With various developmental projects being launched or on the horizon, the stakeholders POWER TODAY spoke to felt that, the switchgears and control gears segment in the country is poised for hand-in-hand growth with the economy.
India has an installed power capacity of close to 2,50,000 MW and is gearing up to balance the rising domestic demand. Installed power generation capacity targeted for 2017 is around 3,18,400 MW. Despite rapid power capacity additions, the country still faced a peak demand-supply gap of around 8-9 per cent between 2012-13.
The domestic electrical equipment industry has witnessed a decline in demand during the last two years owing to delay in project execution and increasing imports, especially from China and South Korea. Going forward, backed by the planned augmentation of power capacity, the electrical equipment industry is expected to witness increasing demand.
However, with the Government´s decision to tender out transmission projects worth Rs 1 lakh crore and given the huge untapped potential in state-level power distribution, engineering, procurement and construction (EPC) companies are increasingly turning to the transmission and distribution (T&D) sector.
High voltage (HV) equipment is an integral part of the T&D network, and continuously growing energy demand will continue to be the central market driver for transmission equipment, which include transformers and reactive compensation, breaker, protection and control and communication equipment.
Globally, the market for HV equipment is projected to reach over $116 billion by 2020 at a CAGR of 5.6 per cent from 2015-2020.
Also, increasing implementation of smart grid technologies across major countries, replacement and upgrade of aging transmission infrastructure and new capacity additions of generation including renewable - are the key market drivers of the segment.
India one of the key markets for HV equipment along with China, the US, Russia, the UK, and Japan, will together constitute more than 50 per cent of the projected market in the next five years.
Global technology research and advisory company Technavio defines switchgears as a combination of components - switches and circuit breakers - used to control and distribute electric current across end-users.
Used across commercial, residential, infrastructure, T&D, power, and other sectors, switchgears enable continuous transfer of electric current while protecting against current overload, short circuit and insulation failure.
They provide safe isolation from current-driven parts, modify the load-carrying system at each level of installation, provide isolation of circuits from power supplies and can also further be used to enhance system availability by allowing more than one source to feed a load.
While switchgears are divided into three types [low voltage (LV), medium voltage (MV) and HV] based on its load-bearing capacity, the switchgear market in India can be divided into two segments: LV and MV switchgear.
LV switchgears, which account for over 55 per cent of the total market in India, have a higher share of unorganised players and it is anticipated to increase in the coming years. The forward integration of these unorganised players to MV and HV segments can lead to an increase in the unorganised market share in these segments too, which is currently dominated by 5-6 players. [Refer Switchgear Markets: Key Market Characteristics (2010)]
Increased planned capacity addition in the power sector and improvement in technology, along with government directives to replace old redundant machinery is creating a replacement demand in the switchgear segment.
The Indian electrical equipment industry, which comprises of multinationals, large, medium and small players, is fully geared up producing, supplying and exporting a wide variety of electrical equipment including switchgear and control gears needed by the expanding industrial and power sector. (Refer Key Findings)
Powergrid has taken a bold step in considering introduction of 1,200 kV level for inter-regional power transmission. This development should hopefully happen in 2018, necessitating introduction of 1,200 kV circuit breakers as well. Prototypes for this have already been developed by the industry and are under trial at PGCIL´s testing stations at Bina.
According to AS Subramaniyan, Chairman, MV/HV Switchgear Division, IEEMA, the Indian electrical equipment industry is Rs 1.3 lakh crore, of which, the switchgear and control gear industry is about Rs 15,000 crore. But, there is glut of capacity. Demand from industries and power generation is yet to see sufficient buoyancy as the economy´s investment cycle is yet to kick in.
An efficient power supply system is the key ingredient for a country´s economic growth and quality of life; unfortunately, shortage of electricity is currently one of the foremost constraints in ramping up and sustaining our growth momentum.
However, at present, even though India has an installed generating capacity of over 180,000 MW, the peak demand gap has recently increased to about 16 per cent due to coal shortages. With focus on increasing generation capacity over next 8-10 years, the corresponding investment in transmission sector is also expected to increase, in generally equal proportions of Rs 5 crore/MW each for generation and T&D.
India´s industrial sector accounts for about 30 per cent of GDP, with most of the industrial divisions reporting growth in output in the fiscal. An increase in process automation levels supporting push-buttons, contactors, switching and protection relays, finds application extensively for motor control. Investment in new infrastructural setup is set to increase the market for ISGs, RMUs, MCCBs, ACBs and C&Rs. (Refer Key Market Trends)
¨The current technology level in India is contemporary. I think India is on par when it comes to the products and far better than many countries in terms of resource availability,¨ observes Kshitij Batra, Director, Marketing, Partner Projects Business, Schneider Electric India.
¨The switchgear industry in the MV/HV range is very mature in the Indian context. These are not new products of basic research but more as new applications and technology extensions which will gain greater currency,¨ feels Subramaniyan. GIS technologies are quite entrenched in the country at 765 kV, 400 kV, 220 kV, 110 kV voltage levels. Consequent upon the proven improved operational reliability and space economy vis-a-vis AIS, emergence of GIS technologies at 11 kV level is a possibility in the near term.
¨Also, since switchgears co-exists in the network with other smart grid technologies as well, emergence of distribution automation and self-healing grid necessitates integration of intelligent smart grid solutions such as FPI, FRTU, etc. into 11 kV RMU into these products as well; which discoms in Maharashtra, Tamil Nadu and Uttar Pradesh are adopting,¨ he informs.
Speaking on the growing need for connectivity, Dileep Mangsuli, India Engineering Leader, GE Energy Management & Site Leader, HTC Hyderabad and Power Conversion Chennai said, ¨In today´s connected world there is a growing demand for advance information. Customers are not just looking at protection, but are also demanding data for predictive analysis.¨
He outlines some technologically advanced offerings trending in the Indian market as analytics over collected data, prognostics/diagnostics, communication and connectivity, advanced safety and energy management.
Here, speaking about the LV segment specifically, Batra concurs, ¨in LV products, an emerging trend is increased digitalisation and connectivity - wherein the customer wants to have access at all times, from anywhere. They also want value-for-money, which is another front where development is on.¨
¨Schneider has offerings that are fully communicable and can be monitored, controlled, measured and notified from any open protocol/ethernet or even from the smart phone of the user. We have also launched communication capabilities in final solutions like MCB, RCCB, RCDs,¨ he shares.
Besides this, the MCB market is looking at 5-10 per cent growth in the coming years. A rise in demand is expected for RCCB, as people have become alert of risks due to leakage currents, which can cause fire to property and electrical shocks that can endanger lives.
¨Superior technology in MCB, especially for residential landscape such as technology featuring high speed and high breaking capacity mechanism, mid-trip feature, positive contact indication and is also energy-efficient, is also in demand,¨ opines Rajesh Nandwani, Vice President & Business Unit Head, Switchgear, Anchor Electricals, Panasonic Group.
Currently, the MV and HV segments are suffering from overcapacity due to lack of orders. Inadequate demand could be due to insufficient planning by the users and delay in finalising tenders. (Refer Weaknesses and Threats)
Unfortunately bunching of orders also creates supply-delivery problems. Also L1 (lowest quoted price) procurement system followed by all utilities, creates a hurdle for bringing good quality material in the system. Further, insistence on repeated type testing lack of these labs poses additional delays and harm to the equipment. At the moment, the industry needs a level-playing field, especially in the HV/EHV segment. There are many recent tenders of utilities which have been awarded to manufacturers from China/Korea, who are able to quote prices substantially lower by 15 per cent, compared to domestic manufacturers. However, their designs and life cycle support are yet to be proven in India.
¨To give you perspective, orders placed on these manufacturers have grown from Rs 80 crore in 2011 to Rs 450 crore till date. We are open to competition, yet the players have to put in place the local mandatory fundamentals without which the life cycle support to our utilities may be impaired,¨ points out Subramaniyan.
He adds, ¨domestic manufacturers have, over the years, invested heavily in product development, skill development, plants and machineries, and ancillaries with a view to giving quality products and life cycle services to customers, besides generating local employment.¨
Mangsuli brings up another point, ¨the demand for high feature products at an affordable cost is stronger, making it mandatory for manufacturers to produce locally. Also, there are many options for customers and economics of offerings across mid-tier and high-tier segments.¨
To this, Batra adds a new dimension, ¨what we currently lack now is that each person in the value chain should add to the offerings in such a way that the end consumer sees the incremental benefit. If this is done, then I think there can be good growth.¨ Nandwani points to the basics, ¨the overall infrastructure for rural and Tier III and IV towns still needs strengthening and so does the awareness about the switchgear segment in general.¨
The Government has pulled out all the stops to attract investment in this sector and has taken various steps to make it attractive for investors. The Electricity Bill 2003, has provided impetus to the power sector and also catalysed much needed reforms in the SEBs, with many of them turning profitable after unbundling into independent entities and managed as SBUs. (Refer Factors determining the future of the LV and MV Switchgear Market)
CERC and SERC too are playing an important role in regulating the sector. Public Private Partnerships (PPP) are on the increase and SEBs are increasingly opting for turnkey solutions from EPCs.
The Government had also initiated the Accelerated Power Development and Reform Programme (APDRP) in order to minimise aggregate technical and commercial (AT&C) losses at the distribution level, with the objective of improving the financial health of SEBs. This is now on in its second avatar renamed as Restructured Accelerated Power Development and Reform Programme (R-APDRP), correcting the IT and metering side of the distribution.
Equipment demand is expected from the programmes like Deendayal Upadhyaya Gram Jyoti Yojana (erstwhile Rajiv Gandhi Grameen Vidyutikaran Yojana - RGGVY); expansion of generation, T&D networks, ultra mega power projects (UMPPs), nuclear power programme; JVs by public and private sector for manufacture of plant equipment including supercritical 800 MW turbines and boilers; and Balance of Plant (BOP) equipment, which are under progress to help open the bottleneck in power generation.
Renewable/alternative energy initiatives like wind, solar-thermal, biomass, mini/micro hydel, etc. are gathering steam. This scenario presents a huge opportunity to the Indian electrical equipment industry including transformers and switchgears.
Increased investment in alternative energy sources is also expected to support market growth, as LV and MV switchgear products are required for general protection as well as switching. The MCCB and MCB markets are expected to benefit considerably from alternative energy expansion.
Subramaniyan feels that the industry certainly owes compliment to the Government for nurturing these ambitious forward looking endeavours. ¨All these are critical to boosting the growth of our segment and I think that the future here is bullish.¨ In addition, the industry is also awaiting revival of investments generation sector, de-bottlenecking of transmissions and most importantly, improvement of discom finances. Industry corridors formulated by DMICDC, renewable mission of 170 GW by 2022, housing for all, 100 smart cities and AMRUT schemes are stand-out examples. Besides this, generation capacity is also expected to be augmented by around 150,000; the T&D network is set for expansion under the 11th & 12th Five Year Plans (2007-2017), of which more than 60,000 MW is under construction, e.g. the 800-1,200 kV transmission line development.
Expansion of key industries like cement steel petrochemicals, telecom railways, airports, ports, roads, hospitals; coupled with the various replacement and retrofitting programmes and development programmes like smart cities and AMRUT could also be key.
Nandwani adds, ¨With the Government´s thrust on economic and infrastructural development, the market looks determined to bolster growth. The LV switchgear industry is estimated to see a steady growth curve of around Rs 3,500 crore by FY2016, at a diminished CAGR of 10 per cent. The total switchgear industry size would go to Rs 215 billion by FY2017.¨
Continued growth of the residential sector is also likely to drive the MCBs, ELCBs and MCCBs market, which has already clocked a growth of more then 20 per cent over last fiscal. The recently launched revised National Building Code NEC 2011 in line with the latest IEC code, will help improve both electrical and fire safety for the common man.
Power plant modernisation and refurbishment is expected to additionally support growth of the switchgear market. As in other parts of the world, numerous power plants in India are nearing the end of their service plan, thus requiring overhauling and modernisation. This includes replacement of existing transformers, which are on average over 30 years old and the replacement of LV, MV and HV switchgear. Rounds off Batra, ¨all of the government´s growth drives in infrastructure, smart cities, etc. will lead to increased demand for electrical energy and hence growth of the segment, which is directly linked with the economic growth of the country.¨
Here are a few suggestions made by the stakeholders:
- Representation to authorities, through IEEMA, for introducing a condition that manufacturer must set up local footprint to qualify for bidding.
- As with other industries like steel, the Government should consider safeguard duties for the switchgear industry for a period of two years, which allows players sufficient time to establish their long-term commitment to serve Indian customers.
- Continued strengthening of product prescription and enhance customer brand equity.
- High emphasis on the importance of safety through various forums.
- Adoption of the concept of value-based sale proposition of solutions and services to customers.
Key market trends:
- Price & market penetration - key competitive factors
- Products like C&R, MCCB, RMU & CSS are likely to have better market growth rates
- Increased demand for compact and hybrid technologies
- Embedded intelligence and communication enabled switchgear products
- Increased acceptance of electronic releases in circuit breakers
- The switchgear industry is largely depend on financially weak SEBs for sales, but the latter´s condition has increasingly worsened over the years.
- Uncertainty and slow pace of reforms.
- Increasing competition from unorganised sector and Chinese imports. Macroeconomic challenges which constrain public and private funding, and high Interest rates.
- Low investments in R&D, lack of innovation.
- Integration/assimilation of new technologies into development of new products in the sector needs improvement.
- L1 procurement system in utilities, i.e., procuring products at lowest price creates a hurdle for bringing good quality material in the system.
Policy Changes that will impact the market in India:
- De-licensing of electrical equipment sector
- Expansion and modernization of T&D sector
- Significant SEZs have received clearances for the engineering sector
- LV and MV Switchgear market in India to grow at a CAGR of 12.05% over the period 2013-2018.
- The Indian switchgear and control gear industry was valued at Rs 135 billion in FY2013 and has been growing at about 15% for the last three years.
- Production of switchgear/control gear (excl. domestic switches) was valued at around Rs 102 billion in 2012-13.
- Demand for HV and extra HV switchgear and control gear are mainly from power utilities.
- Demand for MV switchgears are accounted for by distribution sector.
- LV switchgears are mainly used in building and construction, telecom, industrial and infrastructure segments.
- Under utilisation of installed capacity.
- Lack of HV switchgear test facilities in the country.
- Increasing competition from unorganised sector in low end/low tech items/imports in LV segment and project imports.
- One sided contracts by the user industries/price variation contracts not accepted by many users.
- Improper procurement planning/bunching of orders.
- Entry of unproven contractors/sub-contractors with minimal technical knowledge.
- Lack of standard specification and design parameters clubbed with increasing trend of customisation is adversely impacting the delivery schedule and taking away benefits of economies of scale.
- The new clause of consequential damages which in short means an organisation supplying an equipment is not only responsible for the supply but also for the damages arising out of the equipment.