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Focus | May 2011

Rental power sector surges ahead

Globally the rental and leasing of power equipment is the norm but the concept is catching on in India, says Daya Kingston.

The global rental power industry has a buoyant future as it is poised to grow 30 per cent by 2015 due to growing demand in utilities, construction, oil and gas sectors and emergencies. Since the global economy is yet to fully recover from the crisis, it is difficult for private power plants to fund their permanent power plant projects and this is where rental power steps in. Globally, countries like the Middle East, Africa, South America and South Asia have the biggest market. In the Asian region, countries like India, Pakistan, Bangladesh, China, Philippines, Indonesia, Vietnam and Thailand will spearhead the demand for this sector.

Globally, renting and leasing of power equipment has been the norm but in India, it is just coming into its own because here the advantages of depreciation in owning equipment are an attractive incentive for owners. Also, concerns over the technical expertise of rental power providers ensure that it is yet not as popular as it is overseas.

Rental power can include the full range of electric power generation equipment and services including power system designs, generators, controls, transformers, fuel tanks, cables, switchgear, distribution systems and load-banks. This may or may not include back-up services like commissioning, operations and maintenance, spares and fuel deliveries.

A fragmented industry

The industry is rather fragmented with several small players and a few large ones. There are very few multi-nationals and the rest of the market comprises many players for whom the financial aspect is the only driver and technical issues take a backseat. In fact, many smaller companies are family-owned businesses with a limited fleet which ultimately means that customers who need multi-megawatt rental power plants have very few options. Some leading players are Aggreko, GMMCO and Livingston among others. 

Rental power vs leasing

Rental power can be availed of for a day or a longer period as per requirement and offers a great deal of flexibility. Dhananjaya BS, Proprietor, Deebee Gensets, Bangalore, said, "We offer rentals for a day, 10 days and so on. We offer power generating equipment from brands like Ashok Leyland, Kirloskar and Caterpillar. Erratic power supply in the region has hiked demand for rental power. As opposed to renting, leasing is usually for a period of 24 to 60 months. The greatest advantage of leasing is that it can be a hedge against inflation because a fixed cost is paid for the period. When a company purchases equipment, the cost depreciates over the lifetime of the equipment. The advantage of leasing is that leasing costs can be instantly deducted as business expenses whereas in renting, you cannot depreciate any cost."

Speaking about the segment, Deepak Goyal, Managing Partner, Gujarat Generators, said, "There is a growth in demand for rental power due to the expansion of projects in sectors like construction, industries and so on. We focus on the Kutch area and in this region specifically there is a huge expansion in heavy industries and there is a new port coming up. We offer generators from 5 kVA to 1,000 kVA and they can be hired for a month, 3, 6 or 9 months and so on. Renting works out to be cheaper than leasing."

When queried about issues facing the sector, he said, "We face no major problems but the challenge is to have well-trained staff so that we can provide good service. The returns on investments in any equipment take a minimum of about 30 months. The trend is that initially when there are ongoing projects, companies opt for rentals and then purchase equipment after settling down."

The company based in Gandhidham offers rentals of power generators and welding equipment. It offers diesel generators of brands like Crompton Greaves, Mahindra & Mahindra, Cummins and CAT and also offers generator maintenance and repair services.

Deterrents

The industry calls for a huge investment in spares and tools inventory and the question of returns on investments (ROIs) deters many companies from entering the segment. 

Opportunity knocks

The power situation in the country is far from reassuring and poor quality power, the high cost and power thefts have created a power deficit. While some states face a demand-supply gap averaging about 12-14 per cent, others have a deficit as high as over 20 per cent.

In this context, rental power and leasing is predominantly in demand in utilities and industries such as construction, telecom, oil and gas, entertainment events and public infrastructure. The current infrastructure boom with high levels of construction activity is a leading consumer of rental power.

In fact, this option is growing to be a preferred option among bigger contractors, especially road equipment, engineering procurement construction (EPC) contractors and heavy earthmovers who handle large contracts of infrastructure and road construction. Fuel-efficient equipment as well as innovation will drive the future of this segment.

Advantages of  rental power

Rental power solutions offer many advantages over permanent power. Firstly, there is the cost factor i.e., there is no sunk infrastructure cost like that of the powerhouse, foundations and of the equipment. Delays can sound the death knell for allied industries and rental power enhances efficiency and helps reduce delays. Rental power offers a great deal of flexibility as customers can increase or decrease the rental period and also the amount of power generating capacity required. Maintenance and operation services come as part of the package. The company is also freed from the burden of spares and recruiting skilled technical people. The risk and uncertainties of owning power generating equipment are transferred to the power rental company.

From another perspective, ownership includes hidden costs such as loan repayments, interest charges, taxes and other hidden fees besides essentials such as transmission and distribution equipment and fuel supplies. All these can be avoided with rentals.
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