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Special Report | August 2017

Capacity Building

<span style="font-weight: bold;">A major market shareholder in the power sector, capacitors seem to have lagged behind in meeting the high expectations, despite average results.</span><br /> <br /> One of the most versatile electrical products with a wide application spectrum ranging across computers, televisions, appliances, automobiles, aircraft, domestic and industrial equipments, power electronics, drivers, UPS; capacitors are not just energy storage devices, but are also used for signal filtering, processing and power conditioning (power factor correction and transient suppression (harmonic filtering). However, a large unorganised market, lack of awareness about importance of branded and quality products, anarchistic buying practices of consumers with much faith on old specifications, ferocious competition among peers from a largely unorganised segment, sluggish technological advancement and rise in input material costs have constrained this industry. <p></p> <p> Current scenario<br /> According to a recently published report by TechSci Research, over the last few years, the demand for power capacitors in India has been on the rise and the electrical capacitors market was is expected to grow at CAGR of around 3.6 per cent during 2014-19. In fact, TechNavio's analysts forecast the Power Capacitor market in India to grow at a CAGR of 12.46 percent over the period 2015-2019.</p> <p>However, the Indian capacitor industry is capitally exhaustive with high break-even levels, dependence on imports of crucial raw materials, dip in the value of the Indian rupee in global markets, stagnant demand, delays in projects and fiscal difficulties faced by EPC contractors and utilities. Moreover, the much anticipated growth from certain emerging segments such as electric agility (EV &amp; HEV), HVDC/FACTS, and local manufacturing of electronic goods came to a standstill. </p> <p>Industry experts we spoke to explain that while they are optimistic primarily because of the announcements by the Centre about proposed reforms and investments in the infrastructure and power sectors, India has very limited base for capacitors, predominately due to the existing technological challenges and lack of skilled manpower.</p> <p>Another felt that as the core power sector performances remained weak, this resulted in low capex and opex spends for capacitors. So, the demand for industrial and low voltage segment remains muted even though these systems have one of the fastest returns on investment.</p> <p> <span style="font-weight: bold;">Challenges faced</span><br /> The power capacitor industry today is facing several challenges like unavailability of indigenous raw material, presence of large unorganised players and lack of proper implementation of technology. Another challenge is the reducing share of Indian manufacturing in export markets as compared to Chinese companies. </p> <p>In order to overcome these challenges, proper legislation and regulations must be enforced to ensure basic minimum quality of product and promote indigenous manufacturing. It is also important to promote healthy competition, entrepreneurial initiatives and constant technical changes to meet the requirements of product quality and efficiency.</p> <p>The government needs to focus on areas such as HVDC, high speed traction, electric automobiles etc., which will simulate primary as well as secondary demand. Enhancing the level of quality and reliability of products and services, will make us globally competitive and help de-risk manufacturing by reducing over dependence on domestic market for survival and growth.</p> <p>While there has not been any specific initiative to support the growth of capacitors, over the last year, the discussion and focus has increased considerably in two areas-energy efficiency and green energy in utilities and industries, which will boost demand for capacitors. Some states are already introducing technologies to improve energy efficiency, but the efforts are scattered. </p> <p>Emphasis from the government on reactive power compensation and filter projects that improves power quality while reducing losses would help drive swifter adoption. Indian manufacturers can address gaps in their product portfolio and upgrade processes to international standards, to give others confidence to invest in developing their energy efficiency portfolios.</p> <p>However, while there is a huge capacity in the whole industry, the demand isn't as much. Also, most capacitor manufacturers import a major amount of raw materials and high quality gear. In import, there are duties and the global prices also keep changing, so there is a huge profitability issue. </p> <p>Price cuts due to the demand-supply gap and currency fluctuation has an impact on the profitability and stretch on margins. Local companies have to be more technically complaint with the latest international standards, otherwise they may become irrelevant. </p> <p> <span style="font-weight: bold;">Silver lining</span><br /> There is a bright side though. Increased focus on grid strengthening has significantly added to the demand for capacitors in the extremely high voltage segment. The number of HVDC projects has gone up to around two projects a year; up from one project every five to six years, in less than a decade. By design, the ratio of the capacity of an HVDC project to capacitors required is 1:1, whereas the ratio for regular transmission is only 1:0.3. </p> <p><span style="font-weight: bold;">Ajay Joshi, Vice President - Capacitor, Universal Cables Ltd </span>feels, 'India's rapid electrification and development of electrical network have led to an unprecedented development of power capacitor industry.'</p> <p>Such increase drives demand, it will result in higher capacity utilisation. Other factors boosting demand are the maximum demand charges, energy charges, charge on the basis of apparent energy (kVAh) - which is a vector sum of kWh and kVArh, power factor penalty or bonus rates, as levied by most utilities etc. </p> <p>With the tremendous industrial growth, demand for capacitors is going to be enormous in times to come. Further, while the capacity installed is at present under-utilised and there is a substantial scope of higher production with the capacity already installed, there may not be immediate large capacity expansion, but a slow and steady growth.</p> <p>The demand for power capacitors is also expected to increase primarily due to rising demand for consumer durables and infrastructure development. India has seen tremendous growth in the electrical and electronic manufacturing sector and revenue growth here is the key driver for electrical capacitors market in the country. </p> <p>The importance of capacitors in the power industry is growing with increasing focus on energy efficiency in India. Demand has increased in last six months, due to the new regulations imposed by distribution companies, which in return increase the overall growth of the industries.</p> <p> <span style="font-weight: bold;">Future tech</span><br /> The industry is divided on how Indian manufacturers fare technologically. While there are a vast range of capacitors being manufactured in India and a lot of R&amp;D being undertaken, it is felt that we will soon be a global leader in this field.</p> <p>Others however were spartan in their compliments, stating that while some very smart Indian companies and start-ups are getting on board the power quality management business, if the local companies don't keep their eyes on innovation, or focus on the trends and changing customer expectation they may become irrelevant.</p> <p>The main reason for the reserved judgement is because the technology implemented in the segment is dispersed, and few have implemented advanced technologies as per global standards. There still remains a large number of small and medium sized companies who are yet to bridge the gap.</p> <p>There are opportunities that can be grabbed by domestic players, e.g. the tremendous potential due to expected industrial growth in view of GoI's plan of setting up of 100 smart cities along the Delhi-Mumbai Corridor. These smart cities will have industrial hubs, which would be set up on the most modern lines with advanced technology. Additionally, technology is also undergoing a lot of change. The reactive power generation space is going to evolve in the coming years and while capacitors today are everywhere and IGBT is currently just a little thing, this will change. </p> <p>Capacitors pump in reactive power. But going forward with more and more non-linear load connections, this reactive power generated by capacitors will not hold good technically. This then gets taken over by the semi-conductor based IGBT devices. Joshi adds that reactive power management is an essential element of any electrical power network and with emphasis on sustainable development and energy conservation the reduction of network losses has gained significant importance. </p> <p>Increasing growth of HVDC transmission technology and advanced SVC is expected to drive the future need for capacitors. Adds Joshi, 'Growth in renewable energy and need for large scale grid integration of this energy are expected to be a potential target area for capacitors as well as power conditioning solutions. Evolving grid codes is expected to drive the business for power as well as energy storage capacitor.ö Consumer preference, load conditions, IGBT cost, drawbacks of the classical capacitors, etc., will make semi-conductor based IGBT reactive power management solutions the next big thing.</p> <p> <span style="font-weight: bold;">Why China pips Indian exports</span><br /> </p> <ul> <li>Financial sops - Chinese manufacturers are given export subsidies, social security subsidies and access to financing at rates below 6 per cent per annum.</li> <li>Chinese manufacturers have access to key raw materials at subsidised prices.</li> <li>In tenders issued by Chinese national power companies foreign companies, including Indian companies, cannot participate directly, as they need a local presence. No such conditions exist in India.</li> <li>Easy acceptance of performance certificates - Indian utilities accept performance certificates issued by Chinese utilities and do not insist on certification by reputed international agencies.</li></ul><br /> <span style="font-weight: bold;">Suggestions</span><br /> <ul> <li>Market needs to be organised and consumers educated about quality products.</li> <li>Emphasis on energy efficiency, renewables should spur need for quality capacitors.</li> <li>Policies to constrain material cost and encourage local procurement.</li> <li>Policies on par with competitors and financial schemes and aids be worked out. </li> <li>Vertical integration be taken up.</li> <li>Uniform technological implementation across the industry along global standards.</li></ul><br /> <span style="font-weight: bold;"> Major challenges </span><br /> <ul> <li>Competition from unorganised market.</li> <li>Lower price realisation and rise of input cost. Minimal margins.</li> <li>Lower capacity utilisation and less demand - leads to market stagnation.</li> <li>Encumbered with problems pertaining to basic survival, has not witnessed implementation of technology advancements.</li></ul><br /> <span style="font-weight: bold;">- JOCELYN FERNANDES</span>
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17 Oct 2016
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