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Special Report | September 2017

Healthy growth

<span style="font-weight: bold;">Riding on optimism driven by improvement seen in transmission and distribution segments, transformer market is bullish about future.</span> <p></p> <p> The power supply situation in India has seen a significant improvement in the past two to three years. According to reports, in the year 2011, more than 33 per cent of the rural population and 6 per cent of the country's urban population had lacked electricity. As far as the rural population was concerned, it had no access to electricity in many places, while urban population had to make do with intermittent supplies. Issues such as blackouts and load shedding were normal during this period. In addition to affecting the quality of life of people, this also resulted in interruptions in manufacturing and irrigation across the country.</p> <p>Capacity addition in generation, transmission and distribution has been happening at a snail's pace. Besides, fuel supply constraints dragged the growth rate in electricity. In the middle of the last decade, electricity was one of the segments that was projected to have a strong compounded annual growth rate (CAGR). However it was marred by issues such as high fuel/coal cost in the international market, delay in transmission connectivity and the issues with the state electricity boards.</p> <p>India, now, has a national electricity grid in place that addressed the major transmission issues especially to the Southern part of the country. The single large grid has given the states the flexibility of buying electricity from the spot markets when the prices are low. </p> <p>Rural electrification project also had been fast tracked. The number of villages that are to be electrified is less than 5000. The delayed power projects coming on stream in the past couple of years have resulted in this tremendous achievement. According to a statement by Power Minister Piyush Goel, there is a 40,000-MW of surplus capacity in the country. </p> <p>Transmission and distribution (T&amp;D) losses, aggregate technical and commercial losses (AT&amp;C), quality of power, fluctuation in power supply are some of the major challenges faced by the country. The improvement in supply of electricity means higher need for T&amp;D networks. India's 'Power for all' initiative, rural electrification projects and large scale capacity addition in the current year is expected to accelerate the demand for power and distribution transformers. The accelerated pace seen in power projects are bringing back the lost sheen in the transformer market. Transformers are a critical component in the power network that changes/ regulates the voltage in the electricity transmission and distribution process. For a country like India which is fighting to bring down the AT&amp;C losses on par with the global average, this equipment acts to minimise the energy losses. Step-up or step-down transformers are the two variants that are widely used.</p> <p>Transformers play a crucial role in ensuring quality power supply. One can easily say that the performance of the transformer industry reflects the overall electrical equipment segment. After the dullness witnessed in the recent past, the indications are pointing towards a healthy road for transformer segment growth going ahead.</p> <p> <span style="font-weight: bold;">Market size</span><br /> In the recent past, the government has shifted its focus to T&amp;D sector. India is one of the leading manufacturers of transformers in the world. Skilled manpower, easy and ample availability of raw material, low labour cost etc., had made India an attractive manufacturing base for transformers. The high quality standards adhered to and the price competitiveness of the transformers manufactured in India makes it an attractive market the product in the international market. Indian transformers are exported to several countries in Africa, Asia, the Gulf region and the European Union. A highly fragmented industry, with close to 500 players, the Indian industry is capable of meeting rising demand from the domestic market. In one of the consulting papers prepared by Feedback Consulting, the Indian market has a transformer supplying capacity of over 1000 GVA. 'As a nation, our overall transformation norm stood at 7MVA/MW levels in 2008 and the policy makers had a plan to reach the levels of 11MVA/MW levels in the 12th plan. But, due to various factors and largely due to the bad financial state of DISCOMS, we are still hovering around the 8 to 8.5 MVA/MW levels.'</p> <p>While large multi-national companies are present in the 400 KV plus category, the national players dominate the volume-driven distribution transformer segment. According to the official numbers, the current size of the Indian transformer industry is estimated to be of US$2 billion. Of which, distribution transformers consists of 50 per cent, while 40 per cent is cornered by power transformers, followed by the instrument transformers. </p> <p>The domestic market growth will primarily hinge on surge in demand especially from the distribution side. However, the expansion of international market will depend on the manufacturers' capacity to deepen its footprints in the existing overseas markets, and also exploring the new developing markets especially in the African region. </p> <p> <span style="font-weight: bold;">Challenges</span><br /> Delay in implementation of power projects was the major hurdle for the transformer market. The health of the state electricity boards/power distribution companies (SEBs/discoms) deepened the problems further. The financial restructuring announced by the government to strengthen the health of discoms came in as a major boost. In addition, the lag in implementing the REC (Renewable Energy Certificates) compliance by discoms dampened the transformer market. Though REC compliance mandates the discoms to purchase energy efficient, Bureau of Indian Standard (BIS) certified distribution transformers, which took longer time to put into practice. </p> <p>Inadequate transformer testing facilities adversely affected the certification and licensing process of many of the players. There are only two laboratories that conduct the tests; CPRI (Central Power Research Institute), an autonomous body attached to the Ministry of Power, and ERDA (Electrical Research and Development Association, a non-profit organisation). It is said that the waiting period in these labs range anywhere between 2 to 3 months. The double certification requirement (BIS and BEE) further added to the woes of the manufacturers. Multiple certification means even more delays.</p> <p>The new lines, the new distribution areas etc., would require transformers. In addition to this, there is a huge opportunity available in the replacement segment. Most of the old transformers, which are bigger in size and less efficient, require to be replaced. The market experts are of the view that the improvement in the financial health of the discoms will give them the leverage to look at procuring transformers for replacement purposes as well. </p> <p> <span style="font-weight: bold;">Trends</span><br /> Growth of electricity segment is key for the economic growth of a country. Globally, India currently holds fifth position in terms of installed capacity. It is now believed that the 'Power for all' initiative, planned capacity addition till 2022, large scale renewable energy capacity integration to the grid etc. would further fuel the demand for power transmission and distribution equipment. </p> <p>According to the data published by IEEMA, 'The electrical and industrial electronics industry has witnessed a 4 per cent growth in the year 2016-17 over the previous year.- And the report further broke it down segment-wise. 'Distribution transformer (especially up to 25 kVa - REC range), energy meters demand has declined by 12 per cent and 14 per cent respectively due to poor off-take from utilities due to delay in finalisation of orders under schemes like DDUGVYJ and IPDS. Growth in power transformer and high voltage switchgear is due to domestic orders arising from new substation additions, especially above 220 kV.'</p> <p>In a report published by consultancy firm Research and Markets titled æIndia Power and Distribution Transformer Market 2017-2022Æ states that the Indian power and distribution transformer market is forecast to reach US $2.9 billion by 2022. And some other market research reports predict that the transformer market is expected to cross US $5 billion by 2040. Another research firm Techsci Research estimates that the growth of the segment will at a CAGR rate of 10.5 per cent till 2020. And beyond that, the growth will continue in double digit. </p> <p>The report further says, 'The Government is taking major steps to strengthen the power T&amp;D network and has undertaken initiatives such as UDAY for financial turnaround of power distribution companies. Further, the Government of India has projected an investment of Rs 1,46,000 crore in power transmission sector by FY19 2018-19 to strengthen the transmission network, thus, increasing the demand for power transformers. </p> <p>The Western region accounted for the largest revenue share in the country in 2016. However, the major investment in transmission sector is expected in the Southern region, followed by the Northern and Western region. In the distribution sector, the Western region is expected to receive highest investments followed by the Southern and Northern region.' </p> <p> <span style="font-weight: bold;">Future drivers</span><br /> It is anticipated that the renewable energy projects and their integration into the grid will be the major driving force for transformer markets in the coming years. The steps taken to open up new transmission projects will lead the power transformer markets to a steady climb. </p> <p>The 'Green Energy Corridors' will further fuel the momentum. Implementation of UDAY scheme to pull the distribution transformer markets to the next level. The two announced schemes of Integrated Power Development Scheme (IPDS for the urban areas) and Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY for the rural areas) may ease out the financial limbo. The revival of investment in manufacturing and new investments due to 'Make in India' has not yet happened, but most industry players are cautiously optimistic about the same.</p> <p>In addition to the above drivers, the growing Foreign Direct Investment (FDI), replacement of transformers are the other factors that would be positive for the market. </p> <p>Power the key component in infrastructure development of any country and critical for the economic growth. With improved conditions and manufacturing capabilities, Indian electrical export market (transformers contribute majorly), may achieve the export target of US$100 billion by 2022.</p> <p> <span style="font-weight: bold;">- RENJINI LIZA VARGHESE</span></p>
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