However, while the power back-up market in India is expected to grow at 10-15 per cent per annum, this growth is entirely dependent on the Modi government´s economic activities in manufacturing, real estate and infrastructure industries.
The gap between power production and consumption is widening in India and will further vitiate with the government´s thrust on manufacturing. Since power outages have become the norm, industrial consumers are left with no option but to use diesel gensets. As such, with a genset power range of 10 kVA-200 kVA, the Indian market is about 100 thousand units per year.
High volume is from smaller gensets, considering the preference of small consumers in the market. While major contribution for the segment is from real estate, banking and financial services, and retail and hospitality, with the telecom industry also pushing in demands recently. It is expected that with manufacturing getting a boost and market investment increasing due to Modi´s ´Make in India´ campaign, the demand will pick up.
There are an estimated 24 lakh diesel gensets in play across the country, up from the 20 lakh pegged around 2010-11. The report, prepared by the Petroleum Conservation and Research Association and Bureau of Energy Efficiency suggests that the aggregate capacity of gensets of all sizes operating in the country by the end of 2012-13 was 105,512 MW. This is roughly 20 times more than Delhi´s daily demand for power. The report pegs the total generation at 52,756 million units from these gensets at current average annual running rate of 500 hours. These gensets are estimated to gulp an estimated 159,78,981 kilolitres (kl) of diesel in a year.
The cost of generation, at Rs 54 a litre of diesel and technical standards laid down by the Central Electricity Authority (CEA), works out to Rs 11.54 per unit for gensets of 100 kW to 1 MW with four-stroke engine. This comes down by several notches to bottom out at Rs 9.57 per unit for sets of 10 MW spinning on two-stroke engines. Gensets are known as major contributors to air pollution and a fall in their running hours has a positive bearing on environment.
It also means reduced consumption of diesel, which was subsidised before October last year.
There are several factors behind the drop in operating hours for gensets, which still remain the primary source of power for housing and other construction projects. First is of course the country´s generation capacity, estimated at more than 260 GW, which has risen in the last 2-3 years. Stress on solar power and advent of LED technology too have edged out gensets in many cases. But, this by no means is an end of diesel gensets, which have recorded a growth of roughly 10 per cent in annual sales.
That said, Amol Kotwal, Director, Energy & Environment Practice, Frost & Sullivan, predicts that the outlook for power backup is likely to be stable in the short term. But for some experts, the diesel stationary generator market is likely to grow at 10 per cent over the next 3-4 years due to power grids having more and more demands placed on them.
Ergo, opportunity for gensets is dependent on economic activity in the manufacturing and infrastructure industries as well as real estate build up in the country. Meanwhile, economic activity in the country is expected to pick up with a slew of announcements in Budget FY2015-16, which included planned expenditure on infrastructure development, besides the thrust on the manufacturing sector under the ´Make in India´ initiative.
However, it will take some time (maybe two financial quarters) for these initiatives to actually witness progress on the ground. With the current status of muted economic sentiment and lower power deficit (4-5 per cent in FY2014-15 as compared to more than 10 per cent power deficit in FY2012-13) in the country, growth of backup power, especially gensets could be pegged at less than 5 per cent in the short term. However, for long-term, says Sameer Gupta, MD, Jakson Group, ´The expected growth in this industry can be anything between 10-15 per cent depending on how fast we as a country are able to implement various initiatives announced by the government.´
He further added, ´There is evident focus on improving our expressways, modernising railways, launching smart cities, indigenising defense procurement etc., which will open up many opportunities for back-up power market.´
The industry is predominantly witnessing two major technical trends in the DG sets sector which generally attracts customer demand - fuel efficiency and emission controls. Today, the market has products compliant to CPCB II norms and even Euro IV standards. The availability of such products hence drives the customer towards purchasing and utilising DG sets which are far more superior to the alternatives which were available.
´Any product which offers increased productivity, fuel efficiency, minimal maintenance and more importantly are cost competent, drives customer choice towards superior products,´ explains Sanjay Jadhav, President, Sterling and Wilson Powergen Pvt Ltd.
´While load characteristics does not influence the choice for DG sets, it definitely defines the operational efficiency of that particular product. The ability to maintain a stable load ensures efficiency and longer operational life of DG sets. Sterling Generators is managed by a group of best minds in the industry who bring in a solutions-oriented approach and the latest in technology to our customers,´ he adds.
Sterling Generators DG sets between 250 kVA-650 kVA, powered by Volvo Penta engines are high performance and long lasting in nature. The Volvo Penta diesel engine was designed in advance for today´s uncompromising demands within the power generation industry and includes superior performance and reliability.
CPCB II norms
According to industry experts, CPCB II norms have been hyped up too much. Look at it this way, regulatory emission norms have been tightened for the auto sector (whether motorcycles/scooters/cars), and manufacturers have complied with this without any complaints. But when it comes to the genset industry, people started howling because the equipments in use are very old and have been running for 40-50 years. As such, when they had to comply with the new norms, they were reluctant about spending/investing a lot of money to make new engines or update the existing ones.
´The new CPCB II norms play a huge role in reducing emission and are in fact tighter than the Europeans for smoke. As compared to European norms, which is 7 at present, ours is just 4.5,´ says Farrokh Cooper, Chairman and Managing Director, Cooper Corporation Pvt. Ltd, Meanwhile, in a recent visit to the capital Delhi, POWER TODAY came across a scathing fact shared by some industry experts. There are around 2 lakh gensets, running throughout the city or being installed every year, which belch out smoke at a rate that one cannot imagine.
´I think the CPCB will soon bring in tighter norms. Why shouldn´t we move with the world?ö asks Cooper, while adding that having these norms in their portfolio makes it is easier for them to export their products. Additionally, since CPCB II norms are expected to have cleaner back up industry for gensets, some of the major players in genset industry are changing their brand image. Last year in December, to reflect the new focus in the business, KOEL Green was unveiled as a new brand identity for the power generation business of Kirloskar Oil Engines Ltd (KOEL), the leading manufacturer of diesel gensets in India. This also reinstated the company´s presence with the introduction of the new portable genset range.
Sanjeev Nimkar, Vice President and Business Head-Power Generation Division, KOEL says, ´With new CPCB norms in place, we feel the market will be consolidated for bigger players and thus have healthy competition. By wiping out fly-by-night players, the CPCB has opened up opportunities for existing quality players in the market.´ As leaders in the power generation segment, KOEL specialises in manufacturing India´s widest range of gensets, which broadly fall under two categories and brands. KOEL Chota Chilli is the range of fuel efficient silent gensets upto 10 kVA, catering to domestic and retail requirements, while KOEL Green is the range of fuel efficient silent gensets with higher kVA ratings (15 kVA to 5,200 kVA), used for industrial enterprises and infrastructure projects.
RR Deshpande, Executive Director, KOEL says, ´The diesel generator set market has recently undergone the transition of emission norms (CPCB II) and KOEL was a leading voice to ensure this happened successfully.´
Meanwhile, CPCB II norms which were implemented in July 2014, have been fully adopted by the industry and customers who have realised that cleaning the environment is a positive step for the long term. However, there was a brief dip in demand in gensets which was partly due to the new CPCB II norms.
Says R Sethumadhavan, DGM, Volvo Penta, India, ´During the transition period some reduction in volumes were seen in the market. However, we have engines meeting higher emission levels available and the CPCB II introduction has not affected our business.´
Will India get cleaner power back-up industry?
Yes, was the answer from majority of the players we approached. And most of them agreed that to achieve this with CPCB II norms in place, the new generation diesel engines will have to be introduced with a reduction of NOx (Nitrogen oxides) and PM (particulate matter) by using suitable technology.
These norms are on par with EU stage 3A and US EPA Tier 3 levels, feel experts. That said, with the introduction of CPCB II, the emissions of Nitrogen Oxide (NOx) and Promethium (Pm) are reduced and the industry is moving towards greener solutions and products.
Ramesh Pasarija, Chairman-Technical Committee, Indian Diesel Engine Manufacturers Association explains, ´With CPCB II norms being applicable for diesel gensets upto 1,000 kVA (800 kW), there is a new generation of diesel engines being used, with transition to the latest emission regulation, and also a cleaner, more efficient technology, and fuel efficiency.´
Meanwhile, the only challenge and threat to the regulated market will be the presence of an unorganised sector making open gensets (no canopy) that are neither emission compliant nor silent ´Because naturally there gensets are much cheaper than the gensets with proper canopies and proper norms,ö complains Cooper.
At the end, considering the pollution witnessed in Indian cities, there seems to be a need to take these norms to the next level and be on par with or better than the international standards. The various diesel gensets available in market today are not technologically at par with international products, while some brands are lot more superior, specifically in terms of pollutants that they emit.
Fundamentally genset and engine companies need to focus on ´innovationö and invest in ´research & developmentö so that Indian market sees world class, fully electronic and fuel efficient products. At present while some companies have world class product offerings available, there are many who need to rise and commit to the cause by not compromising on technology.
´We were the first company to push for CPCB II norms´
Farrokh Cooper, Chairman and Managing Director, Cooper Corporation Pvt. Ltd
What steps is your company taking to ensure that your products meet CPCB II norms?
At Cooper, we always emphasise on farsighted vision to understand future requirements and aptly invest in technology upgradation well in advance. In fact, we were the first company to push for CPCB II emission norms as we were ready for the future consequences. Unlike others in the market who needed to invest to ensure compliance, we were able to market our products straightaway. As a company, we believe in progressive, global technologies that ensure business success for us and all our partners.
How has the company´s growth been over the years? What are your plans to take it to a new level? Do you have any plans to introduce more products?
Despite the overall recessionary trends in the country, Cooper Corporation has witnessed consistent and aggressive growth for the past five years across sectors because of our reputation for technology, after market support and commitment to quality and service. Going forward we intend to expand all our capacities in the cast iron foundry, aluminum foundry, and engine lines etc., and double our current turnover of Rs 700 crore in the next five years.
An extensive dealer network is critical for such products. Give us details of your urban and rural networks and the expansion plans that you have chalked out for the same. The recent technical collaboration with Ricardo UK, will enable us to expand our range of engines from 3.5 kVA to 1,000 kVA and cover almost 75 per cent of the range of products available in the market, putting the company in the same league as the biggest players in the industry in a relatively short period of time. These recent developments will also help us further strengthen our presence in India and extend our product reach to the rapidly growing Tier-II and Tier-III cities. Currently Cooper has about over 80 dealers across the country.
Do you see the Make in India campaign making a difference in the genset industry? Are other companies taking advantage of this?
It depends on their thinking, but we have got tremendous results from it. The will of our people is phenomenal. A recently conducted audit by a group of German auditors applauded the efforts and passion of all our workers and awarded us the best company in Asia. This is all the result of Make in India.
´This sector will witness demand from railways, defence and manufacturing´ Sameer Gupta, MD, Jakson Group
How do you assess the current market scenario for power industry? What is your outlook on the growth of power back-up sector in India?
Current market scenario is conducive as the economy is opening and there seems to be political stability creeping in. Fuel availability is also expected to improve following the auction of coal mines, thus helping in commissioning of unfinished thermal projects. Besides this, the focus on renewables is expected to add significantly to the grid, though there are constraints which we are sure will be addressed going forward. Meanwhile, the back-up power sector will get impetus on the back of growth in various allied sectors particularly infrastructure, defence, railways, manufacturing and IT.
Has fall in oil prices impacted your sales? What are the challenges hampering growth of the Indian genset industry?
Fuel prices do not play much role in sales as genset usage today is more as supplementary power rather than a prime source.
The cost of power from gensets is not less than Rs 20 per unit, which is nowhere near to cost of power produced from either coal or renewables.
Challenges hampering growth of the Indian diesel industry over the last few years has primary been related to the sluggish economy and zero infrastructure growth.
However, we are positive about the start of strong recovery over the next 12 months.
Do you feel demand for DG sets will decrease due to increasing grid connectivity for renewables?
Demand for DG sets will grow with growing economy and improved grid. This has been the trend in the developed world over the years and is fully supported by the fact that diesel is the only choice of fuel for backup power. With improved installed grid capacity, the only change expected is in the usage of gensets. Before, gensets were run on 24x7 basis as a continuous source of power, which over the last 15 years has come down to eight hours a day, and now seems to be moving towards around two hours of daily usage. This trend is expected to continue and with improved grid, gensets will one day be applicable only for emergency use. However, demand for the equipment as such will not come down and is expected to grow in the long run. Solar or renewable energy only compliments the back-up diesel genset industry.
What kinds of opportunities do you foresee as far as this industry is concerned? How do you perceive its growth over the next few years?
Backup power is required by every segment and diesel is the only choice of fuel for backup or emergency power. With ´Make in India´ initiative, we can expect world class quality infrastructure in the coming years. There is evident focus on improving our expressways, modernising railways, launching smart cities and indigenising defence procurement, which will open up many opportunities. The expected growth in this industry can be anything between 10 to 15 per cent depending on how fast we as a country, are able to implement various initiatives announced by the Government.
´Power backup industry to grow at 10 per cent in the medium term´
R Sethumadhavan, DGM, Volvo Penta, India
Take us through the company´s overall operations and the line of products you manufacture?
Volvo Penta is Volvo Group´s sales channel to the external engine market -- our outlet for loose engine sales. We are one of the world´s leading manufacturers and suppliers of engines for industrial and marine applications.
We offer engines ranging from 85-650 kVA for genset application, 105-565 kW for industrial applications, 10-900 hp for marine leisure and commercial application and 60-480 kW for marine auxiliary and emergency gensets. Our USP is sustainable products with a focus on total life-cycle cost.
What is the capacity utilisation of your manufacturing units?
Volvo Penta engines are manufactured from our world class facilities at Skövde in Göteborg, Lyon in France and Cologne in Germany. Around 125,000 units are produced each year in highly automated plants with rigorous quality programs.
How do you assess the current market scenario for the power industry? What is your outlook on the growth of the power back-up sector in India?
The demand-supply gap in power distribution is the main reason for the boom in the power backup sector. This is due to the government´s initiative to fast track development of energy infrastructure and renewable energy deployments in India. We feel that the demand for power back up gensets will not reduce and the market is expected to grow at over 10 per cent in the medium term.
Do you feel that demand for DG sets will decrease due to increasing grid connectivity for renewable power?
Even if grid connectivity in the country increases, the present growth drivers will subsequently increase the demand for backup power. Besides this, the quality of power is always a challenge. Hospitals and industries will always have a demand for highly reliable standby power and DG set.
What steps are taken to ensure that your products meet CPCB norms?
Reducing engine emissions is a long-standing ambition at Volvo Penta, not only due to legislation, but also because environmental care is one of our core values and vital to our customers and to us. Through the years, we have set an example with a number of products and solutions which have an explicit environmental focus and we are continuously looking into future products and solutions. We also have engines exceeding the present CPCB norms available in our range.
After sales service and support are the most important criteria for a buyer. How important is it for you? What steps do you take to ensure that customer grievances are addressed at the earliest?
We are not just selling an engine; we strive to establish long-term relationships with our customers and add value to their business. Volvo Penta has made it easy for customers to select the right service agreement for their businesses, from a program of regular engine inspections to a comprehensive repair and maintenance program. Our dea¡lers offer customers different levels of service according to their needs, all with the same level of renowned Volvo Penta care.
An extensive dealer network is critical for such products. Give us details of your urban and rural networks and the expansion plans that you have chalked out for the same. Volvo Penta Parts and service support is available throughout the life of an engine. No matter where the equipment is, the end-user will always have access to local Volvo Penta support. The quick and qualified service support from our skilled service dealers is available across the country covering 35 locations and 78 service outlets and is constantly growing.
You have ties with Ricardo UK, have a presence in Afghanistan and are looking at USA, what is the revenue generated to your kitty from the foreign market?
Just to give you give an idea as to how we have grown. In 2012-13 we had a turnover of Rs 320 crore, which is mainly components, with investment of Rs 300 crore. In 2013-14 this increased by Rs 70 crore to Rs 390 crore, with investment of Rs 325 crore. In FY14-15 our turnover further rose to Rs 460 crore, with investment of Rs 440 crore. Projection for FY15-16 suggests that we can reach turnover of Rs 750 crore, with investment of Rs 560 crore.
Meanwhile, in the next three years we are confident about crossing Rs 1,000 crore turnover with an investment of around Rs 600 core. We have recently tied up with Ricardo UK, and want to cover the whole spectrum of engines from say 5HP-500HP and 1,000HP. Our export is about 50 per cent of the total production, our capacity utilisation in the engine division is about 50 per cent, and in the component we are growing at about 10,000 tonnes every month.
- Rahul Kamat