Over the next five years, it is estimated that India may need to replace the boilers to an equivalent of 50,000 MW capacity.
While the government is bullish on capacity additions to meet the rising energy demand, the focus is clearly shifting from thermal to renewable energy. On one hand, the government is harping on the excessive capacity addition during the 12th Plan Period, on the other, it is taking a giant leap in building renewable energy capacity. This move could be a step to meet the climate change mitigation commitment made by India to the global community.
As per the Draft National Electricity Policy, which was published by the Central Electricity Authority (CEA) in December 2016, the 12th Plan (2012 -2017) assessment, as is likely to see a capacity addition of 101,645 MW from conventional energy sources. Of which coal would contribute 86,250 MW, followed by lignite - 1,290 MW, gas ' 6,080 MW, hydro ' 5,525 MW, and nuclear ' 2,500 MW. This is against a set target of 88,537 MW and that translates to an achievement of 115 per cent of the target. Interestingly, 56 per cent of total capacity addition during the plan period is expected to come from private sector. That makes the government on a strong wicket. Though there was considerable amount of slippages in the capacity addition in the past decade, the last phase of 12th Five-Year Plan 115 per cent of capacity addition. And a couple of states have achieved surplus power. This is mainly because of the dip in demand and the minimal or the negative industrial growth registered in the past years.
The focus shift to renewable energy segment is sending out a signal that is worrisome for especially for those who are present in the equipment manufacturing for thermal power. Till now, all were talking about revival of power sector, predominantly the large ticket size thermal power projects. For those who are waiting for the magical wand effect is resigning to the fact that it is going to be tough for some more time for the stakeholders of thermal power segment.
According to a report published by SNP Infra research, generation equipment market is anticipated to grow to `3,500 -3,750 billion (one billion is equal to 100 crore) levels by 2022 and of which 75 per cent will be cornered by BTG (Boiler Turbine Generators) segment. The planned capacity addition of 88 GW in the 12th Plan Period and 100 GW plus capacity addition in the 13th Five Year Plan translates to addition of more than 20 GW per year. The good news is that, there is light seen at the end of the tunnel. According to the experts, the equipment manufacturers got a fairly good opportunity in offing. Over 50,000 MW capacity in India would require replacement of equipments. These are the old power plants which may upgrade their capacity while going for refurbishment. So, as feared/projected by some segments of the industry, the short term and medium term is not dull.
Indian boiler market witnessed a mixed scenario in the past decade and a half. After India upgraded itself to the super-critical technology, the big boys had a overflowing order book at one time. Currently, the largest Indian manufacturer of boilers still has a reasonable order book. However, addition to the order book in 2015-16 came primarily from the state, and central government owned power producers, while the private sector is not a major participant in new power projects.
In the second half of the last decade, when India registered a buoyant growth rate, the country's power demand was projected at a higher level. And we saw, major industry players entering the power business as independent power producers (IPPs) with large capacity addition programmes and super-critical technology. The 115 per cent capacity addition in the last phase of 12th Plan Period was the result of the private companies entry as IPPs. However, due to hurdles faced during the execution and financing issues leading to muted returns on capital, several private sector participants withdrawn from the sector.
Salil Garg, Director-corporates, India Ratings & Research, said 'The capacity addition in the thermal power segment and the order book of boiler manufacturers are limited to FY2022. Some of the smaller equipment manufacturers could thus exit the market as the market size shrinks. The larger ones could also face revenue and profitability pressures whereas the diversified equipment manufacturers could look forward to mitigating the impact through the focus on other products and geographies. Overall it will be not be a rosy situation if the demand slumps.'
There are only a limited number of equipment manufacturers in India for the super-critical segment with BHEL in the lead position. And in the small ticket size, there are a couple of big names that supply boilers. While the large equipment manufacturers continue to garner the order book, it is the subcritical segment manufacturers that are affected the most. As there is excess power available, the demand from the captive power segment for boilers slackened. As of now, the capacity addition will continue in both thermal and renewables at the same time. The difference is that the capacity addition in thermal is coming from capital commitments made earlier and new projects are not being planned whereas the renewables are witnessing fresh investments backed by the government support. It is expected that, if the trend of capacity addition continues in renewable energy, the possibility is that the thermal capacity addition would be limit to the existing and the ongoing projects and from the captive segment, which is relatively small, as and when the demand picks up.
Sector experts, and power segment stakeholders are in agreement when they point out electrical equipment segment, including BTG, may have to wait further more to see the signs of revival. It was estimated, in the Electrical Equipment Industry Mission Plan 2012-2022, that the domestic generation of electrical equipment market would be $25-30 billion in size by 2022.
According to the government estimates the power sector requires an investment of $250 billion over the next 5 years and $1 trillion by 2030. Too rosy a picture to believe. Garg continued, 'Indian manufacturers are facing two major challenges. A part of the existing order book is slow moving due to issues at the end of consumers. The consumers are either unable to secure financing or regulatory approvals or both.
Further, some players had entered the power sector without relevant core competencies and thus fail to face the execution challenges. As a result, Indian manufacturers are unable to drive the expected revenues. Secondly, the growth of the order book is muted today given the low plant load factors (PLFs) of the existing thermal power capacity, low investor interest in the sector and emergence of renewables as an alternative source of energy.' Additionally, there are challenges in the form of access to efficient technologies and rising concerns over the use of coal as a dominant source of fuel for electricity generation.
Garg signed off by saying, 'In the immediate term, the revival will be helped by resolving the execution issues in the existing order book. Here, the IPPs, banks, and governments would have to make concerted efforts to ensure timely execution of stuck projects. Over the longer term, the revival of the segment will be primarily driven by the industry's development of technologies that address concerns on cost competitiveness and environment. The capital cost of setting up renewable power has been coming down whereas the cost of thermal power plants has not seen similar reduction, thus making renewables inching closer to the grid parity without subsidies. In case the industry can invest in research and development to compete with renewables, revival is possible.'
The widely discussed topic, revival in power sector is taking a back seat now in the wake of the new developments. India continues to be one of the fastest growing economies in the world. Having said that, the sector experts are still optimistic about the revival.
- Renjini Liza Varghese