The Indian power equipment industry aspires to become a $100-billion industry by 2022, and its golden days have begun with programmes like rural electrification under the Deen Dayal Upadhyay Gram Jyoti Yojna (DDUGJY) and directives like compulsory emission control equipment in the new and existing power plants outlined by the Central Pollution Control Board.
The prime minister's rural electrification plan aspires to provide power connection to more than 18,000 villages in India. According to the government's data, only a few are left to be electrified. Though the village electrification target is nearly met, the government knows that this is not enough. So, last year, it followed up with a $2.5 billion programme to provide power connections to nearly every household by the end of March 2019, just weeks before the current prime minister's term expires.
According to the Government data, India has electrified about 13 per cent of the almost 36.8 million homes identified in October 2017 as those needing power. With the same data, Power Today calculates that this pace has to be accelerated by more than three times for the government to meet its next deadline.
India has made significant strides in electrification since 2000. According to the International Energy Agency, electricity reached 82 per cent of the population in 2016, up from 43 per cent at the turn of century. Still, of the one-quarter of the world's population without electricity in that year, about 239 million people were in India.
In January 2018, the Power Ministry has estimated that connecting all homes will require 28 GW of generation capacity. That would benefit the nation's generation plants, which are unable to find buyers for all the electricity that they can produce. Under-utilised capacity, fuel shortages, and overdue payments from distribution companies have put nearly 75 GW of power projects under financial stress, according to the industry lobby group, Association of Power Producers.
Now, the $42-billion power equipment industry has a huge opportunity since 36.8 million homes and nearly 300 million population is yet to get electrified; one-fourth of this industry comprises power generation equipment, while transmission and distribution contribute the rest. The industry provides direct employment to about 500,000 people and indirectly to about one million. India is aspiring to increase the output of the electrical equipment industry to $100 billion by 2022 and become a preferred destination for overseas producers of such equipment.
As numbers speak, the power equipment industry will be looking at a whopping Rs 400 billion worth opportunity sanctioned by 28 states under the Deen Dayal Upadhyay Gram Jyoti Yojna (DDUGJY) in the years to come. These projects are categorised mainly into grid and off-grid.
Consider this: For a 600-800 MW size project, approximately 3,000 transformers are required. Switchgears requirement is about 11,000 units and that of high tension (HT) and low tension (LT) motors is around 1 lakh units. Meanwhile, it is expected that the cable industry will see the maximum demand, as the total requirement in kilometres will be more than 40,000. About 75 emergency diesl genset (DG) (1,500 KVA) will be needed. For a 500 MW project, the electrical equipment needs seem to be on the lower side. For instance, the requirement of transformers ranging from 200 MVA to 50 MVA will be around 1,000 and that of switchgears will be around 4,000 units. HT and LT motors will account for around 32,000 units. The power sector will procure approximately 16,000 km of cables ranging from single-core to multi-power cables.
Meanwhile, the procurement requirement for 300 and 125 MW power projects cumulatively will not be higher as compared to the 600 and 500 MW projects. It is expected that those who bag projects in the range of 125-300 MW will require around 800 transformers, 3,000 units of switchgear, and 28,000 units of HT and LT motors. The demand for cables, will be around 17,000 km. Overall, the total requirement of transformers, emergency gensets, cables, HT & LT motors, and switchgears will be so large that vendors will look to capitalise on the opportunity.
"Both the electrical and electronics industries are poised for growth for two reasons. In the electrical industry, India still has thousands of un-electrified villages and transmission lines that are of very poor quality. Therefore, there is going to be a huge demand for electrical equipment to penetrate into these places,' said Balakrishnan Natarajan, Managing Director, EPCOS India, TDK Group.
That said, for Syed Sajjadh Ali, Managing Director - India, Electrical Sector, Eaton, three key factors are currently driving the demand in the power equipment industry and shaping market opportunities.
Resource and asset optimisation: The rising costs of energy and the need to stay competitive in a difficult economy imply that resource efficiency has never been more important. Customers face tremendous challenges with respect to maintenance, alignment of business strategy, and proliferation of risk due to the explosion in emerging technologies. To minimise cost and reduce risk, customers want to maximise energy efficiency, decrease footprint, leverage stranded capacity, and extend the life of existing equipment.
Resilience: The end customers expect uninterrupted access to services and instant interaction. Avoiding service interruptions and downtime is critical. As tera bytes of information flow daily, application availability and resilience are mission critical.
Just-in-time capacity: Making the business sustainable requires customers to anticipate future growth. Customers need flexible, affordable solutions to meet their power needs. Modularity, flexibility, and proportionality are at the heart of modern business systems.
Meanwhile, to Aniruddh Brahmbhatt, Associate Vice President - Sales & Marketing, Industrial UPS Business Division, Hitachi Hi-Rel Power Electronics, the opportunities in the country's power sector are immense. Considering the government's thrust on green and clean energy, Brahmbhatt envisages opportunities in non-conventional sources such as solar, wind, agriculture, and domestic waste.
To some extent, Brahmbhatt is right. With 100-GW solar and 60-GW wind energy targets, the future of power electronic equipment industry in renewable energy seems to be promising. At the same time, energy efficiency and lower total cost of operation (TCO) will be the key.
Even for Anand Bansal, Chief Executive Officer, India Uniper Power Services, renewables are becoming more cost-competitive and competition is increasing, including that from international players. "In the conventional space, we see a moderate growth in ancillaries, particularly with respect to water conservation, flue gas desulphurisation, and particulate matter emission," he adds.
For a couple of years, the transmission sector has not seen much of traction. But, it is an investment cycle where for three or four years, the country will witness heavy investment and then for a minimum of two years, it tanks. Today's position may not be rosy, as project approval from the Centre has been timid. But, one should not blame the central government for this lull, as even the state governments are equally responsible given that their envisaged capex vis-a-vis actual are not even matching.
"Since the government has models like build operate owen and manage (BOOM) and build operate and transfer (BOT), it is a question as to why the states do not apply them in implementing transmission projects. Such models will help state governments to raise funds from multilateral financial agencies like Asian Development Bank. This will ensure them to deliver the lines in time without any delays," says Manish Agarwal, CEO - Solution Business, Sterlite Power Transmission.
The transmission and distribution (T&D) sector should see investments of Rs 2.5 trillion over the next 6-7 years. It has, in the past, lagged behind the generation sector, but it is now expected to catch up and the states are expected to improve their T&D infrastructure. Further, large-scale renewable generation capacity plans (135,000 MW by FY22) will require capacity addition of approximately 65,000 MW (excluding solar rooftop) during the 13th five-year plan. This augurs well for the T&D space, as grid integration and stability would be prerequisites for this plan. A capital expenditure of
Rs 2.6 trillion (Re 1 trillion in substation and Rs 1.6 trillion in transmission lines) is foreseen in the T&D sector during the 13th five-year plan. In terms of volume, 62,800 ckm of transmission lines and 128,000 MVA of transformation capacity will be created during this period.
Meanwhile, since copper and aluminium are the biggest conductors of electricity, and every player in the electrical business - be it transformer or winding business, or cable and wire production, or transmission - will need these two metals essentially to be able to transmit energy or electricity from point A to point B. Dubai-based player Ducab is certainly interested in providing the same to the Indian market.
"We are offering both the conductors. With our new aluminium plant that opened in Abu Dhabi last year, we are now able to offer copper rods and supplement it with aluminium rods and overhead conductors for the transmission division of the ever-expanding electrical networks within the country," says Ashish Chaturvedy, Marketing Manager, Ducab.
That said, States are now taking the last mile connectivity issue rather seriously. To begin with, Uttar Pradesh has chalked out Rs 69.46 billion plan to connect about 1.37 billion urban and 100 million rural households in the State by assigning the entire amount for grid connectivity. Meanwhile, Bihar has proposed Rs 58.56 billion grid connectivity plans to connect 36 lakh households.
West Bengal has chalked out Rs 42.62 billion and, as per official records, the State has already awarded projects for electrification. Next in line is Jharkhand, which will spend around Rs 39.18 billion to connect 30 lakh urban and rural households by 2019. That said, Madhya Pradesh has planned Rs 29.46 billion grid and off-grid plans, of which Rs 609 million will connect 17 lakh urban and rural households.
Mayukh Banerjee, Chief Executive Officer, Brugg Cables India told that his company is mainly looking for opportunities in underground cabling. He cites that overall, India has a Rs 300-billion market for low, medium, and high voltage cables. "Of this, around 10 per cent will be for high voltage, which is around Rs 30 billion, and that is a huge market to tap," he adds.
Still some steam left
Since the Central Pollution Control Board (CPCB) introduced new emission norms in December 2015 (revised in 2017), power developers are directed to mandatorily install flue gas de-sulphurisation (FGD) and other emission control equipment by 2022. FGD is one of the most expensive retrofits of all the pollution control systems in a power plant. For example, a 660 MW unit requires Rs 2.5 to 3 billion to install systems and the FGD average cost comes at Rs 3.5 to 4.5 million/MW, estimates an India Infoline report.
NTPC, which has the largest installed thermal power capacity in India, will require FGD systems for approximately 25,000 MW, of which 6,000 MW have already been awarded. Similarly, demand is also emerging for selective catalytic reduction (SCR) - the most powerful post-combustion NOx reduction process for coal-fired power plants. Electrostatic precipitators (ESP), which are extensively used in thermal power plants for removal of fly ash from electric utility boiler emissions, will also have to be installed in the existing power plants.
As per the CEA data, a capacity of around 160,000 MW will have to install FGD, SCR, and ESP systems - an opportunity worth approximately Rs 1.1 trillion. About 50,000 MW worth of orders (with a majority from NTPC) are expected to be awarded by FY19-end, thus resulting in an opportunity of Rs 200-220 billion.
This opportunity provides scope for: (i) Pollution control technology manufacturers, (ii) Boiler manufacturers of over 200MW, (iii) Service providers for engineering, supply, and the erection of commission systems, and (iv) Large-scale engineering, procurement, and construction (EPC) companies.
Regardless, it is difficult for the capital goods sector to go back to its golden days of FY2004-12. This was a time when capacity utilisation of equipment makers was at an all-time high, driven by huge public and private capex.
The suppliers had the bargaining power, as Chinese players had not invaded the market fully then. The present day scenario is, however, considerably different: there is intense competition as well as low capacity addition in both the public and private sectors. Nevertheless, opportunities have come in the form of FGD orders and T&D capex.
- RAHUL KAMAT
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