described under point b, both BTG and BoP are awarded based on EPC concept. The integration is being done by developer and having lesser complexity than above two options;
d)Complete EPC - Here the entire plant is awarded as single package on EPC basis and the integration is being done by the contractor.

Technology
Technology has played a crucial role in enhancing the output of power plants in the recent past, including the energy efficiency improvement we've witnessed in the last decade. The ever changing technology are believed to have brought growth and efficiency in power plants operation.

Sethi pointed out, 'Technology is always changing and being adopted by different sectors as per their requirements. Power sector has also been adopting the changes as new technology is providing better efficiency and results. Robotic technology and artificial intelligence has transformed working environment rendering even quite sophisticated skills redundant.'

The last few years has seen adoption of new age construction technologies including pre-cast structures, smart and green building, solar powered smart pumps and other various innovative tools to curb costs, reduce time lines and improve safety standards during project execution.

'Technology has helped to get cogeneration and trigeneration power plants that are more efficient than central power plants with economic benefits and advantages,' he adds. Trigeneration plants are energy efficient, conserve natural resources and reduce fuel consumption as the system operates at such high efficiencies and help our environment by reducing greenhouse gas emissions such as carbon dioxide as compared to typical power plants.

The past few years have seen exciting changes with the use of technology from easy-to-operate machines, energy conservation, waste utilisation, plant execution to operation and maintenance to improve the functioning and productivity.

Consolidation
The industry is abuzz with the talk of consolidation to tide over the sluggishness seen in the segment. The latest blow is the Draft National Electricity Plan 2016, 'There will be no need for coal-based power generation capacity addition from 2017 to 2022. The Central Electricity Authority published the draft last December; it also projects that the demand for power in 2026-27 would be subdued with a 20.7 per cent lower peak demand.'

Sethi painted a more positive picture in response to the question raised on consolidation. 'The Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) scheme focuses on strengthening of sub-transmission and distribution infrastructure including metering at all levels in rural areas. This will help in providing round the clock power to rural households and adequate power for agriculture.'

Apart from this, there are several government schemes to further electricity generation, transmission and distribution across the country. With power production of 1,107.8 BU in FY16, the country witnessed growth of around 5.64 per cent over the previous year. During April-September 2016, electricity generation in India reached 584.22 BU registering a substantial growth.

'With more power projects being planned to increase energy production both from conventional and non-conventional sources, we feel that BoP companies will be able to have real businesses in coming years,' he feels.

For India, there is a positive outlook regarding the economic growth. It is observed that the the commercial and industrial activity in the country has started picking up momentum after 2-3 years of slumber. Like wise, in the electricity segment, there is a renewed vigour with the higher number of capacity addition targets in the renewable sector.

Under the Rural Electrification programme, transmission lines are being added in a fast paced manner. With the introduction of smart grid and smart city plans, there would be visible movement in distribution network as well. With the growth in economy, energy demand has also seen growth of almost 7 per cent year on year basis.

The key factors of this phenomenal demand rise are; fast increase in the manufacturing sector, rural electrification schemes to connect almost 1.25 lakh villages with electricity, the growth pattern of residential consumptions with more electric gadgets being used.

Business Size
According to Sethi, 'The Indian power sector is undergoing significant change and sustained economic growth continues to drive electricity demand in India. The GoI's focus on attaining 'Power for all' has accelerated capacity addition in the country.'

Total installed capacity of power stations in India stood at 315. 4 GW as of 28 February 2017. The government targets capacity addition of 88.5 GW under the 12th Five-Year Plan (2012-17) and around 100 GW under the 13th Five-Year Plan (2017-22). Of the total infrastructure investment envisaged at `55,746 billion during the 12th Plan, about 27 per cent estimated to be `12,576 billion has been earmarked for the power sector.

This industry is also expected to get substantial share of 27 per cent of the total private infrastructure investment of `26,838 billion during the 12th Plan. Private sector investment is likely to increase significantly with a number of projects already been awarded and several others in advance stage of completion.

'The government's approval for 100 per cent FDI investment in infrastructure projects through the automatic route has encouraged international players. With these planned development both from government and private sector, the BoP business is set to prosper significantly,' he points out.

By 2025, the nation's power generation capacity will see drastic changes. Consumers have also changed and domestic electricity consumption increased by 17 per cent and commercial use increased 25 per cent while industrial consumption decreased by 4 per cent over the period. Changes in use are linked to variations in the economy, efficiency improvements, changes in the uses of power, demand-response activities, and distributed generation.

Sethi was quick to add, 'Around 300 global and Indian companies have committed to generate 266 GW of solar, wind, mini-hydel and biomass-based power in India over the next 5-10 years. The initiative would entail an investment of about `20-25,000 billion.'

GoI plans to provide electricity to every home in India by 2020 while also focussing on ensuring the cost of power is affordable to everyone. It also proposed a large renewable power production target of 175,000 MW by 2022; 100,000 MW from solar power, 60,000 MW of wind energy, 10,000 MW from biomass, and 5,000 MW of small hydro power projects.

The government's immediate goal is to generate two trillion units (kilowatt hours) of energy by 2019 by doubling the current production capacity to provide 24x7 electricity for residential, industrial, commercial and agriculture use. The Indian power sector has an investment potential of `15 trillion in the next 5 years, thereby providing immense opportunities for BoP companies and equipment suppliers.

Thus, with the government announcing no thermal capacity addition during 2017-2022, the opportunity for BOP might emerge in refurbishment jobs of old power plants.

- Renjini Liza Varghese

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