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Special Report | February 2018

Powering ahead full steam

<span style="font-weight: bold;">The equipment industry, which forms a vital component of power sector, witnessed a 4.25 per cent growth in FY16-17, with exports worth $6 billion.</span><br /> <br /> <br /> Indian electrical equipment industry, broadly classified as generation equipment and transmission and distribution (T&amp;D) equipment, manufactures products ranging from high- technology equipment to low-technology electrical components.<br /> <br /> The electrical and industrial electronics industry has witnessed a 4.25 per cent growth in financial year 2016-17 (FY16-17), over the previous year. The industry exported <br /> `38,580 crore ($6 billion) worth of electrical equipment in 2015-16 (`35,276 crore April to February in 2016-17-$5.25 billion). <br /> <br /> The growth in exports is helping the industry to grow especially in power transformer and high-voltage switchgear products, energy meters and cables. Policy changes and various initiatives undertaken by the industry and government are eventually showing signs of revival in the sector, according to Indian Electrical and Electronics Manufacturers' Association (IEEMA). <br /> <br /> The major drivers in this growth are low-voltage switchgear which has registered a growth of 22 per cent due to revival in growth of realty, infrastructure and other manufacturing industries. distribution transformer (especially up to 25 kVA - REC range) and energy meters demand has declined by 12 per cent and 10 per cent respectively due to poor off-take from utilities due to delay in finalisation of orders under government schemes like Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGVYJ) and Integrated Power Development Scheme (IPDS).<br /> <br /> The growth in power transformer and high-voltage switchgear can be seen due to domestic orders arising from new sub-station additions especially for above <br /> 220 KV. While there is marginal growth in LT motors, declining trend for HT motors due to imports and core sector industry capex is not taking off. The demand for conductors has slumped by 5 per cent owing to delay in order finalisations.<br /> <br /> <span style="font-weight: bold;">Sanjeev Sardana, President, IEEMA </span>is of the view, 'Sluggish demand and higher imports are still hampering industry growth. There are high imports visible in HV switchgear (GIS), insulators, AC motors and generators. The target of 400 kV transmission and sub-station completion is over achieved in four years of the 12th <br /> plan only.'<br /> <br /> 'In power generation, renewable energy addition is picking up fast and solar power generation addition has achieved 104 per cent with wind power achieving over <br /> 80 per cent of planned addition in the 13th plan the focus will be on renewable energy, power electronics and e-mobility. These new technologies will not only <br /> pose disruptive challenges but also open vast opportunities for the industry,ö he added.<br /> <br /> <span style="font-weight: bold;">Sunil Misra, Director General, IEEMA</span> says, 'Indian electrical equipment industry is fully equipped, not to meet the present domestic demand alone, but also to meet likely demand arising from capacity addition. The industry is 9.54 per cent of the manufacturing sector in terms of value and 1.23 per cent of India's GDP, providing a direct employment to 1.5 million and indirect employment to over 5 million people across the entire value chain. There is significant global reputation of Indian electrical equipment for sourcing of base products and components and also of Indian transmission and other EPC contractors.'<br /> <br /> He further adds, 'Indian electrical equipment manufacturing industry has made huge investments in doubling and, in some cases, even tripling its production capacities. However, these built-up capacities are under-utilised across several products and the manufacturers are broadly working at 60 per cent to 70 per cent of <br /> their production capacities.'<br /> <br /> <span style="font-weight: bold;">Opportunities</span><br /> Opportunities for the power equipment industry now are undoubtedly vast and wide and more so in future with new focus areas, say industry professionals. Players are optimistic, with the focus areas being renewable energy, energy efficiency, smart grids and the large untapped potential of nuclear power.<br /> <br /> However, nuclear power plant equipment need to meet certain specifications, performance standards and environmental factors/issues as evinced by the Department of Atomic Energy, Government of India.<br /> <br /> Equipment specifications for the nuclear sector, from materials and manufacturing process to testing requirements differ from those of thermal or hydro power, as most of them need to operate in a radiation environment, apart from differences in various process parameters. Furthermore, the design of nuclear equipment is conservative, as part of the defence in depth approach adopted to ensure the highest level of safety.<br /> Indian industry is presently able to meet the demand of nuclear power plants of indigenous design. In respect to nuclear plants being set up with foreign cooperation, bulk of the equipment is currently imported, with some sourced from within the country.<br /> <br /> Growing demand for renewable sources of energy and favourable government incentives will drive India solar equipment market to cross $4 billion by 2020.<br /> Under the Jawaharlal Nehru National Solar Mission (JNNSM), a capacity addition of 20 GW has been envisaged to be achieved by 2022. This would require production and usage of solar cells and modules for power generation. The second phase of JNNSM solar development program mandates 50 per cent local equipment sourcing, which is expected to boost the country's solar equipment market.<br /> <br /> According to a report by TechSci Research titled 'India Solar Power Equipment Market Forecast and Opportunities, 2020', solar equipment market in India is projected to surpass $4 billion by 2020. <br /> <br /> 'Increasing competition in the market is resulting in considerable decline in average selling price of equipment. Additionally, government support in the form of favourable policies, subsidies and tax incentives are expected have a significant positive impact on the market in the ensuing years,' feels <span style="font-weight: bold;">Karan Chechi, Research Director with TechSci Research.</span><br /> <br /> Exports are another major avenue the industry is looking to. The export growth rate of the industry has been significantly growing over the last decade, with large opportunities in India, South East Asia and African countries.<br /> <br /> There is significant latent demand for power equipment in India, which has not been converted into real demand yet, since demand often cannot pay, and the full cost of power and needs are to be subsidised. Utilities lack finances for the same, besides having T&amp;D network issues. However, even where consumer demand does exist, they cannot be served due to network bottlenecks.<br /> <br /> Thus, evidently, opportunities are galore, but they need to be explored and exploited through several measures by the government and industry.<br /> <br /> <span style="font-weight: bold;">Bottlenecks </span><br /> Despite the overall upturn, factors like delayed implementation of several power projects and decreasing orders from utilities are often cited as the major causes slowing down the industry¦s progress, despite a good demand and supply position.<br /> Slow adaptation of new technologies by equipment manufacturers and low industry-wide expenditure on R&amp;D are other barriers. <br /> <br /> The industry is also crippled by issues like non-adherence of payment terms with customers and power utilities, non-standard procurement guidelines in terms of pre-qualification criteria and technical specifications and the gap between Indian and international standards and tax related issues.<br /> <br /> Notably, despite these bottlenecks being in the backdrop for decades, the industry has been marching on, albeit slowly. Rising domestic demand and increased exports have managed to keep the industry afloat.<br /> <br /> There is no shortage in quantity or quality for power generation equipment as far as Indian suppliers are concerned. In fact, they are facing under utilisation manufacturing capacities because new orders have decreased. <br /> <br /> This is largely because discoms are not procuring new power at the same pace as earlier due to some large generation capacities, which have got commissioned in recent years, as well as due to the financial situation of some state discoms, which are unable to pay for new power.<br /> <br /> <span style="font-weight: bold;">Road Ahead</span><br /> The Indian government has been taking measures to provide a fillip to the industry. In 2013, the Department of Heavy Industry (DHI), in consultation with IEEMA and other stakeholders, prepared the ¦Indian Electrical Equipment Industry Mission Plan 2012-2022¦ with a view to develop the domestic industry.<br /> <br /> The mission plan identified industry competitiveness, technology upgradation, skill development, exports and conversion of latent demand as the five key areas for action with a vision to enhance industry output to $100 billion by 2022. No doubt several positive measures are required to realise this dream.<br /> <br /> In order to accomplish the target of $100 billion by 2022, a comprehensive short term and long-term strategy will have to be evolved and goals have to be set and achieved.<br /> <br /> By 2022, the installed power capacity in India is expected to reach 350 GW, on the back of increasing industrialisation and economic development. <br /> <br /> The total market size of electrical machinery in India is anticipated to reach $100 billion by 2022. Of this, T&amp;D market expanded at a compound annual growth rate (CAGR) of 6.7 per cent; Boilers (16 per cent), cables (15 per cent) and transmission lines and conductors (12 per cent) account for a large chunk of the revenue. <br /> <br /> The generation equipment market is expected to expand at a CAGR of 12.7 per cent over FY12-22.<br /> <br /> With GoI de-licensing the electrical machinery industry, it has allowed 100 per cent foreign direct investment (FDI) in the sector. It plans to set up the Electrical Equipment Skill Development Council (EESDC) which would focus on identifying critical manufacturing skills required for the electrical machinery industry.<br /> <br /> With many bilateral nuclear agreements in place, India is expected to become a major hub for manufacturing nuclear reactors and associated components. Foreign participation in the development and financing of generation and transmission assets, engineering services, equipment supply and technology collaboration in nuclear and clean coal technologies is also expected to increase.<br /> <br /> Overall, progress calls for strong, forward looking political will and stability, investment- friendly policies, their quick implementation and higher budgetary spending in capital expenditure for infrastructure projects. On the other hand, the industry will have to focus on project innovation, superior product quality and skill development etc, he elaborates.<br /> <br /> Providing a level playing field for domestic manufacturers to compete with imported equipments, focus on international standardisation, upgradation of testing facilities, standardisation of product ratings and specifications, equitable contract conditions and reducing transaction costs of exports are some of the measures put forward by industry professionals.<br /> <br /> Another equally concerning area is the issue of stranded power purchase agreements (PPAs) which become unviable due to regulatory changes and fuel side issues which has resulted in decrease of investment cycle for new plants going down and has impacted demand for power equipments. <br /> <br /> Secondly, the government should speed up T&amp;D investment to resolve network issues with the help of strong network planning and project management advice.<br /> Evidently, the power equipment industry, along with the government, must tackle several challenges to make the most of emerging opportunities. <br /> <br /> <br /> <span style="font-weight: bold;">-JOCELYN FERNANDES </span><br /> <br /> <br /> <ul> <li>The power equipment industry is 9.54 per cent of the manufacturing sector is terms of value and 1.23% of India's GDP.</li> <li>It provides direct employment to 1.5 million and indirect employment to over 5 million people across the entire value chain.</li> <li>The equipment industry, witnessed a 4.25% growth in FY2016-17. </li> <li>The industry exported `38,580 crore ($6 billion) worth of electrical equipment in 2015-16 (Rs.35,276 crore April to February in 2016-17 - </li> <li>$5.25 billion). </li> <li>The major drivers are LV switchgear at 22 per cent</li> <li>Distribution transformer (especially up to 25 kVA û REC range) and energy meters demand has declined by 12% per cent and 10 per cent</li> <li>Conductors demand is declined by 5 per cent.</li> <li>High imports visible in HV switchgear (GIS), insulators, AC motors and generators are hampering the industry growth. </li> <li>India solar equipment market is set to cross $4 billion by 2020.</li> <li>The total market size of electrical machinery in India is anticipated to reach $100 billion by 2022.</li></ul>
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