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Cover Story | December 2014

Required, Rs.1 lakh cr power equipment!

Yes, you heard it right. With the government on an awarding spree and banks lining up to fund new projects worth more than Rs 2 lakh crore, equipment procurement by independent power producers is likely to gain pace by at least 10 per cent from the current level of 6 per cent in next two year.
With the power sector cornering a huge chunk of the 12th Plan, consequently, the requirement of electrical equipment would be much higher than in previous Plans. Since the 12th Plan target is 88,000 MW, of which almost 48,000 MW has been achieved so far, the next tranche of project awarding is likely to start by next year. Such massive addition in power generation capacity would be possible only if the power/electrical industry also suitably enhances its manufacturing capabilities to meet this challenge. Other industries like cement, steel and aluminum also have to augment their production lines to meet the requirements of the power sector. Requirement of electrical equipment is one of the most important inputs for the development of the power sector. In this story, considering the number of projects which are likely to see the light of day in the next couple of years, an attempt has been made to assess the requirement of major electrical equipment for power projects (hydro and thermal) during the 12th Plan.

Meanwhile, with an installed capacity of around 2.54 lakh MW, of which 36 per cent is contributed by Independent Power Producers (IPPs), it is obvious that the major requirement for electrical equipment will be from private players.

POWER TODAY spoke to a number of major IPPs and engineering, procurement and construction (EPC) players across India, and the requirements they shared were humongous in scope. We also spoke to reputed vendors to gauge whether the demand is likely to met the supply situation or not. Meanwhile, power experts are of the opinion that the major beneficiary would be BHEL, Alstom and ABB as most of the IPPs and EPC players rely on giving orders to these reputed companies.

Orders bagged
It is evident that the last few months have seen pace in the awarding process, especially in the electrical equipment sector. For the last three months of the current FY, orders worth Rs 4,000 crore have been bagged by BHEL, Alstom T&D, KEC International, BGR Energy, ABB and L&T-MHPS, among others. In addition, in the EPC segment, orders worth Rs 24,000 crore have been placed so far, giving a sense of a turnaround in the power sector, which had stagnated for a couple of years.

Atul Punj, Chairman, Punj Lloyd, in a press briefing said that there is a positive improvement compared to the previous quarter in terms of award process. ´It is expected that the situation will further improve with the order wins in the current year till date and the expected order inflows in the near future,´ he says.

In the meantime, some of the orders suggest a holistic view about what IPPs expect from vendors in terms of a full-fledged package deal. For instance, take the order bagged by L&T, Mitsubishi JV worth Rs 1,885 crore from State-run power generator NTPC. The contract includes setting up of two units of 660 MW each of supercritical steam generators for the Tanda Thermal Power Plant stage-II on an EPC basis. The order suggests that with providing electrical equipment, the project proponent is also looking for a turnkey contactor.

Another instance suggests the same. Recently, BHEL bagged a Rs 3,500 crore order for thermal power plant (800 MW) in Gujarat, which was awarded by Gujarat State Electricity Corp Ltd. It is considered to be one of the biggest EPC orders with the requirement of electrical equipment in India.

Says a senior executive from Essar Projects, ´These days, project facilitators are looking for a complete package while awarding projects to avoid delays at the time of construction. At the same time, after being awarded, an EPC player comes out with tenders for different utilities.´

At present, Essar Projects has undertaken a similar kind of project for Neyveli Lignite Corporation worth Rs 1,200 crore. He further added that the company spends around Rs 100 crore per year for 1,200 MW stations.

Meanwhile, the executive suggests that the procurement of electrical equipment is purely dependent on the size of the project and the timing of the bidding, as the estimated cost of the project has to be included at the time of bidding.

Ironically, jumping on the order placement bandwagon, IPPs and EPC players have started to put in place their budget for electrical equipment procurement. That said, Philip Chacko M, Chief Operating Officer, Talwandi Sabo Power Ltd says that the company is gearing up to spend Rs 40 crore for procurement of electrical equipment for FY 15-16. Whereas, Essar Power will spend nearly 40 per cent on procurement activity, subject to the power projects it bags. Currently, the company is undertaking several power projects and procurement for most of the projects has been completed. According to a senior official from JSW Energy who looks after the procurement function, the procurement procedure is as per plant requirement. ´The company maintains vital/essential as well as long lead items in stock and spares. Electrical equipment is also being procured as spares.´

Most of the IPPs and EPC contractors such as Tata Power, JSW Energy, Lanco, L&T etc., that POWER TODAY spoke to, were reluctant to share figures for procurement of electrical equipment. But most suggested that with Rs 3.4 lakh crore power projects on the verge of being awarded, 40 per cent i.e., around Rs 1 lakh crore spending will be on the procurement side.

The requirement
As said earlier, the requirement seems to be huge for the electrical equipment market. Consider this: For a 600-800 MW size project (60 projects have been lined up so far), there is a requirement for approximately 3,000 transformers with ranges from 260 MVA to 20 MVA. For switchgear, the requirement is anywhere near 11,000 units, whereas, for HT and LT motors it will be around 1 lakh. Meanwhile, it is expected that the cable industry will see maximum demand as the total requirement in km will be around 40,000. The requirement for emergency DG sets (1,500 KVA) will be 75. (refer to the detailed list of requirements for 600-800 MW power plant). For a 500 MW project, which are around 25 in total, the requirement for electrical equipment seems to be rather on the lower side. For instance, requirement of transformers ranging from 200 MVA to 50 MVA will be around 1,000. And for switchgear, it will be around 4,000 units. Whereas, HT and LT motors will account for around 32,000 units. In terms of cable, the power sector will procure approx 16,000 km of cables ranging from single-core to multi-power cables. (refer to the detailed list of requirements for 500 MW power plant).

Meanwhile, the procurement requirement for 300 and 125 MW power projects cumulatively will not be much higher as compared to 600 MW and 500 MW. As far as transformers are concerned, it expected that those who will bag projects within this range (125-300 MW) will require around 800 transformers, whereas the demand for switchgear will be around 3,000 units and that for HT and LT motors will be around 28,000 units. Moreover, the demand for cables, will be around 17,000 km. All in all, the total requirement considering transformers, emergency gensets, cables, HT & LT motors and switchgears are such that all vendors will look to capitalise on the given opportunity. (Refer to total requirement of coal-based and gas based plants).

Power leads the race
Ergo, with so much of positivity in the sector, this has made power players line up with new projects for fresh loans from banks. The power sector is leading the race with investment proposals to the tune of Rs 1.5 lakh crore from banks. This, despite the sector facing problems of stranded assets and fuel supply constraints. In this regard, Sesa Sterlite leads the pack with plans for a Rs 16,000 crore project in Odisha. The proposal is with Syndicate Bank, which has already sanctioned and disbursed Rs 1,525 crore. This is followed by Teesta Urja in Sikkim with an investment of Rs 11,382 crore, Talwandi Sabo Power in Punjab (Rs 11,040 crore), Bhushan Power and Steel in Odisha (Rs 9,765 crore) and East Coast Energy in Andhra Pradesh (Rs 9,343 crore).

New projects in the offing
At present, there are more that 4,000 MW of projects on the block and up for grabs, an opportunity for electrical equipment manufacturers. Currently, developers like Essar Power, Meenakshi Energy Private Ltd, NHPC and KVK Energy are on the verge of placing orders for electrical equipment for their power projects.

Essar Power Jharkhand Limited (EPJL) is implementing a 1,800 MW coal-based power project in Latehar, Jharkhand. Phase I (1,200 MW) of the project is expected to be commissioned in 2014-15 based on coal sourced from the Chakla mine whereas Phase II of 600 MW is based on the Ashok Karkata coal mine.

Meanwhile, Meenakshi Energy will be implementing, developing and operating 1,000 MW of a coal-based power project in Nellore district in two phases of which phase I is already operational with a capacity of 300 MW.

On the hydro project side, Loktak Downstream HEP (66 MW) is a JV project between NHPC (CPSU) and the government of Manipur. The estimated cost of the project is Rs 1,350 crore. The project has been accorded environment clearance and stage-I forest clearance. On the other hand, Nagai Power Private Limited (NPPL), a special purpose vehicle (SPV), is implementing a 300 MW (2x150 MW) coal-based thermal power plant in Tamil Nadu in two phases. The projects are being implemented at a total cost of Rs 1,523.64 crore. Phase II will achieve completion of date COD in the next two years, from the date of initial disbursement.

Meanwhile, NTPC is poised to take up the 4,000 MW Pudimadaka super thermal power project in Telangana.

Vendor perspective
To start with, the EPC sector has witnessed consistent changes over the past few years, with increasing project sizes, scale and market maturity. Riding on India´s infrastructure requirements over the next five years, the EPC sector is likely to make major advances. To this, Ravi Kathpal, CEO - Energy Consulting Services, Feedback Infra, says, ´The sector is also attracting an increased interest from global majors, Indian conglomerates, as well as infrastructure developers.´

According to a recent Ernst & Young report, the EPC industry has come a long way in the last one decade from being a handful of large and complex projects and a multitude of small packages and subcontracts. The report adds that today, there is no dearth of high value and complex projects being executed by the government and private players. The increasing size and complexity of projects has, however, led to a growing reliance on contractors´ capabilities and project management skills. In terms of balance of plant (BoP), players in this segment suggest that as most of the orders have been placed for the 12th Plan, the potential opportunity lies in the orders for the 13th Plan period (2017-2022) where the capacity addition target is yet to be finalised. However as per industry estimates, this is likely to be more than 100,000 MW. Of this the thermal capacity is going to be minimum 70,000 MW which will give an opportunity of minimum 15,000 MW per year.

According to industry experts, suppliers are facing weak order inflows as only a few greenfield projects are being finalised. Added to their worry is shortage of equipments too.

Meanwhile, the power backup market expects demand for technologically advanced gensets with the implementation of the new Central Pollution Control Board (CPCB) II norms. All the manufacturers, importers or assemblers of diesel generator sets in India will comply with the cleaner emission standards, for products up to 800 kW. This was a long overdue notification and was welcomed by the industry.

With the rising demand, there have been many changes in technological trends in the field of power over the last 10 years. ´We treat this as an opportunity to continually improve on what we already offer´ says Pankaj Jha, South Asia Marketing Manager, Perkins Engines Company Ltd.

The power backup market in India varies within the three different segments: generators, UPS and inverters. Major players like Kirloskar Oil Engines Ltd (KOEL), Mahindra-Powerol, Cummins India, Greaves Cotton, Ashok Leyland, Eicher, Caterpillar, MTU and a few other imported brands are seeing huge market potential to grow in India.

Everything related to the new norms has been considered as a positive step by manufacturers as it will strengthen the productivity of the product. In fact, India will witness more fuel-efficient generators, which will benefit the end customer. The new range of generators will thus have improved technology as it will minimise pollution and contribute to mitigating climate change issues. Moreover, since the new set of guidelines will have stringent norms, it is expected that with the improvement in technology, the prices of the power backup material may increase, slightly.

As far as the transmission and distribution market is concerned, the vendors within are optimistic. And certainly, why should they not be? The planned transmission line capacity addition and distribution capacity addition during the 12th Plan envisages an investment of around Rs 180,000 crore and Rs 306,235 crore respectively. (Refer to T&D, the major receiver) Going forward, the capacitors market will see some gradual movement in terms of demand. The capacitor industry depends on three factors for growth: Accelerated Power Development and Reforms Programme(APDRP) projects which have high demand for capacitors, core industry growth and the replacement market. The growth also depends on the initiatives by the government as the government projects meant for infrastructure development need more number of capacitors and bigger voltage capacitors. LV capacitors are largely in demand for APDRP projects, whereas MV capacitors are more in demand for infrastructure projects.

Says Abraham Varughese, General Manager- Power Quality Marketing, Schneider Electric India, ´With more industrial projects lined up, we expect the demand for MV capacitors to grow. Gradually, with the announcement of new infrastructure projects, we expect a double-digit growth in MV.´

On the other hand, some of the companies have already started expanding their manufacturing capacity. A case in point would be Havells India Ltd. To address this demand, Havells will expand manufacturing capacity to 5 MVAr /month by 2015 and 10 MVAr / month by 2016-17. ´With huge investments planned by the government for the improvement of the power sector, capacities will necessarily need to expand,´ says Saurabh Kumar, Manager, Product Head - Pan India, Power Capacitor Division, Havells India Ltd.

Now, according to IPPs and EPC players, the onus is on electrical equipment players to accelerate their manufacturing activities. Although the EE players have been blamed for supply constraints and untimely delivery, electrical equipment contracts worth Rs 1 lakh crore is an opportunity that they cannot give a miss. What´s more? With more than 60 power projects, majorly in thermal, and a few in hydro on the anvil, it is now take it or leave it opportunity for EE vendors.

Vendors, are you listening?
- Rahul Kamat

Quick bytes

  • Orders worth Rs 4,000 cr bagged by EE players in the last three months.
  • The last three months´ orders worth Rs 24,000 cr bagged by EPC players.
  • Largest EPC order was Rs 3,500 cr bagged by BHEL.
  • IPPs and EPC to spend approximately Rs 1 lakh crore on procurement in the next five years.
  • A total of 80,000 km of cable will be required for more than 60 power projects.
  • Around 200 numbers of DG sets with 1,500 kVA range will be procured.
  • Approx 4,500 transformers of various ranges required for power projects.

BTG market on a roll
The BTG market size was $5.1 billion in FY 13 and is expected to reach $11.7 billion in FY 22 in terms of turbines and generator sets. The industry manufactures various turbines worth 800û7,000 MW per annum, and generators ranging from 0.5 KVA to (ones even higher than) 250,00 KVA. Total production of turbines and generators stood at $2.2 billion in FY 12 and is estimated to reach $6.7 billion by FY 22.

It´s transforming
A whole range of power and distribution transformers, including special type of transformers required for furnaces, electric tracts and rectifiers, are manufactured in the country. The transformers market in India was valued at $2.7 billion in FY 11 and is expected to reach $11.1 billion in FY 22. Meanwhile, 32.6 million switchgears and control gears were produced during FY 12. The switchgear market size touched $2 billion in FY12 and is projected to reach $8.2 billion in FY22.

Overall, it is expected that the electrical equipment industry will have immense opportunities with the kind of projects that have been lined up. Moreover, with the government´s ´Make in India´ push, manufacturing activity will soon see a slew of investments in the next couple of years.

How to mitigate supply constraints
To alleviate the supply shortage of equipment, two measures are being adopted û enhancement of domestic equipment manufacturing capability by establishing JVs between Indian and foreign suppliers and a second measure is procuring equipment directly from international markets. In both cases equipment sourcing needs to be managed effectively throughout the procurement cycle. For instance, it may be a challenge for new project owners to select a reliable supplier, monitor performance and ensure the quality of supply on a sustained basis. Also, the timelines for availability of additional domestic equipment supply has not been clearly defined. Rakesh Amol, President -

Infrastructure Business, KEC International Ltd feels that since India envisages stricter environmental norms, players in the air and fuel handling packages will have to move up the technology chain. Players who are at speed in assimilating these technologies shall certainly get a headstart when the sector opens up and new capacities are announced.

Philip Chacko M,
Chief Operating Officer, Talwandi Sabo Power Ltd.

´We will be procuring Rs 40 cr power equipment in FY16´
Since the company is currently undertaking 3X660 MW of thermal power projects, can you please share the procurement requirements of electrical equipment for these projects?
Operation at one unit of TSPL has already commenced and commissioning of the remaining two units is on the verge of completion. At this stage, we have already fulfilled the procurement process of electrical equipment for project phase. Going forward, we would be only be having the operational requirements, which would be procured in a phase-wise manner.

Which are the best procurement practices that the company follows to ensure a transparent process?
Vedanta believes in partnering vendors in growth. We ensure a transparent procurement process through updated IT-enabled systems available like reverse auctions, negotiation through SRM portal and ordering through established ERP systems.

In addition, there are chances that some of the required material may not be available in India in terms of quality as well as quantity.

In such case which equipment will be imported?
Our power plants are based on Chinese technology and have been built by one of the biggest Chinese engineering, procurement, construction (EPC) contractors. While most of the vendors are from China, we will be promoting and developing Indian vendors for the parts through reverse engineering. For the rest of the spares, we shall be depending on vendors from around the globe for meeting requirements.

Can you outline your annual procurement plans for electrical equipment and how much cost will be incurred for the same? Do you see a gradual increase in the requirement from previous financial years?
The expected spend base for procurement of electrical equipment for FY 15-16 will be Rs 30-40 crore. We are not expecting any gradual increase in the requirement from previous years since we believe in optimising such procurement in order to bring down our generation cost.

Is procurement a continuous exercise for Sterlite Energy?
Yes, procurement is a continuous process carried out throughout the year for various requirements of our power plant.

Procurement is a tedious process, so how do you strategise it? Do you procure electrical equipment in advance or as and when required?
As our plant would be operating continuously, we would be doing rigorous planning of the spares requirement. We would also be open to look at vendors who can maintain inventory of equipment/spares for us.

Do you have a vendor registration programme and how do you make sure that vendors adhere to the standardisation that the company has formulated?
We have an online system for registration of vendors. Vendors have to fulfill all requirements set in the vendor registration standards. We have robust internal approval procedures for approving all such vendors.

Do you, every year, re-assess vendors and give a chance to the new players or do you stick to the registered ones? In a year, how many new vendors associate with your company?
We have standard vendor evaluation procedures where we maintain all our registered vendors on an annual basis. We always welcome new vendors who meet our minimum qualification criteria and are able to give us the desired quality in the products.

Requirement of equipments for 660-800 MW Thermal-based Units
Item Requirement
for one unit
(In MW)
Total requirement
60 projects
(40,920 MW)
GT* 260MVA Gen V/120/3kV Three phase bank 3 180
ST 90/45/45 MVA 132/11.5/11.5 kV 1 60
UT 35MVA Gen V/11.5kV 2 120
ICT 200MVA 400/132kV 0 0
Misc. Service Transformer 0 0
20 MVA 132/34.5kV 0 0
Aux. Transformer 11/3.45 kV 4 240
33kV Switchgear 8 480
11 kV Switchgear 68 4080
3.3 kV Switchgear 84 5040
HT Motors 146 8760
LT Motors 1404 84240
LT Transformers 32 1920
LT MCC Panels 350 21000
415 V Switchgear Panel 100 6000
DC Battery 5 300
Battery Charger 7 420
33kV Single Core Cable (km) 3 180
11kV Single Core Cable (km) 21 1260
11kV Multi Core Cable (km) 24 1440
3.3 kV Single Core Cable (km) 8 480
3.3 kV Multi Core Cable (km) 12 720
1.1 kV Power Cable (km) 233 13980
1.1 kV Control Calbe (km) 367 22020
Emergency DG Set 1500KVA* 1 60

Requirements of equipment for 500 MW thermal units
Item Requirement
for one unit
(In MW)
Total requirement
25 projects
(12,260 MW)
GT* 200MVA Gen V/420/3kV Three phase bank 3 75
ST 80/40/40 MVA 132/11.5/11.5 kV 1 25
UT 50MVA Gen V/11.5kV 1 25
ICT 125MVA 400/132kV 0 0
Aux. Transformer 5 125
11 kV Switchgear 63 1575
3.3 kV Switchgear 66 1650
HT Motors 118 2950
LT Motors 1135 28375
LT Transformers 30 750
LT MCC Panels 287 7175
415 V Switchgear Panel 75 1875
DC Battery 4 100
Battery Charger 6 150
11 V Single Core Cable(km) 13 325
11 kV Multi Core Cable (Km) 18 450
3.3 kV Single Core Cable (Km) 12 300
3.3 kV Multi Core Cable (km) 8 200
1.1 kV Power Cable( km) 200 5000
1.1 kV Control Cable (km) 375 9375
Emergency DG Set 1500KVA* 1 25
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