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Feature | May 2014

Awaiting transformation

Despite being plagued by a number of anomalies, efforts are on to promote the domestic transformer industry in the country.
The Indian power sector, that has been in a state of transition, targets to set up substantially high ~88 GW of capacity in the XII Plan which is also required to meet the growing demand. The XII Plan target is definitely achievable; however, the sector needs to respond quickly and definitively to a number of new challenges that have emerged in recent times. These challenges continue to be both soft linked to policy as well as hard linked to project implementation.

The notable problems within the country┬┤s power sector structure consist of an apparent lack of generation capacity, old infrastructure that is inferior to its demand, significant power theft, a multitude of grid inefficiencies, and an economic climate that has not been eager to fund the necessary changes. But the government┬┤s attempt of attaining 100 per cent electrification across the country by 2017 would definitely contribute to the demand for power transformers as it increases proportionately with the amplification of power generation, transmission or distribution networks in the country.

The Indian distribution transformer market has a well-matured technology base up to the 800 kV class but is also plagued with its own set of issues. Lack of adequate training facilities, shortage of skilled manpower and uncertainty and slowness in the pace of reforms does pose a major barrier in technological upgradations. Transformers beyond 90 MVA 220 kV have to be sent abroad for testing. Dearth of cold rolled grain oriented (CRGO) steel, import of low grade secondary defective CRGO steel, and fluctuating metal prices have made it challenging for participants to operate efficiently in the Indian power and distribution transformer market.

Market scenario
The transformer market is dominated by small scale indigenous manufacturers as it requires limited infrastructure and inexpensive labour. Consumer and industrial electronics segments drive the demand for transformers. Owing to cost advantage transformers are predominantly imported from China, Taiwan and South Korea. Industry experts indicate that reliance on import for raw materials, specifically copper, is a major handicap for Indian transformer manufacturers in achieving faster turnaround time as well as lower production costs.

Industry estimates indicate that the power transformers market revenues in India are expected to grow at the CAGR of 14 per cent till 2018. Under the 12th Five Year Plan (2012-17), the government plans to spend $200 billion on developing and strengthening power infrastructure in India. Despite all these attempts, the Indian transformer industry continues to face tough competition from Chinese manufacturers. After the power generation, the transmission sector is considered to be the next target for the Chinese companies to compete with India. IEEMA (Indian Electrical and Electronics Manufacturers Association) along with the government framed a policy to limit the imports of transformers from China and Korea along with changing government polices on import duty for CRGO steel is likely to further promote the domestic transformers industry in India.

However, the Indian transformer industry witnessed a 26 per cent negative growth during financial year 2012-13 as compared to 25 per cent growth in financial year 2011-2012 owing to the free flow of import of equipment especially from China and Korea, adversely affecting the commercial viability of domestic equipment (industry). But measures are being taken to tackle this issue. The industry has proficiently graduated in manufacturing transformers up to 400-KV class for the last two decades but for 765-KV class very few like BHEL, ABB, Crompton Greaves among others are enhancing their establishment with new technologies to cater to the requirement of handling bulk load for interstate disbursal of power. This will help in checking the import of transformers and increase competitiveness in domestic industry.

Challenges a-plenty
The installed capacity of the Indian transformer industry in the organised and unorganised sector all together is about 4,00,000 MVA ranging from 5 KVA to 500 MVA and voltage range from 1.1 KV to 1200 KV. Cold Rolled Grain-Oriented (CRGO) steel continues to be the primary concern for the transformer industry. There are challenges in respect of absence in domestic manufacturing, and imports of inferior material. CRGO steel is a very crucial input for manufacture of transformers and is estimated to account for over half of the manufacturing cost of a transformer. There is need to set up local manufacturing capacity for CRGO. Presently the country's entire demand for CRGO is met through imports. However, the BIS-certification for CRGO electrical steel has now been made compulsory to improve its quality. Rashtriya Ispat Nigam Ltd has signed an agreement with Power Grid Corporation of India for setting up a joint venture route to make electrical steel.

Foreign players eating into market share
Chinese and South Korean entities including Hyosung Corp. are slowly and steadily penetrating the Indian market and have turned out to be strong contenders, getting orders in substation and transformer markets. The share of Chinese companies has steadily risen from 24 per cent in fiscal 2010 to almost 50 per cent in fiscal 2012. Indian companies are feeling the pressure and this has further implications as firms will have to bid lower than before, leading to pressure on margins. Industry reports suggest that transformer prices have declined nearly 25-30 per cent in the last three to four years as more firms chased fewer orders

Experts feel that in order to counter Chinese competition the industry is required to start investing for capacity addition as early as possible. In the recent past, imports of power equipment from China posed a major challenge for policymakers in India. In the last 2-3 years, India's private sector power producers have imported Chinese equipment that would help to generate about 35,000 MW of power. Experts believe that domestic industry lost huge business due to cheap Chinese imports. While the transformer industry waits to get more investments, tax benefits, subsidies to get into a level playing field with the global players, it remains to be seen how the changes at the centre will further shape the future of the sector.

Garima Pant

Transformer Ecosystem Assessment
STRENGHTS
  • Huge Consumption demand
  • End use product manufacturing through OEMS and EMS exists
  • Local design know how and manufacturing technology skills exists
  • CHALLENGES
  • Local landed cost of production high: makes imports cheaper
  • Reliance on imports for copper
  • Delayed turnaround time due to copper import time
  • CHALLENGES
  • Preferential excise duty for transformer manufacturing: tax rebater.
  • Subsidies on logistic costs of copper import to reduce product landed cost
  • Special interest loans for working capital for SME
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