The power sector has seen a number of reforms in the past one year, but the results are yet to translate into growth figures for the capital goods industry. According to industry estimates, the capital goods industry contracted by 2.9 per cent in 2015-16 as against a growth of 6.3 per cent registered in 2014-15.
The boiler, turbine and generator (BTG) industry in particular, has seen challenging times owing to subdued demand from the power sector, with very few orders being finalised. Due to the weak fiscal health of discoms, there is a poor offtake of power, resulting in the existing power projects operating at plant load factors of around 60 per cent. As a result, the private sector interest in greenfield capacity has significantly declined. Only state and central sector gencos are investing in new projects. This has pushed the boiler market into a sluggish phase.
Power Line takes a look at the key trends in the boiler industry, ordering scenario, new technology developments as well as issues and challenges faced…
Ordering scenario and industry overview
As per industry observers, during the past year, boiler orders for a generation capacity of around 8,000 MW to 10,000 MW were finalised on a standalone as well as engineering, procurement and construction basis. However, similar to the previous year trends, these orders came from the central and state sector companies. There were no orders finalised by the private sector.
Technology-wise, the majority of the orders that were placed in the previous year for coal-based projects were for supercritical and ultra supercritical technologies with a unit size of 660 MW, 800 MW and 1,000 MW. Meanwhile, for lignite-based plants, orders for tower-type design based boilers were placed, owing to the high moisture content in lignite.
In terms of the current market landscape, Bharat Heavy Electricals Limited (BHEL) continues to hold the majority share in the market (in terms of manufacturing capacity) with an installed manufacturing capacity of about 20,000 MW annually. The other key players in the market include L&T-MHPS Boilers Private Limited (with a capacity of 4,000 MW), Doosan Power Systems India (3,000 MW), Thermax-Babcock & Wilcox Energy Solutions (3,000 MW) and ISGEC Heavy Engineering.
BHEL secured orders for Rs 385.29 billion in the power sector in 2015-16, marking a year-on-year increase of around 50 per cent over Rs 248.73 billion in the previous year. Meanwhile, between 2010-11 and 2015-16, the company’s order book has declined at a compound annual growth rate (CAGR) of 3.65 per cent from Rs 463.93 billion. Further, in MW terms, the company’s order book stood at 9,221 MW in 2015-16, as compared to 5,256 MW in 2014-15 and 15,071 MW in 2010-11.
In the past twelve months, BHEL received orders for around 5,800 MW of capacity. These include two orders aggregating Rs 91 billion from Tamil Nadu Generation and Distribution Corporation (TANGEDCO) for the supply of the main package for the 1,600 MW Uppur supercritical thermal power plant (Rs 56 billion contract) and the 800 MW North Chennai supercritical thermal power station (Rs 27.59 billion contract); a Rs 35 billion contract from NTPC Limited for the supply of steam generators (boilers) for the 1,600 MW Telangana Super Thermal Power Project; two order of Rs 23.07 million each from Andhra Pradesh Power Generation Corporation (APGENCO) for the supply and commissioning of BTG and other auxiliaries for a 800 MW unit at the Dr Narla Tata Rao TPS Stage V and the Sri Damodaram Sanjeevaiah TPS Stage II, and a Rs 16 billion from NSPCL for setting up a 250 MW unit at the Rourkela TPP Stage III.
Technology trends
One of the key trends in boiler industry is the growing uptake of boilers with environment-friendly designs. This has largely been driven by the new emission norms by the Ministry of Environment, Forest and Climate Change notified in December 2015, mandating significant reductions in emission of PM10 (particulate matter), sulphur dioxide and nitrogen oxide from the existing levels. All the new TPPs are mandated to comply with these emission norms by January 2017.
One of the ways that boiler manufacturers are working towards the reduction in NOx emissions is through offerings such as pulverised coal-based boilers, with features like low NOx burners, over-fire air systems and selective catalytic reduction technology (SCR) in the market. (For boilers already in operation, the emission norms are quite relaxed. Hence, the use of selective non-catalytic reduction technology (SNCR) is sufficient to limit NOx emissions to the acceptable levels, according to boiler manufacturers.)
Further, there is a growing uptake of larger-sized circulating fluid bed (CFB) boilers due to their inherent low NOx emission capabilities.
However, going forward, in order to reduce the capex and opex requirements, one of the new technologies which is expected to be a game changer would be advanced or hybrid SCR. This technology encompasses the layering of commercially available technologies to provide high NOx removal efficiencies at a fraction of the capital cost of a stand-alone SCR.
For reducing SOx emissions, CFB boilers are being deployed by power plant owners. For SOx emission reduction from pulverised coal-fired boilers, one of the key solutions being offered by manufacturers is the addition of a separate flue gas desulphurisation system in the flue gas stream.
For improving the efficiency of boilers, some of the design features that are being used by manufacturers are the use of combustion systems with reduced excess air as well as modifications to minimise the flue gas temperature at boiler outlet.
Issues and challenges
The slowdown in thermal capacity addition is one of the key factors leading to subdued ordering status for the power sector. Although state and central utilities are setting up new TPPs, the private sector investments remain muted.
“For the next two to three years, the private sector is unlikely to invest in a major way. No new TPPs have recorded financial closures in the recent past. Another challenge is the increased capex requirement for meeting the latest emission norms, with no assurance to developers to get compensation for the increased tariff”, comments a senior official from a leading boiler manufacturer.
According to industry estimates, the total costs of upgrading all thermal power plants to meet the new norms would be close to Rs 2,500 billion or around Rs 12.5 million-Rs 15 million per MW. The resultant tariff increase would be about Re 0.50-Rs 1.25 per unit. Further, the government’s focus on setting up renewable energy capacity in the country has shifted the focus to green power by the developers in the power sector.
Outlook
On the whole, boiler manufacturers are facing low capacity utilisation due to a lack of fresh orders. With no new orders in sight, the manufacturers are quoting aggressive price levels to secure business at hand.
In the near to medium term, the over-capacity situation is expected to continue in the boiler market and no new investment is expected in the expansion of the manufacturing facilities.
In the longer term, however, the outlook for the power sector is expected to improve on the back of measures such as fuel reforms, replacement and retrofitting of TPPs that are more than 25 years old, as well as growing power demand with the successful implementation of the Ujwal Discom Assurance Yojana. These measures would help with de-bottlenecking of the power sector and result in growth drivers for coal-based capacity addition and subsequently improved prospects for the boiler industry.