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Feature | May 2015

12 GW of orders up for grabs

Growth of the Indian power sector will entail exponential demand for electrical equipment, for which the government is likely to add around 88.5 GW and 100 GW, under its 12th and 13th Five Year Plans, respectively. The boiler, turbine and generator (BTG) market plays vital role in fulfilling this target.

Despite gradual reduction over time, India still has a significant electricity demand and supply gap. Government of India (GoI) has been taking various positive steps to cater to the increasing demand of power in the country. Reforms in coal block allocation process, fuel supply agreement, land acquisition bill, expedition of processes which grant environmental clearances and steps taken to improve synchronization between central and state authorities indicate potential future opportunities for investors and power equipment suppliers in India.

Meanwhile, the next two years is set to witness a mix of EPC projects ad BTG orders, as the market matures through up-gradation to super-critical technology and then Ultra super-critical technology. Here, the ordering pattern is expected to be tilted in favour of the BTG segment.

Key players in the power market like NTPC are well equipped in selecting technology and equipment and implementing the projects within stipulated time and cost. Thus, once revived, the Independent Power Producers (IPPs) market segment and utilities like NTPC are expected to place order on BTG basis.

Most BTG players that POWER TODAY spoke to opine that the biggest opportunity they see in the Indian market today is ´Quality Conscious Customers´ who expect reliable equipment, and a supportive government´s ´Make in India´ initiative. Although the coal-based power generation sector in India is facing challenges, one should remember that a key factor to ensuring India´s sustainable socio-economic growth is the availability of reliable power.

Erosion of competitive intensity
According to the Central Electricity Authority (CEA), of the 90 GW capacities under construction shares of Chinese and other imported equipment stands at 36.2 per cent and 6.3 per cent, respectively. This is a large market pie being captured by imported products. To this, N Venu Head-Power Systems, ABB India Ltd says, ´There are two reasons why Indian power producers are attracted to procure BTG equipment from China. First, in India, only BHEL has the capacity to cater to the requirement of 5,000 MW to 8,000 MW, while the industry require¡ment was for 20,000 MW.´ He further proclaimed that, ´Chinese equipment players were better in service and delivery time.´But, going forward, players in the BTG segment believe the competitive intensity of such players has been largely impacted by currency movements (sharp 56 per cent currency depreciation over the last three years), imposition of 21 per cent import duty in 2012, which led to differential of 14 per cent for domestic players, and also intense competition given commissioning of 21-24 GW of supercritical BTG manufacturing capacities in India. This has further led to a 15 per cent price correction in boilers and 20 per cent in turbines, under the bulk tender category 2, versus bulk tender category 1.In addition, now that India has almost 30,000 MW of manufacturing capacity with companies like L&T-MHI, the situation is not the same and there is sufficient capacity available in the country, to cater to future orders.BTG orders to pick up It is expected that BTG project awards will improve from just 6 GW in FY14 to 10-12 GW annually during FY15-17. This is driven by the possibility of improved order intake from average levels of Rs 20,000 crore in FY12-14 (gross intake, excluding order cancellations) to an average of Rs 28,000 crore in FY15-17E.

During FY14, of the Rs 20,400 crore power sector intake, thermal power share was Rs 15,000 crore, excluding R&M (Rs 3,400 crore) and Hydro-Nuclear-Gas (Rs 2,000 crore). Experts in the BTG sector expect this number to increase to Rs 22,000 crore during FY15-17E, led by assumptions of the industry ordering at 10-12 GW annually. Thus, power sector analysts expect BTG to bounce back three times in FY15.Though there are a few green shoots visible in the power equipment industry, these are in the form of UMPP equipment ordering, award of private sector coal blocks, SEB bailouts and Coal FSAs. Besides, after passing through of variable costs, these may take time to convert into fresh capex and ordering opportunity. Hence, with a stable government, expectations are high that policy issues in power will be sorted aggressively, thus providing strong impetus for commencement of ordering for the 13th Five-Year Plan and active participation of private players in the power sector.

Likewise, order uptick in the BTG sector is likely to enhance manufacturing capacity of BTG players as well, in preparation for which, big manufacturers have already built a capacity in India. For example in the BTG sector, two years back, ABB had a contract from BHEL that led to enhance their capacity from 25 to 40 GW per annum.

BTG growth
Average annual revenue of the global BTG market between 2006-2012 amounted to $62.4 billion, and is expected to increase to $64 billion, over forecast period from 2013-20. Rising global electricity demand and high dependency upon thermal power are the major drivers for this market. Apart from tough economic conditions, other major factors affecting the global BTG market are fuel diversification, a move towards cleaner sources of power generation and fluctuations in fossil fuel prices. Meanwhile, for Toshiba JSW Power Systems Pvt Ltd (TJPS), growth of power market in the last couple of years was slightly sluggish due to coal block allocation process, fuel supply, environment clearances and land acquisition. Industry growth was therefore led by utilities like NTPC and selected State Electricity Boards (SEBs).

Says Yoshiaki Inayama, Managing Director, TJPS, ´After getting a new stable government which is resolving these issues, we expect that major contribution of growth will still continue mainly from utilities and SEBs.´

However, he said, ´there is also a ray of hope that means we can again see a scenario where the IPPs are active and tributing to the growth of power sector in order to achieve the 12th and 13th Five Years Plans.´ Says Siji A Philip, Research Analyst, HDFC securities, ´There could be an annual growth rate of 5.3 per cent for the market between 2013-2020, driven by targets of the 12th and 13th Five Year plans.´ She added, ´Rising electricity demand and heavy reliance upon thermal power will continue to be the major growth drivers over the forecast period.´

The gas power equipment market, although small when compared to the coal market, will register considerable growth over the forecast period, as China moves towards cleaner sources of power generation. Over the period 2013-20, the gas turbine and heat-recovery steam generator (HRSG) markets are expected to grow at respective compound average growth rates of 9.4 per cent and 8.8 per cent to reach $1.02 billion and $186 million by 2020.

Excess BTG capacity to cater power capacity
Experts believe that aggressive power equipment capacity by BHEL (20 GW) and the new private players such as L&T (4 GW) will create excess capacity to handle the requirements of power sector. Besides, Chinese and Korean companies have also entered Indian power equipment market to tap huge opportunities in the segment. During the 10th and 11th Five Year Plan, India achieve only 50 per cent and 70 per cent planned capacity, respectively, due to shortage of equipment capacity was the major reason. By FY15, experts are expecting Indian BTG capacity to be at 41 GW per annum against requirements of 15,000-20,000 MW.

Meanwhile recent trends in the BTG segment suggest that this manufacturing sector is undergoing a metamorphosis. Pricing has stabilized, albeit at low levels and we have move from being a market structure that was threatened by intense competition from Chinese, Korean and Japanese companies and the possibility of 5-6 players in the domestic market.

´We have already fulfilled the ´Make in India´ campaign´
Yoshiaki Inayama, Managing Director, Toshiba JSW Power Systems Pvt. Ltd (TJPS)

When do you expect new orders to come your way as BHEL in its annual presentation said that they would floating tenders worth Rs 15,000 crore?
We are hopeful to capture a significant market share in FY15. We are currently executing a project of 5,320MW for NTPC, which includes both 660MW and 800MW. Our vision is to become the number one engineering, manufacturing, procurement, construction and service (EMPCS) company in the Indian power sector. To fit ourselves in competition, we have set up a state-of-the-art manufacturing facility at Chennai, which has the capability to manufacture subcritical, supercritical and ultra supercritical turbines and generators in the range of 250 MW to 1,000 MW. These have an annual manufacturing capacity of 3,000 MW which is going to be expanded as per the market growth. With our highly efficient equipment, Toshiba holds number one position in 800 MW STG segment in Indian Market.

We have already fulfilled the ´Make in India´ campaign by supplying to the Indian Market, and our next target would be to ´Export from India´.By what per cent do you feel your current order book in this space will go up by FY16 end?
Sustainable growth of the Indian power sector requires investment from public and private sectors. Due to economic slowdown and slow pace of reforms in coal sector in the past three years, participation from IPPs has almost become nil. However, there are signs of improvement and focus on infrastructure development is now prevalent. With this trend continuing we expect to increase our order book in accordance with the market growth.

How about the demand-supply scenario? Power generation companies blame power equipment players for untimely delivery, how equipped you are considering future flow of orders?
The energy demand and supply gap has been significantly improving in the last two years.

It is now less than 4 per cent compared to over 8 per cent in 2012-13. However, this energy demand and supply gap could also expand as per economic growth. Toshiba is always very serious in fulfilling its commitments of timely delivery and good quality. At Toshiba JSW, the technology provider Toshiba Corporation, Japan is the majority stake holder. This means that our parent company is fully committed to this Indian JV and its operations to continuously provide latest technology transfer and training to our Indian manpower by technical specialists from Japan.

What are the technological advanced products available in the Indian market?
It is encouraging to see the Indian Power Sector becoming more and more conscious of the environment. To fulfil its need, the Indian power market is now adapting to ultra super critical technologies and have started following super critical parameters, which will improve plant efficiency and reduction in emissions. Furthermore, Toshiba has been developing advanced ultra super critical technologies and we are equipped to supply power plants with both -- ultra super critical and advanced ultra super critical technologies.

What are the current trends in terms of offerings and utilization?
The Indian power market is demanding diversification in terms of offerings. Toshiba is getting inquiries up to 1,000 MW with supercritical and ultra supercritical technologies and we are able to deliver it. We are executing projects with supercritical technology for two units of 660 MW (MUNPL, Meja) and five units of 800 MW (NTPC, Kudgi and NTPC, Darlipali).

Himanshu Desai, CEO and MD, TPP BoilersWhat is your view on the market scenario for boilers?
While the industry opinion is that there are no orders, I feel that the market scenario is extraordinary. TPP Boilers has orders worth around Rs 12 crore -- which is equivalent to our last year´s turnaround -- in hand for boiler pressure parts, spares, tubes and pipes, so I feel that the scenario is conducive.

Who are you major clients? Could you name those in the Rs.12 crore order book?
Those in the order book include PSUs and private companies like NTPC Limited, Ultratech Cement Ltd, Hindalco Industries Ltd, Orient Paper Mills, Kanpur Fertilizers and Cement Ltd, Adani Power Ltd (Mundra thermal project), Reliance Industries Ltd (Rosa and Sasan power plants), Torrent Power Ltd and GAIL (India) Ltd among others.

Does your major market consist of India or is it export oriented?
At this time we are concentrating on the Indian market and not exports. But then we also cater to MNCs like Grasim and Aditya Birla Group who have plants in Malaysia, and Vedanta who has a plant on Konkola (Zambia). We export spare parts to these plants based on their requirements as per the orders. Most of these have installed imported boilers, but because the companies are here the purchases are made in India.

Do you think that the purchase from India is much cheaper than other countries?
Yes, there is a difference of around 30-40 per cent, but the problem in exports is that they are covered by European standards. This approval called Pressure Equipment Directive (PED) is a must if we want to operate in the European market. Besides this, other export markets like America, Middle East, Africa, SAARC and ASEAN countries also require us to adhere to a different set of guidelines. These quality assurance procedures cost around Rs 60-70 lakh and we are not spending that kind of money on these approvals right now, which is why our focus is on the Indian market. Our turnover last year was Rs 12 crore and we expect this year´s to be Rs 15 crore, so Rs 70 lakh is a lot of money for now. However, we will opt for this later on as the current Indian market is conducive for us.

Are our manufacturers adhering to the demand and supply, or do you think that there is a mismatch?
I don´t think so. There is enough capacity in India to supply the spares. However, there are not enough technically qualified people in the manufacturing sector. I think the first generation who were qualified are no more in job, the second generation is not qualified enough and the established players are not interested in this market anymore. This is a job order market and every job has to be looked at personally and this is why I feel that our competitors are unable to match the kind of quality we offer. Whereas, we have engaged professionals, who have been in this business for a long time and our teams consist of young and experienced workers who provide a good match.

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