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Special Feature | March 2014

The BTG sector is on the boil

At a time when project execution in the Indian market is yet to pick up, boiler and turbine manufacturers are exploring overseas options to boost sales growth. However, with global equipment majors going on overdrive, the race has become extremely competitive, says Devarajan Mahadevan.

With the Indian power sector still reeling under slow growth despite a slew of policy reforms assured by the government, industry players, local as well as global, are struggling for ensuring order inflows from the power sector. Nevertheless, the potential for long-term growth prospects on account of the mammoth target for planned power capacity addition has kept the players hopeful on future opportunities for all stakeholders in the power production value chain. Equipment players have also been upbeat about their prospects in the years to come.

On the face of it, the long-term scenario looks good for domestic players who have joined hands with global majors, and are continuously equipping themselves with advanced sub-critical and super critical technologies to meet global standards. This is also providing them additional mileage to expand their footprint in the global market. Even though India itself has immense market potential due to the planned generation capacity addition of around 88.5 GW and 93 GW during the 12th and 13th Five-Year Plans respectively, players see prospective markets in neighbouring countries like Bangladesh and Sri Lanka as well as the Middle East and African regions. These countries also plan huge capacity additions in the near future and are prospective markets for boiler and turbine manufacturers.

Indian engineering heavyweights like L and T-MHI, Alstom-Bharat Forge, BGR-Hitachi and Thermax-Babcock are the front runners. Indian biggies formed a number of JVs, which were signed during 2007-08 to cater to the local market. However, issues like order cancelations and strangulated order inflows have forced these operators to go slow in setting up their manufacturing capacities or enhancing their capacities.

Local manufacturers also became sceptical due to the entry of Chinese players, with the attractive prices and financing schemes that these manufacturers have to offer. There were no such booster schemes provided by the Indian government, and none are on the anvil. Though there have been some complaints regarding the quality of Chinese-made boilers, the rapid delivery schedules and easy finance schemes backed by State-supported Chinese lenders have proven to be the twin factors impossible to resist for a number of Indian power equipment purchasers.

BHEL finds the going tough
The growth of Indian behemoth BHEL in the boiler market has been constrained by a number of factors, chief among them being the slow order-booking-installation cycle. In February, the Comptroller & Auditor General (CAG) pulled up BHEL for delays in its equipment manufacturing capacity. CAG has emphasised that BHEL needs to improve its planning, market research and monitoring activities to put its house in order.

´Existing installed manufacturing capacity for turbines, generators and boilers during 2007-11 remained largely underutilised,´ says CAG´s report, pointing out that the delays had been caused by BHEL not fixing targets for vendors to erect and commission machines, delays in replacement of damaged equipment and huge anomalies in pre-ordering activities.

UMPPs generate some hope
The greatest opportunity for domestic players might lie in providing equipment for the Ultra Mega Power Plants (UMPPs) that are coming up across the country. These plants aim to achieve economies of scale in power production, and around 16 UMPPs are in various stages of completion. These plants have a capacity of around 4,000 MW each, and boilers with much larger capacity and cycle efficiency are required to power these projects. But global players have stolen a march over their domestic counterparts. Korean major Doosan supplied the boilers to Tata Power´s UMPP in Mundra, which was the first such super-critical thermal plant to begin operations. The Korean major has bagged orders worth $1.3 billion for boilers from plants across India, and has been pursuing an aggressive localisation strategy (acquisition and strategic alliances) to make further inroads into the Indian market. (According to the revised bidding norms for UMPPs, developers have to source power equipment from facilities that are based in India). Reliance Power has entered into a multi-billion deal with Shanghai Electric for (among other plants) its Sasan (Madhya Pradesh) UMPP. Indian boiler manufacturers have also been tying up with foreign players to service the need for super-critical thermal sets.

But a few analysts feel that power sector orders would remain under stress, further impacting the diminished margins that have been plaguing equipment players. HDFC Securities says in a recent research report: ôQ3FY14 is unlikely to factor in major changes for the capital goods industry with lacklustre ordering and close to no awarding in the BTG equipment industry except for a few small ticket size orders. However, the government has taken an important structural step by making it mandatory for UMPPs to be set up in the country to use made in India BTG equipment. This is a positive development for domestic BTG players given ordering by Tamil Nadu and Odisha UMPPs is expected over the next six months.´

A government R and D push
Nuclear reactor research agency IGCAR, BHEL and NTPC are now in the joint process of designing, developing and building advanced ultra super-critical boilers that can operate at high temperatures. This is part of the government´s National Mission for the Development of Ultra Supercritical Technology for thermal power plants. IGCAR will develop the materials required for the (approximately) 800 MW advanced super-critical boilers, BHEL will design and manufacture the boiler and NTPC will be the end user. The R&D activities will get a grant of Rs 1,200 crore from the Centre. But the key question is whether the fruits of these R&D activities will percolate down to Indian manufacturers.

The global scenario
Recent reports indicate that the global power boiler market is expected to touch $30 billion by 2020. The market was worth around $17.35 billion in 2013. The industry is trying to move towards renewable sources of energy in a big way. But dependence on fossil fuel-based plants is still very strong in developing economies, ensuring that the power boiler market will continue to see a strong uptick in future demand. A recent research note by Global Data indicates that global power boiler installations are estimated to amount to 9,072 units accounting for 845 GW of capacity between 2012 and 2020.

China and India are the two largest markets for power boilers in the Asia-Pacific region. China is expected to lead demand due to its rapid pace of industrialisation and a highly developed local market. Global Data estimates that China will continue to remain dependent on thermal energy in the near future, and the total boiler, turbine and generator (BTG) sector revenue will go up from an estimated $20.9 billion last year to $30.1 billion in 2020, with the country cornering almost half of the total global market.

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