India's economic growth coupled with the unreliable electricity grid has opened up a margin for the diesel generator segment, which is looking at filling the gaps.
Power is one of the most critical components of infrastructure and is crucial for both economic growth and welfare of the nation. India's power sector is one of the most diversified in the world, with an investment potential of `15 trillion ($223.67 billion) in the next four to five years.
GoI's focus on attaining 'Power for all' has accelerated capacity addition in the country. At the same time, the competitive intensity is increasing at both the market and supply sides. For rapid development availability of an uninterrupted power supply is a must. The major challenge is to provide continuous power and thus the unreliability of electricity grids is one of the major factors driving the DG sets market.
Electricity grids, which are already operational in India, are not able to withstand heavy rainfall, earthquake and fires, which lead to power outages, and have created the need for installation of gensets. The need for uninterrupted and continuous power supply has led to increased adoption of gensets across the industrial, commercial, infrastructure and residential sectors.
The situation continues to improve in India and the peak power deficit is on a decline, with some regions now enjoying a surplus of power. But, challenges remain in the transmission and distribution, quality and reliability and last mile connectivity. Therefore, as India's economic activities continue to gather pace, people will still rely on DG sets to meet their power requirements - shifting from a continuous duty cycle to more standby usage.
Also, with the implementation of CPCB-II norms and stringent emission norms, there will be a substantial improvement in the quality of exhaust gasses being discharged into the atmosphere making the DG sets into completely eco-friendly options.
Considering the impact of significant revenue loss, the economics of investing in standby power is compelling. To illustrate the point: If a retail business averages $1,000/hour at the cash register, the loss of revenue during an extended outage will be very high, not to mention the cost of having employees idle during that time. However, DG sets eliminate the risk of a blackout. Add the advantages of being open while competitors without backup power are shut down and the cost/benefit analysis looks even better.
Most modern generators are engineered to meet emergency power needs. These units continuously monitor the electrical current and automatically start up if power is interrupted and shut off when utility service is returned. In industries, during critical processes, generators can supply emergency power to all vital and selected loads as desired.
Thus, industry view is that there will always be role of reliable power back-up source and DG sets are proven to be most reliable and cost effective solution.
Any product which offers increased productivity, fuel efficiency, minimal maintenance and more importantly have cost competent drives the choice of customers towards superior products. Load characteristics though does not influence the choice of DG sets, it definitely defines the operational efficiency of that particular product. The ability to maintain a stable load ensures the efficiency and longer operational life of the DG sets.
'We predominantly focus on fuel efficiency and emission controls and have products compliant to CPCB II norms and Euro IV standards. Availability of such products drives the customer towards purchasing and utilising DG sets which are far more superior to the alternatives available,' points out Sanjay Jadhav, President, Sterling and Wilson Powergen Pvt. Ltd.
The predominant focus on two major technical trends in the DG sets sector which generally attracts customer demand a fuel efficiency and emission controls. Recently, the enhanced small engines are giving higher power output and there is higher demand for engines with improved efficiency.
Earlier, DG sets faced the problem of overheating, this is because to give an output of 250 kVA internally the engine had to produce 325 kVA. Now the new engines internally produce 45 kVA to give an output of 400 kVA.
'That means there is a considerable decrease in the internal frictional power. This is a favourable factor as the fuel cost is on a rise,'points out Ramesh Pasarija, Chairman, Technical Committee, Indian Diesel Engine Manufacturers Association.
Additionally, various companies are taking the initiative and improving their R&D to build best quality engines. There has been much technological advancement in the recent past to improve the functionality of DG sets.
Explains Abhinav Gupta, Regional Marketing Manager - South Asia, Perkins, 'From being an unregulated market a few years back, India is on a path to become that of one of the stringiest performance norms. This has created an environment for technological and design innovation. The markets have also been demanding efficient products with value for money and utility.'
He adds, 'India has the advantage of having engineering and design skills available locally.'
Commenting on the evolving role of DG sets in light of India's renewable focus, Sameer Gupta, Chairman & Managing Director, Jakson Group points out, 'DG sets certainly pollute the atmosphere and companies are continuously investing in R&D to reduce the emission levels and manufacture eco-friendly gensets.'
Adds Jadhav, 'The implementation of the prescribed CPCB II will certainly help control release of polluting gasses into the atmosphere and result in overall healthy living. So, DG sets still continue to be the backbone of many operations, while also progressively moving towards cleaner and greener energy solutions.'
Proving another perspective, Pasarija feels, 'In India, renewable sources are yet to grow to a level where they can have impact on DG sets' market. It is true that some of the segments are opting for renewable energy over DG sets. But, instability in output from renewables is a concern.'
However, on comparisons to renewables. Sameer Gupta further observes that such a measure is not possible because the primary role of diesel gensets is to provide back-up power supply and not continuous power to grid.
The usage and applications of gensets is very different. In fact, DG sets are used even in renewable power plants to provide emergency power back-up during outages. There are products and technology available in India where we can have gensets which are far more eco-friendly.
'The government perhaps can review emission norms both for CO2 and noise, across the product range from 5 kVA to 2,500 kVA and raise the bar on emission standards,' he suggests.
The global generator market is highly competitive; technology used is maturing and replaceable, and there are pricing challenges. However, in the past decade, the market grew 40 per cent, and by 2025, it is expected to grow by another 50 per cent. Globally, the diesel generators market is expected to grow at a CAGR of over 5 per cent till 2020.
The market growth during the forecast period will largely depend on the market growth in the Middle East and Africa, and Asia-Pacific attributed to be mainly driven by the oil and gas and mining industries in this region. India, the growth is expected to be in double digits, around 10 per cent, considering focus on infrastructure and services. 'India easily ranks among the top 10 marketplaces globally. There is a large requirement of diesel generators in India and we have been the most dominant player in this segment will get benefit from it,' feels Jadhav.
The segment is set to grow steadily is projected to grow at the fastest rate. 'Due to the various initiatives launched by GoI, we expect manufacturing to pick up, which can further boost demand. There is increased global demand from the residential, commercial and industrial segments in countries like India, China, Middle East, Africa and South America,' Sameer Gupta shares.
The Indian power sector has witnessed exponential growth during the past decade and as such there is no market-based challenge. Changing trends in technology remain the biggest opportunity, as these will make it more viable and reduce dependence on subsidies. Emissions will continue to have a big role to play and there is continuous need to drive reduction of both CO2 and noise.
According to Pasarija, the reasons for any decline in usage of DG sets can be traced to the products not being subsidised any more; or improvement in power management by the discoms; and lower number of power-cuts this summer.
'People often talk about addressing the customer need but we need to understand that there are different aspects to this. The aim is to create a product that is technically superior, represents the latest technology and makes customers feel that they have taken the right decision in buying this product. And, it should also be cost competitive as we are aware that India is a price sensitive market,'adds Jadhav.
Concurs Abhinav Gupta, 'India is one of the most competitive Dollar per kVA markets in India, though customers are demanding on costs, they do appreciate the value and benefits. The challenge is to balance the two.'
The India economy will continue to be one of the fastest growing economies in the world, as customers in all sectors look for reliable quality power. Sameer Gupta is positive about the Indian market in the next two to five years.
He states, 'We expect it to grow at around 8-10 per cent in next year, and around 12 per cent or higher in the subsequent year. We also expect the manufacturing sector to pick up in the coming years, which can be attributed to the improved growth rate.' Adds Abhinav Gupta, 'Customers in India are increasingly well informed and will tend to benefit as major global players will offer their solutions locally. While pricing will always be a pressure, we know that customers are moving from just looking at the acquisition costs to a more holistic value for money proposition.'
Meanwhile, Pasarija was cautiously optimistic, 'The growth rate for DG sets in the past two years has been flat. This is majorly because of the dip in industrial growth and improvement in power management by the discoms. Going forward, the variable speed gensets will attract more demand over the constant speed generators, as the former has price and cost advantages over the latter.'