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Feature | April 2015

Recharging Power Plants

With the government upping the targets for energy generation and the nation´s power demands constantly on the rise, Renovation & Modernization (R&M) of existing power plants seems to be the most cost-effective way of augmenting India´s generation capacity.

India´s energy needs have been galloping at an astonishing pace. However, though the government has been significantly pushing the addition of new power plants across the country, rising costs and long duration involved in setting up new projects (along with other significant issues like land acquisition) has proven to be a significant roadblock in the country´s power augmentation efforts.

According to estimates, for installation of 1 MW of fresh generating capacity, capex of approximately $1 million would be required. On the other hand, an equivalent addition of capacity can be achieved at around 33 per cent of the cost by R&M of existing plants. The government has realized this potential and the 11th and 12th Five-Year Plans provide for the rehabilitation of 129 plants with a total capacity of 26,238 MW, and 95 plants with a total capacity of 21,212 MW respectively.

´Renovation and Modernization can be termed as a means of ´evolutionary growth´ in power capacity with lower capital expenditure for power producers when compared to erection of greenfield plants. The greater part of time, labour and capital is consumed in the erection of civil structures, (and this) can be avoided in Renovation and Modernization. It may also be considered that the renovated power plants are less demanding of labour for routine operations and maintenance, which results in further savings for the power producing utility during the life of the components,´ says CK Chacko, Managing Director Fitwell Construction Pvt Ltd.

Magic wand
So is R&M the magic wand for boosting the country´ power generation capacity? Says Bratin Roy, Vice President - Industry Services, T_V S_D South Asia, ´In view of high investment required for greenfield power stations, resource constraints and environmental concerns, there is an immediate need for optimal utilization of existing generating capacity. In this context, renovation and modernization and life extension (LE) of existing old power plants can be considered as the most feasible option.´ Roy says that the main objective of R&M of thermal generating units is to make the operating units, well equipped with modified/augmented with latest technology equipment and systems. ´These operations are carried out with a view to improve their performance in terms of output, reliability and availability along with ease of maintenance, reduction in maintenance requirements, and minimizing inefficiencies,´ he adds.

According to the latest (3rd Quarter of 2014-15) Quarterly Review Report on Renovation, Modernization and Life Extension of Thermal Power Plants issued by the Central Electricity Authority, to demonstrate the Energy Efficiency R&M programme in thermal power stations in India, a few pilot R&M projects have been financed by some external funding agencies such as KfW Development Bank-Germany, World Bank and the European Union. The soft loans are provided by these external agencies for energy efficiency R&M programmes. CEA says that KfW and World Bank have provided some grant for technical assistance for preparation of Feasibility Reports/DPRs at selected thermal units and for carrying out some R&M related studies.

The government estimates that a number of 200/210 MW power plant units have or are near completion of their normal operating life and need modernization and life extension. CEA says that there exists a potential for enhancing the rated capacity of these units by 4-8 per cent and efficiency by 8 to 10 per cent in various 200/210 MW LMZ machines. The government´s approach to R&M has shifted primarily from ´generation maximization´ to ´generation optimization´ with efficiency improvement and possible up-rating.

According to Vishal Basotra, General Manager, Operational Marketing - Field Services, Schneider Electric, ´India Up gradation of existing power plants is comparatively easy, largely because the physical infrastructure is already in place and there is a need to only identify the status of the components of the existing control system.´ He added: ´After identifying the glitches in the components of the automation system there is a need to systematically plan out the renovation process in a phased manner thereby ensuring that all major equipment changes are implemented in the best possible manner and least possible time.´

With the plethora of advantages that R&M offers to its customers it is imperative for the segment to grow at a tremendous rate over the coming few years . The government also seems to be optimistic about this development and has launched a number of initiatives backing the R&M programme. However there is still a need to formulate a comprehensive strategy in order to ensure that R&M becomes a compulsory exercise for power plant owners in India.

Obstacles to tackle But a few obstacles remain. For example, does the country have a significant pool of skilled manpower for carrying out extensive and comprehensive R&M activities? ´Manpower can be perceived as one of the biggest challenge of a successful R&M programme. These programmes require a team of highly skilled and experienced workforce (at advising, consultancy and operation level) who have considerable practical experience at handling projects of such stature. To meet this requirement, the Central Electricity Authority (CEA) has empanelled selected consultants for this kind of consultancy job,´ says Roy. T_V S_D South Asia has been approved as a consultancy organization for preparing a detailed project report for R&M work.

At a recent conference which focused on optimizing performance of power plants, MVK Rama Rao, Managing Director of Haryana Power Generation Corporation Limited (HPGCL), stated that majority power plants being coal fired in India and recent data suggesting that quite a few are nearing the end of their lifecycles, there is an urgent need for renovation and modernization in order to optimise power generation efficiency, adopt best technology and improve environmental impacts to ensure a more viable and sustainable future.

Finance, or rather, the lack of it, might be another factor coming in the way of full-scale implementation of R&M programmes across the country. The Central Electricity Authority has said that paucity of funds and poor conditions prevailing among various State Electricity Boards are the main reasons for the country not meeting its R&M targets. ´Central Electricity Authority and Government of India have identified and listed many power plants for performance optimization and R&M programmes to be carried out in the 12th Five-Year Plan. Now, it is the decision of respective state power generation companies (gencos) to issue tenders either for comprehensive R&M or need-based R&M,´ says Roy. While admitting that the financial condition of state distribution utilities is an area of concern, Roy says that with more budget allocation in power generation at both Central and state levels, this should help state gencos to overcome this hurdle.

Chacko concurs. ´Weak financial status of some power producers is a concern as they seek to postpone R&M activity. High interest rates make it hard for small and medium-sized contractors to access working capital to finance their project activities. Cumbersome regulations and compliance requirements as well as inflexible trade unionism is a concern in some states.´ He adds that certain regions in the country have law & order troubles, which can result in loss of mandays if project work is suspended.

On the other hand, many stakeholders in the power generation stand to gain if the R&M uptake scenario develops in the country. ´Original Equipment Manufacturers can supplement the activity of catering to greenfield power plants with a unit dedicated to R&M activity. They can use their manufacturing facilities to cater to R&M as well. For erection contractors there are several other advantages,´ says Roy.

He elaborates that R&M projects take less time for completion compared to greenfield projects; basic infrastructure like roads and labour camps are already developed for these older projects, so contractors spend lesser time in mobilizing their resources and manpower availability from local areas is much improved and reliance on migrant manpower can be reduced.

R&M development
Chacko is convinced about the potential for R&M development. ´In our experience, the private sector power equipment manufacturers are quite proactive in their approach towards R&M projects.

The last decade has seen an increase in the number of players and they do look at R&M projects as a viable business opportunity. In particular some firms have pre-selected their contractors and sub-vendors even before being awarded projects in order to reduce time taken for resource mobilization,´ he says.

In addition, R&M can help in reduction of emissions and overall environment protection. ´Reduced downtime for repairs of projects after R&M will lead to lower demand on power produced by the coal and gas-fired power projects. This can be beneficial to the environment. The possibility of breakdown of aging components causing an industrial accident and environmental damage can also be reduced,ö says Chacko. In fact, he feels that R&M of existing plants should actually be made mandatory. Abhijit Lohakarey, Senior Manager - Energy, Utilities & Mining, PwC India told POWER TODAY in an earlier interaction, ´Faster increase in the generation capacity as compared to setting up of new power plants, life extension of units by 10 years or more, improved plant efficiency and consequent reduction in fuel consumption, better compliance with emission and emission norms are the advantages of R &M.´

The benefits of a comprehensive R&M programme are there for all to see. Once the chinks in the existing framework are ironed out, R&M is bound to become an effective panacea for augmenting the country´s power generation capacity.

Out of above fund requirement for EE R&M during 11th & 12th Plan, funding from external agencies to the tune of 96 million Euro from KfW for 3 units (630MW) and 180 million USD from World Bank have been committed.
Combining the huge financial costs for R&M along with deteriorating financial health of distribution utilities due to non cost of supply reflective tariffs and high demand-supply gap, R&M program would need a huge push from government policies to remain relevant in the present power situation in the country.

´We are preparing a DPR for R&M work for CEA´
Bratin Roy, Vice President - Industry Services, T_V S_D South Asia
Renovation & modernization has been touted as a cost-effective way of increasing the nation´s power capacity. What is the scope for R&M activities? In view of high investment required for greenfield power stations, resource constraints and environmental concerns, there is an immediate need for optimal utilization of existing generating capacity. In this context, renovation and modernization (R&M) and life extension (LE) of existing old power plants can be considered as the most feasible option. The main objective of R&M of thermal generating units is to make the operating units, well equipped with modified / augmented latest technology equipment and systems. These operations are carried out with a view to improve their performance in terms of output, reliability and availability along with ease of maintenance, reduction in maintenance requirements, and minimizing inefficiencies.

R&M has been popularised as a solution that can overcome the issue of aging of critical components in a power plant. Your comments... R&M definitely can increase the life time of critical components. But it is not a substitute for regular annual or capital maintenance/overhaul which forms a part of operation and maintenance (O&M) activity. Mid-life R&M is recommended preferably after 100,000 hours of operation.

Does the country have an adequate pool of manpower in place for conducting R&M activities?
Manpower can be perceived as one of the biggest challenge of a successful R&M program. R&M program requires a team of highly skilled and experienced workforce (at advising, consultancy and operation level) who have considerable practical experience at handling projects of such stature. To meet this requirement, the Central Electricity Authority (CEA) has empanelled selected consultants for this kind of consultancy job. T_V S_D South Asia is one of the approved consultancy organization for preparing a detailed project report for R&M work.

T_V S_D South Asia had carried out an annual property event in Delhi last year with a theme as ´optimisation of power plant´. This was a platform where various international experts along with private and government players shared the stage to discuss on resource requirement and need.

Recently, the CEA has said that paucity of funds and poor conditions prevailing among various State Electricity Boards are the main reasons for the country not meeting its R&M targets. Will the situation improve in the future?
Yes, it´s true. Central Electricity Authority (CEA) and Government of India have identified and listed many power plants for performance optimisation and R&M programs to be carried out in the 12th Five Year Plan. Now, it is the decision of respective state power generation companies (gencos) to issue tenders either for comprehensive R&M or need-based R&M. Financial condition of state distribution is an area of concern but with more budget allocation in power generation at both central and state level should help state gencos to overcome this hurdle.

Has there been adequate participation from the private sector in the ongoing R&M programmes?
Until today, private sector participation is far lower than expectation. There are challenges and uncertainty that are adequately being addressed by the government. As mentioned previously, there are various options available for private sector to participate in this program and we are very confident that we will see much larger participation from the private sector very soon.

´R&M can help evolutionary growth in power capacity´ CK Chacko, Managing Director, Fitwell Construction Pvt Ltd.
Renovation & modernization (R&M) has been touted as a cost-effective way of increasing the nation´s power capacity. What is the scope for R&M activities? Renovation and Modernization can be termed as a means of ´evolutionary growth´ in power capacity with lower capital expenditure for power producers when compared to erection of greenfield plants. The greater part of time, labour and capital consumed in the erection of civil structures can be avoided in Renovation and Modernization. It may also be considered that the renovated power plants are less demanding of labour for routine operations and maintenance, which results in further savings for the power producing utility during the life of the components.

What is the key rationale and business drivers behind the R&M projects in the Indian power sector?
The technology used in the control and instrumentation systems is outdated compared to present day power plant management systems. The shelf life of the various components is also close to exhaustion. The risk with aging power plants is that of unplanned downtime because of breakdowns, as well as the possibility of a serious industrial accident. Both from the viewpoint of assuring business income as well as industrial safety, utility companies can opt for R&M of their older power plants.

According to you how much would an investor stand to gain from his investment in R&M?
Original Equipment Manufacturers can supplement the activity of catering to greenfield power plants with a unit dedicated to R&M activity. They can use their manufacturing facilities to cater to R&M as well. For erection contractors there are several other advantages. Firstly, such projects take less time for completion compared to greenfield projects. Secondly, basic infrastructure like roads and labour camps are already developed for these older projects, so contractors spend lesser time in mobilising their resources. Third, manpower availability from local areas is much improved and reliance on migrant manpower can be reduced.

How effective do you think R&M can be in improvement of energy efficiency of boilers, turbines and auxiliaries in a power plant?
As the supplier base was restricted prior to economic liberalization and subsequent entry of MNC players in India, power producers did not have much choice with respect to adopting newer and efficient designs. There has been a significant improvement in the materials and processes used in fabrication of turbine and generator components, which can result in better power output compared to the older designs. Miniaturization and computer-aided operation of auxiliaries is also a significant development.

Can R&M help in reduction of emissions and overall environmental protection?
The emissions are low to begin with for hydroelectric projects, but reduced downtime for repairs of such projects after R&M will lead to lower demand on power produced by the coal and gas-fired power projects. This can be beneficial to the environment. The possibility of breakdown of aging components causing an industrial accident and environmental damage can also be reduced. In our experience, states which have dedicated power generation companies to handle their power producing assets are more proactive in R&M projects. States where power producing utilities are facing a funds crunch often defer major R&M projects until finance can be tied up.

R&M has been touted as a solution that can overcome the issue of aging of critical components in a power plant. Your comments?
The aging power plant components require significant investments in maintenance towards the end of their life-cycle. Often the Original Equipment suppliers do not provide service guidance for such long periods due to a variety of reasons (sometimes they are not even in business anymore!) and the power utilities are forced to depend on their own pool of trained staff or contract labour for repairs. This comes with its own problems such as attrition, retirement and lack of updation of skills affecting the quality of maintenance. A significant advantage of R&M is that once installed, the new components are both easy to operate and maintain, and the repairs and replacement of components are easier to carry out.

What are the entry strategies for the private sector?
Currently power producers take the decision to go for R&M. The private sector can offer financial assistance to the utilities facing a financial crisis, to be paid back once the renovated power plant starts generation.

Does the country have an adequate pool of manpower in place for conducting R&M activities?
In the medium to long term there may be a dire shortage of manpower due to attractive options available in GCC/African countries as well as increased construction activity in India. As an employer, we would like to recruit personnel from neighbouring countries as well, which Indian laws prevent us from doing. There is scope for improvement by allowing migrant labour from neighbouring countries as well as increasing India´s own trained manpower by increased enrolment in technical training institutes.

Recently, the CEA has said that paucity of funds and poor conditions prevailing among various SEBs are the main reasons for the country not meeting its R&M targets...

Analysts have opined that there is a need to have a comprehensive strategy aligned to effectively implement an R&M programme. Your comments...
Currently the decision for Renovation and Maintenance lies with the owners of the assets. It may be made mandatory for them to carry out Renovation and Maintenance without unduly prolonging the same. Financial resources may be made available to the weaker utilities to carry out their programmes.



R&M compares favourably to fresh capacity addition
Key factors Output from Renovation
and Modernization of a
thermal plant
Output from new thermal
capacity addition
Timelines 10-12 months 38-42 months
Costs Rs 2-2.5 Crore/MW Rs 4-5 Crore/MW
Land acquisition issues None High
Environmental Clearances Negligible High
Fuel and water linkages Already present To be developed
Emissions Only marginal
addition/MW
0.94 Kg/unit of
CO2 emissions*
Transmission Capacity Network already present To be developed
Labour costs Only marginal
addition/MW
15-20 % of average cost
of supply / unit *
Power purchase
agreements (PPAs)
Already present To be developed


And there is significant opportunity size available for stakeholders
Program for 12th Plan
Particulars R&M Works LE Works
No. of Units 30 105
Capacity(MW) 6501 21679
Estimated Cost
( Rs. Crores)
12000 32897
Expected Benefits
Additional
Generation(MU/
annum)
Generation
sustenance only
6900
Life Extension   15 Years
Aging condition of thermal plants presents an opportunity
Particulars Thermal Plants > 20 years of age
  Number Capacity(MW)
Central Sector 68 13953
State Sector 103 20982
Total 171 34835


Financing requirement for R&M
Key constraint :Huge financing costs in up gradation of plants act as deterrent for R&M program
Plan R&M Works
(@ Rs. 1 Cr./MW)
Life Extension Works ( Rs. Crore) Total
( Rs. Crore)
    LE without up
gradation (@
Rs. 1.25- 1.5
Cr//MW)
LE with up-gradation
(EE R&M)
(@Rs 1.5-2.0
Cr/MW)
   
    Indigenous
funding
With external
funding
   
11th Plan onwards 950 2334 2356 450 6090
12th Plan 630 - 4640 8760 14030
Total 1580 2334 6996 9210 20120
Funding from own resources
(20% of estimated costs)
316 467 1399 1842 4024
Fund requirement from indigenous
institutions like
PFC/REC/ etc.
1240 1867 5597 - 8728
External Assistance - - - 7368 7368
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