BTG stakeholders are still keeping their fingers crossed on demand growth for BTG products, however, experts say that green shoots are visible.
The Indian power sector is one of the most widespread in the world. Power is one of the most crucial components of infrastructure. It is vital for economic growth.
Needless to say, the existence and development of suitable infrastructure in the power sector is essential for the sustained growth of the Indian economy.
In India, the sources of power generation range from conventional sources such as coal, oil, lignite, hydro and nuclear power, and natural gas, to non-conventional sources such as wind, solar, and agricultural and domestic waste. However, the Indian power sector is undergoing a significant change that has redefined the very attitude of the industry. The government's focus on attaining 'Power for all' is leading to a rapid increase in the electricity demand in the country, with a further rise expected in the years to come. With the nation's power demands galloping at such a speed, the need to meet the growing demand in the country is also on the rise. What the country needs at this juncture is a massive addition to the installed generating capacity.
And as per latest reports, India has moved up 73 spots to rank 26th in the World Bank's list of electricity accessibility in 2017. In September 2017, the government had launched the Saubhagya scheme at a cost of $2.5 billion. The scheme aims to provide electricity connections to over 40 million families in rural and urban areas by December 2018.
Kameswara Rao, Partner with multi-national consulting firm, PricewaterhouseCoopers, speaks about the changes the Indian power sector is undergoing. He says, 'India's power market is undergoing not one, but two major shifts - the first is primary growth of first time users, such as new rural connections, or new uses such as electrification of transport. The other shift is a change in energy mix from thermal to renewable energy. The size and impact of the former, in India, is much more than the latter (e.g., as the per capita income of rural households approaches that of urban areas, a bas-load generation capacity of 22 GW is needed).'
A report by IBEF (India Brand Equity Foundation is a trust established by the Department of Commerce, Ministry of Commerce and Industry, Government of India) also speaks elaborately on the changes that the country's power sector is witnessing. 'Indian power sector is undergoing a significant change that has redefined the industry outlook. Sustained economic growth continues to drive electricity demand in India. The Government of India's focus on attaining 'Power for all' has accelerated capacity addition in the country. At the same time, the competitive intensity is increasing at both the market and supply sides (fuel, logistics, finances, and manpower).'
The report continues , 'A total of 13,872 villages out of 18,452 un-electrified villages in India have been electrified upto June 30, 2017 as a part of the target to electrify all villages by May 1, 2018. A total of 26.3 million households which are below poverty line (BPL) have been electrified under the Rural Electrification component of Deen Dayal Upadhyay Gram Jyoti Yojana (DDUGJY), according to the Power Ministry.'
That is a clear indication of the opportunities available in the power sector, especially for investments. The Indian power sector has an investment potential of `15 trillion in the next five years, which provides more than immense opportunities in power generation, distribution, transmission, and equipment sectors. The government's immediate goal is to generate 2 trillion units (kilowatt hours) of energy by 2019. This, at the least, can only translate to a doubling of the current production capacity to provide 24-hour electricity for residential, industrial, commercial and agricultural use.
Moreover, India's current installed capacity of 315 GW still has a fair share of thermal power plants which is based on coal and which accounts for serving the base load of the country. Although, India is aware of the global need to do away with polluting sources like coal-based electricity, it cannot fully or easily strip itself of these capacities. Thus, India will have to depend on coal till 2030 in order to meet its consistent base load. Despite such a scenario, the sector is not without challenges.
Though the power generation equipment segment (Boiler, Turbine and Generator or commonly known as BTG) in the country has been battling slow pace for some time now, the humungous power requirement is an indication of an upcoming opportunity. In addition to this, the BTG sector will see major traction from the replacement of equipment at the old power plants. Again that will come from both capacity addition and as well as from the refurbishment/replacement of the equipment. Experts predict that the power equipment sector including the BTG sector; will have to wait a few years before a notable revival can hit them.
In 2015, boilers constituted 66.71 per cent of the market, turbines were 17.32 per cent and generators were 15.97 per cent.
As per a presentation from IBEF in June 2017, the installed power capacity in India is expected to reach 350 GW in 2022 from 305.6 GW in 2015. And the demand for generation equipment on the rise, and the segment will grow at a CAGR of 24.6 percent between 2015 and 2022. By 2022, India's generation equipment industry is expected to increase to US$ 27.5 billion from US$ 5.9 billion in 2015.
The same document further says, by 2022, the market size would be US$ 100 billion. With the country having advantages like a) planned power capacity addition of around 188,500 MW by 2022 would provide significant opportunities. b) replacement or brownfield expansion could provide significant opportunities as well c) In FY17, peak demand for electricity was recorded at about 153 GW d) Additional deduction of 15 per cent of the cost of new plant and machinery, exceeding US$ 3.85 million that is acquired and installed during any previous year ending on March 31, 2017. The sector has witnessed a cumulative foreign direct investment of US$ 6.56 billion (around 1.98 per cent of total FDI inflows) into the sector between April 2000 to March 2017.
The Heavy Industry Ministry sees the growth momentum picking up for the BTG segment in the current scenario. In November 2016, BHEL awarded a contract worth US$ 41.24 million to General Electric Company (GE), for supplying two units of 800MW supercritical boilers for Telangana Super Thermal Power Project, Phase-I. In addition, Reliance Infrastructure won an EPC order worth US$ 561.41 million from NLC India for setting up two units of 250MW lignite-based thermal power projects in Rajasthan. The project includes contract for supplying boiler, turbines, generators and balance of plant. The project is slated for completion by 2020. These projects are anticipated to increase the demand of BTG segment over next few years.
In May 2017, Indian Electrical and Electronics Manufacturers' Association (IEEMA) signed an MoU with British Electro Technical & Allied Manufacturers' Association (BEAMA) to promote the interests of electrical equipment industry in each other's country.
Good days ahead
Rao also backed the claims of the ministry when he noted, 'The outlook for thermal power generation market is not negative as India is still hugely underserved on electricity. The current limbo is caused by a sudden addition of about 100 GW in a five year period, driven by a policy of coal block allocation i.e., a rush encouraged by the premium from fuel shortages. Once the market stabilises, I expect a healthy demand for thermal capacity set up to cater to growing base load power demand, maintain a safe reserve margin (25 percent in New York, 30 percent in Singapore) and to replace old units (18 percent of coal-fired plants are over 25 years old and need replacement).'
He signed off by saying, 'India's power development plans are not adequately integrated with policy needs, and as a result remain incremental. We will need a much larger power generation capacity if the plans are reoriented to supply all needs of households, industry and the economy. This can be seen in case of China which added over 100 GW in each of last four years to supply its industries.'
From the BTG manufactures point of view, the market still seems to be sluggish and may take time to revive. However, there are green shoots like, the government imposing an additional cyber security clearance for equipment imported from other countries. This is because of the malware attack happened in one segment of the transmission grid in India in the recent past. The generation companies went shopping abroad owing to the cost factor and the inability of domestic companies to ramp up capacity to meet demand. However, the wind has taken a turn to blow in domestic companies favour. So, going by the experts and the signs from the market, in all probability there are good days ahead for the Indian BTG segment.
- Renjini Liza Varghese
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