The growth of the power equipment industry has been weighed down by multiple challenges such as low capacity utilisation, stressed assets and delayed projects. However, there are a number of growth opportunities as well, triggered by the Make in India initiative, demand for emission control solutions by gencos, thrust to renewable energy infrastructure expansion and rural electrification, etc. Leading equipment manufacturers express their views on the current state and the future outlook for the industry…
What have been the most noteworthy achievements of the power sector in the past one year?
The power sector has been witnessing a major turnaround, driven by the policies and initiatives taken by the government. Not only is the country power surplus today, but there is also an increase in conventional/coal-based power capacity. With clean energy gaining prominence, the sector has witnessed a significant achievement in renewable energy generation. Renewables have become a dominant source of capacity addition in the past couple of years. The major growth in solar energy is characterised by the record low tariffs.
There has also been a substantial increase in transmission capacity. Flagship government schemes like the Unnat Jyoti by Affordable LEDs for All (UJALA) and rural electrification under the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and the Ujwal Discom Assurance Yojana (UDAY) have been acclaimed. Under the DDUGJY, more than 13,123 of the 18,441 villages have been electrified, while the distribution of LED bulbs under UJALA has resulted in savings of crores per year in consumers’ electricity bills.
UDAY, which is aimed at the financial transformation of the utilities, can prove to be a turning point. Effective implementation of this scheme by the utilities will help achieve real transformation at the ground level.
India currently has an installed capacity of around 330.3 GW, and is the third largest producer and the fourth largest consumer of electricity in the world. The country has around 371,878 ckt. km of installed transmission lines, with about 26,300 ckt. km added during 2016-17. During the same period, 81,816 MVA of transformation capacity was added. Large investments by the government in network interconnectivity, including substantial outlays by the state sector for expanding the intra-state transmission infrastructure, as well as Power Grid Corporation of India Limited’s (Powergrid) annual capital outlay have contributed to this growth.
These developments, combined with UDAY, which has helped improve the liquidity position of discoms in several states, the government’s mission of One Nation, One Grid, One Price, and the electrification of over 13,500 villages under the Power for All initiative bode well for the sector. There is also an increased focus on renewables, with key policy developments and initiatives that are driving the market on to a higher growth trajectory. As part of the National Solar Mission, India is targeting the installation of 100 GW by 2022, of which ground-mounted solar will comprise 60 GW and the rest will come from rooftop projects. Significant investments by both the central and the state governments are driving this initiative further.
The power sector continues to transform and grow steadily. It is migrating to higher transmission voltages of up to 1,200 kV, the industry is witnessing close public-private collaborations, and various mechanised and technological interventions are helping enhance the capabilities of engineering, procurement and construction (EPC) players. Companies have begun to use light detection and ranging (LiDAR) and drones to conduct aerial surveys and string power conductors, heli-cranes for erection, micro-pile foundations, special tower designs, etc.
Today, adequate power is available in the country to meet consumers’ power demand. The reforms in the sector are being recognised across the globe. From 99th position in the global electricity accessibility rankings in 2014, India has today come up many notches to occupy the 26th spot. The largest contributor to India’s power reforms story is UDAY for the turnaround of the state distribution entities, which were considered the weakest link in the power sector chain. The scheme has been so designed as to tackle the root of the sector’s problems – the inefficient operation of distribution companies. Every aspect of the power sector’s performance is now available on a mobile phone, through various apps developed by the ministry. This is a major improvement in a sector known for its bureaucratic and opaque functioning.
The growth in the sector was aided by simultaneous reforms on the rural front under the government’s flagship programme to provide electricity to all villages. The energy efficiency drive saw the distribution of nearly 230 million LED bulbs by the government, along with 330 million by private companies, a move that resulted in savings of over Rs 200 billion per year in consumers’ electricity bills.
Electrical equipment manufacturing technology is witnessing significant modernisation. Technological advancements like smart grids and policies on emission reduction are influencing the future of the power sector and the electrical equipment industry.
The resolve shown by the government to put policies into practice is demonstrated by the accomplishment of multiple initiatives like 24×7 affordable clean Power for All. The government has demonstrated its commitment to realising its vision of a new India by making considerable progress in focusing on the three crucial pillars of energy infrastructure – energy security through efficient generation; clean energy through contribution from new and renewable sources; and access to energy for all by reinforcing the transmission and distribution (T&D) network.
Toshiba is a market leader with expertise in end-to-end energy management systems and solutions, including power generation, transmission, distribution and storage. Toshiba is helping India augment its energy infrastructure by providing high quality products and solutions for efficient and cleaner power generation with a minimal carbon footprint, efficient T&D, and optimal energy storage solutions to ensure uninterrupted power supply to even remote regions.
Under its Make in India vision, Toshiba established India as its global manufacturing base and export hub long before the government’s initiative. In line with this strategy, the Toshiba Group is on track with Rs 30 billion of investment in India since 2013 and employs over 9,000 people in the country today. Toshiba has multiple manufacturing and marketing bases in India for high quality power generation, high efficiency T&D, and long-lasting energy storage systems.
To manufacture and market supercritical steam turbine generators for thermal power plants in India, Toshiba set up a manufacturing facility in Chennai called Toshiba JSW Power Systems (TJPS). Achieving a significant milestone in our Make in India endeavour, the TJPS factory has already shipped its first large-scale generation system, manufactured and assembled with locally procured parts and systems, and tested in India.
Tapping the T&D business in the country, Toshiba Corporation established Toshiba Transmission and Distribution Systems (India) in 2013 in Hyderabad. Toshiba further reinforced its T&D business in the country by boosting the existing production capacity and introducing new manufacturing lines for launching technologically advanced products. With its Make in India strategy, Toshiba will contribute to the development of the power sector with its experience, expertise and technology innovation, for the next India.
We have seen progress on multiple fronts in the past one year. Capacity addition exceeded 20 GW, of which coal-based power accounted for about 7 GW. Renewables’ share in capacity addition exceeded 50 per cent, aided largely by policy drivers in the solar and wind segments. The solar segment added 5.5 GW against a target of 12 GW, while the wind segment exceeded its target of 4 GW by adding 5.4 GW.
Owing to increased power availability and reduced demand, power deficits reduced, both in terms of peak demand and energy.
There was an improvement in the performance of the state discoms through UDAY. As of 2016-17, 26 states and one union territory (UT) had joined the scheme and saved nearly Rs 120 billion in interest costs. In the states/UTs participating in UDAY, the gap between the average cost of supply and the average revenue realised came down by nearly 14 paise per unit, while aggregate technical and commercial losses reduced by nearly 1 per cent in 2016-17.
Rural electrification saw progress via the DDUGJY. About 6,000 villages were electrified, thus achieving more than 70 per cent of the target.
Another major achievement was the finalisation of the India-Japan civil nuclear deal. This will enable Japan to export nuclear power plant technology, provide finance for nuclear power plants in India, assist in nuclear waste management and undertake the joint manufacture of nuclear power plant components under the Make in India initiative. Further, the government accorded administrative approval and financial sanction for the construction of 10 indigenous 700 MW pressurised heavy water reactors (PHWRs). India has mastered the PHWR technology and Nuclear Power Corporation of India Limited has a track record of safely operating these reactors. Larsen & Toubro (L&T) has signed an agreement with Westinghouse and Areva to manufacture nuclear reactors and other critical components, and is prepared to execute the projects on an EPC basis.
What are the biggest unresolved issues and challenges in the power sector and the strategies needed to address them?
Climate change, reducing the carbon footprint and moving towards cleaner renewable sources of energy are some of the most glaring challenges in the power sector. Around 40 per cent of global emissions could be prevented through energy efficiency measures. The building industry accounts for almost one-third of the global greenhouse gas emissions. Therefore, efforts to reduce energy use in homes and commercial set-ups will be really beneficial in lowering our global carbon footprint. Sustainability and energy efficiency must be embraced by all verticals.
Digitisation helps in addressing these issues by improving energy efficiency through automation. Renewable energy has seen rapid growth in capacity addition in recent times and the momentum is likely to continue as tariffs drop. Smart grid solutions powered by digital technologies are a key area of focus and enable greater real-time management and integration of renewables. The development of microgrid solutions (and decentralised renewable energies) is also fundamentally changing the architecture of power distribution.
We are hopeful that adequate infrastructure development, along with the latest technological interventions, will result in improved efficiency and supply of quality power.
The industry is faced with several issues that hinder smooth and timely execution of projects. Challenges pertaining to right of way, land acquisition, environmental and forest clearances, and non-readiness of end-users (like power plants) impact project completion timelines. This puts an additional burden on EPC contractors by way of time and cost overruns and mobilisation issues.
The government is cognisant of these issues and is working towards resolving them. Some progress is visible by way of amendments to ease environmental clearances and enhance the compensation levels for land acquisition. However, there is a strong need to address ground-level challenges.
The biggest unresolved issues are intensified competition due to the increased number of new players/joint ventures in the private sector for supercritical boilers and turbine generators, thereby affecting price realisation and impacting margins. There is also a lack of a level playing field, including infrastructure bottlenecks suffered by the domestic industry vis-à-vis foreign suppliers/manufacturers. The industry is also facing problems due to undesirable imports.
A significant amount of imports are coming in from China with which our relationship is less than cordial. At present, the Indian electrical equipment industry is sitting on an estimated 40 per cent underutilised capacity and can easily meet the demand without imports from China. The government has been aggressively using various trade defence action measures to provide a levelplaying field to the Indian industry. However, it must regularly check whether such imports are taking place due to unfair trade practices.
Another important challenge is finding a practical alternative to L1 public procurement, which takes into consideration life cycle and ownership costs. Also, the L1 public procurement method is being exploited by the neighbouring country to push substandard products into our country.
For the first time, India became a net exporter of electricity in 2016-17 and through reforms, its position in the World Bank’s “Ease of Getting Electricity” ranking rose from 99 in 2015 to 26 in 2017. And yet, about 45 million rural households are still to get connected to the grid. To ensure power in not just every village but every home, the government has set a target to electrify every household by 2022. The biggest challenge remains grid connectivity and stability of power due to worn-out, outdated or limited T&D networks. To overcome this gargantuan challenge, the country requires a robust T&D network and efficient energy storage solutions for accumulating and distributing surplus power, especially in remote areas.
With worldwide experience and extensive know-how in the energy T&D domain, Toshiba has established itself as a leading supplier of power T&D systems, and can contribute to India’s vision of delivering uninterrupted electricity to homes, commercial facilities and other users. In line with our Make in India strategy, we established Toshiba Transmission & Distribution Systems (India) (TTDI) in 2013 with 20 billion yen (about $200 million). Spread over an area of 640,000 square metres, TTDI’s manufacturing facility at Rudraram in Telangana is a state-of-the-art global manufacturing hub of the parent company, with a workforce of more than 5,000.
Since the establishment of TTDI, we have proceeded with the technical transfer of Toshiba’s key products, and we have added gas-insulated switchgear (GIS) and solid-insulated switchgear (SIS) to our product line-up and have started to manufacture them. We have further consolidated our T&D business through full-scale operations and provide cost-competitive products by localising procurement, design and manufacturing within the country. In our endeavour to improve quality and productivity through technology transfers from Japan and continuous Kaizen (improvement) activity, we have manufactured amorphous core distribution transformers that can limit transmission losses at a low load factor, contributing to efficient power transmission.
TTDI has secured a leadership position in India’s distribution transformer segment and we have reinforced our power businesses in the country to cater to both domestic demand and the export market. In line with our Export from India commitment, we have boosted our production capacity for transformers by 50 per cent by setting up a new manufacturing line for ultra high voltage transformers up to 1,200 kV, and improving the manufacturing and operational efficiency of distribution transformers. In the field of switchgears too, we have established a new line for the production of GIS and SIS.
The solar segment is a thrust area for the government. TTDI, being one of the largest manufacturers of transformers (in terms of range and capacity), has positioned itself to address the challenges in this segment for inverter duty transformers (in terms of capacity) to cater to short-term delivery projects and higher capacity transformers. The technology adopted by TTDI for solar inverter duty transformers addresses the harmonics and surges created by the inverters. TTDI has been offering energy-efficient transformers and promoting the alternative aluminium winding technology, as against conventional copper wound transformers, as they are cost-effective and highly reliable in solar grids.
The fundamental challenge in thermal power is low manufacturing capacity utilisation. Supercritical projects of 6 GW were ordered in 2016-17 against the annual domestic manufacturing capacity of around 25 GW. Demand from energy-intensive sectors like cement and steel is expected to revive slowly. Till such time, coal power plant PLFs are likely to be stagnant at around 60 per cent. The replacement of old, inefficient plants would be useful in the utilisation of the installed boiler, turbine and generator manufacturing capacity, especially for players that can arrange funds for these replacement orders.
Another challenge is the stressed thermal power projects of around 30 GW of capacity. The reasons for stress include fuel shortages, lack of power purchase agreements (PPAs) and funding constraints. The government is formulating a scheme to revive these projects, wherein lenders can take over these projects for completion. The government can provide support by ensuring fuel linkages and modifying the PPA terms to encourage discoms to enter into medium- or long-term PPAs.
The ambitious capacity addition plans for renewables, especially 100 GW for solar by 2022, are likely to be hampered by challenges in integrating this energy into the grid and due to inadequate domestic manufacturing. The grid integration issue is proposed to be addressed by the Green Energy Corridors (GEC) project. Domestic manufacturing inadequacy has led to a high influx of cheap Chinese imports for more than 80 per cent capacity requirements. Ongoing anti-dumping investigations and the recently announced quality control standards by the Bureau of Indian Standards are likely to have an impact. A policy for domestic solar manufacturing is also being considered.
Water scarcity is an impediment to sustained hydro and coal plant operations. The result has been temporary plant shutdowns, running into three months in extreme cases. Air-cooled condensers have formed a part of the scope for a recently tendered project, which, if used in future tenders, could resolve this issue to some extent.
What will be some of the major avenues for growth for the equipment industry in the next few years?
The electrical equipment industry is expected to grow more than double in size over the next 10 years, to keep pace with the country’s economic growth and meet its ever-growing energy and electricity demands.
It is estimated that by 2022, India’s installed capacity will reach 350 GW from 243 GW in 2014 owing to increasing industrialisation and economic development. The total market size of electrical machinery in India is anticipated to reach $100 billion by 2022 from $24 billion in 2013. The rising standard of living has contributed to the increasing per capita consumption of power, leading to the growth of the industry.
Several factors such as heightened domestic demand and exports of transformers, cables, conductors and insulators have resulted in sector growth. For many large EPC players, such as KEC, nearly 50 per cent of revenues come from transmission exports to regions such as Africa, the Middle East and the Far East. In addition, various government infrastructure initiatives such as the GEC, 100 per cent electrification, HVDC lines and increased focus on renewables will fuel growth in the equipment industry. Furthermore, the government’s plan to set up the Electrical Equipment Skill Development Council, which will identify the critical manufacturing skills required for the electrical machinery industry, is set to give a boost to the sector.
India is firmly set on a path of economic growth, which will be built on the back of significant transformations, the primary ones being infrastructure build-out, energy availability and sustainability. The Make in India programme has placed the country on the world map as a manufacturing hub and gives global recognition to the Indian economy. India is expected to become the fifth largest manufacturing country in the world by the end of 2020. The government has set an ambitious target of increasing the contribution of manufacturing output to 25 per cent of GDP by 2025, from the current 16 per cent. The manufacturing sector has the potential to touch $1 trillion by 2025. There is potential for the sector to account for 25-30 per cent of the country’s GDP and create up to 90 million domestic jobs by 2025.
One of the major focus areas for the government in the domestic market will be to ensure optimal utilisation of the installed capacity, which would require periodic checks and maintenance, along with repair and replacement of worn-out parts and equipment. Alongside, major growth opportunities will arise from the export market. India has established itself as a global manufacturing hub, with access to a skilled workforce, a competent manufacturing ecosystem and special economic zones that foster a conducive business environment. Its unique geographical location also makes India a preferred gateway to the ASEAN, Africa and Middle East energy markets. To cater to the export market, Toshiba has already established India as its manufacturing hub for its energy businesses. TTDI, with its end-to-end manufacturing infrastructure ranging from product assembly to fabrication, oil purification and conductors, manufactures most of the parts and materials in its own factory, which makes our products cost-effective with greater quality control and ensuring quick delivery. Our endeavour to manufacture and supply superior quality products made in India has resulted in securing many overseas orders from 40 countries. TTDI has also signed an MoU with Kenya Power to help curb T&D losses in Kenya’s national grid.
By manufacturing and supplying eco-friendly, world-class and innovative products, we will export to global markets and contribute to the growth of industries for the next India.
A key growth driver for the equipment industry will be the installation of air quality control (AQC) equipment to meet the Ministry of Environment, Forest and Climate Change (MoEFCC) emission norms. Issued in December 2015, these norms mandate AQC equipment installation – flue gas desulphurisation (FGD) and selective catalytic reduction (SCR).
In line with the MoEFCC norms, the Central Electricity Authority has finalised an FGD retrofit plan for around 122 GW, to be implemented in a phased manner by 2023. In addition, approximately 45 GW of under-construction plants need to install FGD systems before their commercial operation. To this end, NTPC has recently brought out a bulk FGD tender for about 25 GW of projects. SCR installation may not be required in older units, but is being mandated for new plants by developers as part of the boiler package.
Major growth avenues for equipment like supercritical turbines and boilers are in the replacement market and stressed projects. It has been estimated that plants having around 40 GW of capacity would not be able to meet the environmental norms and, therefore, an in-principle decision has been taken to replace them.