Uncertain Times

The global Covid-19 crisis is significantly impacting the economy. The power sector too is feeling the effects of the pandemic, leading to tough times for the boiler, turbine and generator (BTG) industry. The domestic BTG industry was already grappling with the challenge of a shrinking order pipeline from thermal power projects (TPPs) and the pandemic-induced lockdown has exacerbated the situation, contracting demand as well as disrupting manufacturing operations, the supply chain, project execution and labour availability. This is expected to cause a significant decline in revenues, profitability and order guidance for BTG manufacturers as customers (generating companies) limit their capex, owing to the economic contraction. In the near term, only orders for critical equipment/after-sales parts are likely to be finalised/awarded, while large BTG orders may face major delays as gencos evaluate power demand growth.

Market size

The current domestic BTG manufacturing capacity stands at 30 GW, with the state-owned Bharat Heavy Electricals Limited (BHEL) accounting for the largest capacity at 20 GW. The company has a technological collaboration with GE for supercritical boilers and with Siemens for supercritical turbine generators. The other key players in the BTG market are joint ventures (JVs) set up by private companies and global original equipment manufacturers, which have an aggregate capacity of about 9.2 GW for supercritical boilers and 11 GW for supercritical turbine generators. These JVs include L&T-MHPS Boilers Private Limited, Alstom-Bharat Forge, Toshiba-JSW, Doosan Power Systems India, and Thermax-Babcock & Wilcox Energy Solutions.

Owing to the lack of orders, many of these JVs are currently working at 20 per cent capacity utilisation level. The BTG order pipeline has dried up as private players have not announced any new thermal projects, while state/central generation utilities prefer to place orders with the state-owned companies. In 2019-20, THDC India Limited awarded a turbine generator package for its 1,320 MW Khurja coal-based TPP in Uttar Pradesh to BHEL and the boiler package to L&T MHPS. BHEL’s total order book as of March 2020 stood at Rs 1,084.43 billion, of which the power sector accounted for an 86 per cent share, the industry sector for 13 per cent and export projects for the rest. However, BHEL’s order inflows for 2019-20 stood at Rs 238 billion, recording no growth from the previous year’s figures.

Opportunities

While the BTG market for coal-based power plants is shrinking, there are opportunities for equipment providers to cater to the demand of air quality control systems (AQCSs) for TPPs. Owing to the environment ministry’s 2015 notification, flue gas desulphurisation systems (FGDs) are to be deployed by 437 thermal units, aggregating nearly 166 GW, in a phased manner by 2022. Similarly, electrostatic precipitators (ESPs), which help in controlling particulate matter emissions, are to be installed in 220 units, totalling 63.4 GW, by 2022. The deadline for the installation of emission control equipment in captive power plants was June 2020. The compliance status, as of March 2020, is quite poor, with only four units totalling 1,740 MW having commissioned FGDs, just 1 per cent of the targeted capacity. However, tenders have been issued for 113.6 GW of capacity and bids have been awarded for nearly 40 GW.

BHEL is the market leader in the ACQS equipment space. In 2019-20, BHEL secured FGD packages for about 10 GW capacity, boiler modification for about 3 GW capacity and ESP retrofits for about 2 GW of power plants. GE Power is also rapidly expanding its base in the ACQS solutions space. In 2019-20, the company secured contracts for wet FGD systems worth Rs 30 billion. Recently, in July 2020, GE Power secured three contracts for a combined value of Rs 8.5 billion to supply ACQSs to NTPC, Uttar Pradesh Rajya Vidyut Utpadan Nigam Limited and Hindalco Industries Limited.

Recently, thermal power gencos have urged the Ministry of Power (MoP) to extend the deadline for meeting the emission norms by two to three years and the MoP has also sent a recommendation in this regard to the environment ministry. This would augur well for the central government’s vision of a self-reliant India as it would give time to domestic equipment manufacturers to ramp up their capacity to meet the domestic demand. As per the Association of Power Producers, the move would open orders estimated at Rs 480 billion for domestic equipment suppliers including BHEL, L&T, GE, ISGEC and Thermax.

Further, renovation and modernisation (R&M) and subsequent life extension (LE) of coal-based power plants is another area of opportunity for equipment companies. R&M has become especially significant as retrofits are required by the existing plants to meet the demand for increasing flexibilisation and digitalisation. As per the Central Electricity Authority’s (CEA) draft R&M guidelines released in December 2019, new operating regimes are leading to part operation of the plants, which were earlier operating as baseload stations. R&M intervention would, therefore, be needed to improve plant efficiency at part-load operation. A large number of units of 500 MW capacity and above are soon due for R&M/LE works. The flexibilisation of thermal units may require the installation of condition monitoring systems, upgradation of control and instrumentation systems, combustion optimisation, steam/flue gas management systems, condensate throttling, mill schedulers, etc. Further, TPPs may be modified for co-firing with alternative fuels such as biomass or for converting coal-fired plants to biomass-firing power plants. R&M interventions may also be carried out to reduce the water consumption by TPPs.

The CEA also calls for the retirement of old units of a rating of 100 MW or less and operating at very low plant load factors (PLFs) of less than 50 per cent. Larger-sized units can also be considered for retirement, on a case-to-case basis, if their performance is uneconomical. So far, 102 units of 43 TPPs with a capacity of 10,002.88 MW have been retired from April 2014 till March 2020, based on techno-commercial reasons such as age, efficiency and compliance with emission norms, etc. The retirement of the old units may create a demand for setting up of new supercritical units by state utilities, and subsequently lead to equipment opportunities for BTG providers.

Nuclear power is another emerging area for equipment providers as the country moves to increase the share of non-fossil fuel-based sources in the energy mix. There is a pipeline of over 15 GW of nuclear power plants, of which nearly 12 GW will be based on indigenously designed reactors. In 2019-20, BHEL won an erection package for the turbine generator and reactor side equipment for the 2×1,000 MW Kudankulam Units 3 and 4 in Tamil Nadu. Meanwhile, L&T is executing the reactor building contract for the 2×700 MW Kakrapar Atomic Power Project’s Units 3 and 4 in Gujarat.

Issues and challenges

The outlook for the BTG market is directly linked with the thermal power industry, but the latter has been shrinking for quite some time now, with subdued capacity additions and PLFs. During 2019-20, the coal-based capacity addition stood at about 4,430 MW, the lowest in the past 10 years.

The PLF of coal-based capacity has also declined with discoms backing down power due to a lack of demand and to accommodate renewable energy, which has must-run status. Coal-based PLFs have declined from a peak of 73.6 per cent in 2011-12 to 55.98 per cent in 2019-20. The Covid-19 crisis has further worsened the industry’s performance, with PLFs declining to 51.25 per cent in March 2020. According to India Ratings and Research, PLFs could fall below 55 per cent for 2020-21, closer to the technical minimum standards. In addition, discoms’ dues to gencos have spiralled to Rs 1,147 billion as of June 2020, impacting the latter’s payments to coal companies as well as equipment suppliers.

The competition from cheaper equipment exports from China is also of serious concern for BTG suppliers, especially as the order pipeline has shrunk in recent years. For instance, in April 2018, Adani Power awarded the engineering, procurement and construction contract for its upcoming 1,600 MW Godda TPP in Jharkhand to a consortium led by SEPCO III, a subsidiary of POWERCHINA. Similarly, several private projects in India aggregating over 13 GW have awarded equipment contracts to Chinese players over the past decade, although most of these projects are currently facing stress and uncertainty over their commissioning. The MoP’s latest move to ban power equipment imports from China is, therefore, likely to benefit domestic BTG manufacturers. In addition, a productivity-linked incentive scheme involving a phased manufacturing programme is being finalised for certain equipment used in the power sector in India.

The way forward

It is clear that the upcoming opportunities for BTG manufacturers in the coal-based power space are few and far between. At present, tendering is in progress for NTPC’s 2×800 MW Singrauli Super Thermal Power Project Stage III, and 2×800 MW Lara Super Thermal Power Project Stage II; SCCL’s 1×800 MW Adilabad Extension Power Project; and Adani Power’s 2×660 MW Pench Supercritical TPP. Also, BHEL is favourably placed in NTPC’s 2×660 MW Talcher main plant package tender.

In the medium term, the market for ACQS equipment and retrofits for flexibilisation of TPPs is expected to provide significant business to BTG equipment suppliers. At present, tenders for FGD for around 34 GW, mostly from government utilities, are at an advanced stage. Besides, geographical diversification can help these companies reap benefits, especially as the neighbouring countries in South Asia such as Bangladesh are actively looking to increase their generation capacity.

Given the uncertainty looming in the power sector, diversification of business areas can help BTG companies, which have been traditionally focused on thermal power. BHEL, for instance, is focusing on transforming from a power sector company into a global engineering company, diversifying  its business into areas such as defence, railways and aerospace. Recently, BHEL also released an expression of interest inviting global companies to leverage its facilities and capabilities, and shift their production base to India. The company has received over 50 proposals for partnerships from foreign firms across sectors such as defence, aerospace, railways and contract manufacturing.

Net, net, BTG manufacturers are facing headwinds in the current Covid times. However, by realigning their focus areas, they could ride out the storm and, indeed, turn adversity into opportunity.

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