It may be three years from now for the BTG, the high ticket component in the electrical equipment, to register a sizeable recovery.
Revival of power sector is a topic that is being widely discussed among the power sector aficionados, vendors and banking circles in India currently. Energy sector sets the pace for the economic growth by growing at double the pace of the economy. That is, if the country´s economic growth is at 7 per cent, then the power sector has to register a growth of 14 per cent. India is one of the fastest growing economies in the world. However, the trials and tribulations the country´s power sector had witnessed in the last five years was not encouraging. Marred by both internal and external issues, the power sector needs attention to address some of the long pending hurdles before taking the big leap.
The projections made in 2010 for 12th Five-Year Plan and 13th Five-Year Plan, made the sector buzz with optimism. Anticipated numbers for 2022 in terms of demand, capacity additions, investments etc, painted an alluring picture. But what followed was different. The sector slid into a slumber after 2010. No new projects were announced during the last four years. In 2010, while 40 projects were given transmission connectivity, the numbers dropped to just 2 in 2015. In addition to this, the poor response to case-1 and case-2 bidding reflects lack of investor confidence. Policy level interventions to address major concerns like fuel supply, transmission issues, and restructuring of distribution companies (discoms), have brought back a renewed interest to the sector. However, the electrical equipment segment including Boiler-Turbine Generators (BTG) may have to wait for a few more years to see the signs of revival. It was estimated, in the electrical equipment mission plan 2012-2022 that the domestic generation electrical equipment market would be US$ 25-30 billion in size by 2022.
According to the government estimates, the power sector requires an investment of US$250 billion over the next five years and $1 trillion by 2030. That appears to be a very attractive proposition. While the government is talking about attracting more overseas investments in power sector by setting up nodal agencies in countries like the US, UK and Australia, it failed to address the real concerns of the equipment manufactures.
What is making the sector lagging behind? According to Kameshwar Rao, Partner, PricewaterhouseCooper, ´Lack of clarity at the policy level has brought the power segment to stand still over the last couple of years. Best example is, till last February, there was no clarity on fuel linkage. Issues of funding, the new stringent environment law etc., continue to pose challenges for the sector. Unlike in renewable energy, refinancing is not easy for thermal. For imported-coal based power plants, concerns on foreign exchange fluctuations, variation in global coal price etc., added to the woes.
The paucity witnessed in the power sector might have had effects on the manufactures as well. When there are no new projects announced, it is natural that all those supplying to the segment will feel the heat of its ripple effect.´
According to a report published by SNP Infra Research, generation equipment market is anticipated to grow to Rs.3500-3750 billion (one billion rupees equals 100 crore) levels by 2022 and of which 75 per cent will be dominated by BTG segment. The planned capacity addition of 88 GW during the 12th plan period and 100 GW-plus capacity addition in the 13th plan period translates into addition of more than 20 GW per year.
´The GDP is stated to be growing at 7.3 per cent rate. I failed to understand where is this growth rate coming from?,´ asks MS Unnikrishnan, Managing Director and Chief Executive Officer of Thermax Ltd. ´According to me these are all tall claims. By mere restructuring of calculating the Gross Domestic Product (GDP) will not result in higher growth. For that, manufacturing segment has to grow. No major new steel plant, cement plant, fertiliser plant, power plant, refinery, copper plant or aluminium plant had come up in the last five years. The global economy is also under stress. Japan slipped into recession, Europe is fighting geo-political challenges clubbed with migration issues, the US is OK and China´s growth is retarded. With all the economic giants facing challenges, it may not be easy for India. Remember, India is only 3 per cent of the global economy. So, it may take a while before we see considerable revival in the power sector. But the silver lining is that the governance in the country has improved drastically.´
Only revival in capacity addition can improve the situation. NTPC though had conducted a bulk tendering, executing the projects on time is going to be the key challenge. Installed electricity capacity in the country is expected to be 350 GW from 267.4 GW in 2015. A marginal increase in residential consumption has resulted in per capita electricity consumption crossing 1,000 units per annum. This indicates the demand for generation equipment could rise. According to India Brand Equity Foundation (IBEF), a consulting firm, generation equipment market is expected to expand at a compounded annual growth rate (CAGR) of 12.7 per cent over 2011û2022 period.
The IBEF report also says that the exports of electrical machinery rose to US$ 5.3 billion in 2014-15 from US$ 4.8 billion in 2013-14 registering a CAGR of 2.06 between 2009-2015. In May 2015, total exports in electrical machinery stood at US$ 648.7 million. Boilers and its parts and electrical wires and cables were the primary drivers of this increase in exports.
The transformation from sub-critical to super-critical happened during the 11th and the 12th Plan periods. Currently, the super-critical dominates the line up with 78 per cent and sub-critical with 22 per cent. In the 12th Plan Period, the generation equipment demand was met predominantly with overseas supply of super-critical boilers. China was the largest supplier. ´The orders went overseas because of the cost factor. Domestic equipments are 25 per cent costlier than Chinese equipments,´ pointed out Kameshwar Rao.
There are only a limited number of equipment manufacturers in India for super-critical segment, with BHEL in the lead. The domestic companies took long to ramp up their supply capacities, which forced the independent power producers (IPPs) to book equipments overseas. Supply from China has been discontinued.
´Lack of new starts in these years will result in widening the supply-demand gap in 2019 onwards, said Kameshwar Rao. As supply-demand gap is low, India was able to manage. Look at the current plant load factor (PLF), it is only 57 per cent. Had the industry demand grew like it did during pre-2012, India would have slipped into an electricity recessionary mode by now.´ The growing gap in the long term is the concern which needs to be addressed with dedicated methods, he pointed out .
Replacement or brown field projects are another area that can create opportunities for the BTG segment. The old power plant equipments may go for replacements in the coming years. ´NTPC is the only power generator in the country who is continuing to announce projects. None of the state electricity boards (SEBs) books are in the positive. Barring CESC (Calcutta Electric Supply Corporation), all the other private players´ balance sheets are in the negative. Unless the generators´ balance sheet improves, no brown field project can take off. So, we are may be five years away from that,´ pointed out Unnikrishnan.
A country like India where the dream of 24x7 power for all is far from reality, requires more of coal-fired power plants.
-RENJINI LIZA VARGHESE