The Covid-19 outbreak has had a far-reaching impact on the power sector. Equipment manufacturers were among the worst hit as pandemic-induced lockdowns disrupted the supply of critical raw materials and components, and social distancing guidelines hampered the availability of manual labour. Besides, the liquidity crisis faced by discoms had trickle-down effects on manufacturers. Leading equipment manufacturers comment on the impact of coronavirus on the sector and the outlook in the post-Covid scenario…
What has been the impact of Covid-19 on the power sector and equipment supply chains?
Latish Babu, Director, Power & Grid Segment, Schneider Electric India
The pandemic has had a distressing impact on most businesses and the Indian power sector, which is usually resilient, witnessed a decline in peak consumption, which dipped more than 25 per cent in April 2020 and around 14 per cent in May 2020. The medium- and long-term energy consumption/power demand growth is likely to be tepid till the economy regains the pre-Covid-19 activity levels.
In terms of power supply, fuel and plant availability were not constrained as electricity supply remained an essential service. However, raw material availability, especially solar PV modules and capital equipment, was impacted in the short term due to supply chain disruption. The sector also witnessed green recovery as coal consumption reduced by 6 per cent, and renewables turned out to be a resilient financial asset as compared to conventional generation during the crisis.
Amid the pandemic, digital transformation has become more urgent. Players with a substantial level of automation have been less affected by the pandemic. In addition to helping minimise costs, digitalisation provides opportunities to develop new business models that allow greater control and encourage new ways of working. Since the power sector is a part of essential services, many power equipment manufacturers maintained continued operations. However, on the power generation side, under-construction projects dependent on imports have been impacted due to disruptions in the supply chain.
Gerd Deusser, CEO, Energy, Siemens Limited, India
Power is one of the most essential drivers of growth in India. Covid-19 has had an impact on the sector, particularly in the reduction of demand and disruptions to the power supply chain. During the lockdown, as a result of economic activities coming to a halt (barring essential services), power generation had to be adjusted to compensate for the reduced consumption. Another key concern in the sector has been the health of the distribution companies, which took a hit. Although the pandemic has created an unprecedented set of challenges for the entire power sector value chain, the industry’s response has been quite resilient and praiseworthy. Innovative ways to sustain and create demand, use of and investment in automation to ramp up production, export of power, and energy efficiency measures have been the key focus areas of the industry. Government interventions have also been critical for recovery in the past few months. There is a real need to address the new challenges through the right use of technology and the corrective policies and reforms being implemented by the government. We also need to realise the untapped potential of our power generation and delivery ecosystem in the future.
B.C. Mahesh, Executive Vice President & Business Head, Power Business, Thermax
The thermal power sector in India was already suffering due to low utilisation levels, stagnant demand and weak balance sheets. Covid-19 has further dampened the demand as most of the industries are operating below pre-Covid load levels, except for those classified under essential services. The low demand has increased the cost of generation for many units, adding to the stress of the power sector. The health of transmission and distribution companies is expected to deteriorate further due to increased AT&C losses, and waivers and deferrals in electricity bills announced by states.
In the captive power space, customers have delayed decision-making with regard to new projects that are at early stages of development, whereas projects in advanced stages, especially those based on waste heat recovery, have started progressing from the second quarter (July 2020) onwards. With the private sector focused on conserving cash, demand is expected to be driven by government spending in sectors like refineries and infrastructure.
As far as projects under execution are concerned, all activities came to a grinding halt initially, with customers taking a pause to evaluate the extent of risk and the impact of the lockdown and other restrictions. After six weeks of lockdown, the situation slowly eased and most of the ongoing projects have now restarted execution. However, execution has suffered due to frequent lockdowns, non-availability of labour and cash flow issues. The pandemic also affected the supply chain, especially the MSME sector, but now it is slowly getting back on track. However, some MSMEs were in deep financial trouble and we had to reassess and re-establish the supply chain to ensure the proper execution of ongoing projects.
Anil Saboo, President, IEEMA
The current Covid-19 situation has completely changed the global supply chain scenario and created an opportunity to grow local manufacturing and industries. The industry is also ready to grasp the opportunity. A lot of policy changes have been made by the government to promote local manufacturing, such as proposed amendments to the tariff policy with tariff rationalisation and the promotion of a competitive market for power procurement by industries, standardisation of the definition of MSME, and an initiative to replace the L1 criterion for procurement.
However, there are still a few further steps required, such as augmenting domestic testing facilities to cover the type testing of all equipment; mandating type testing of imported small equipment in Indian labs; supporting SMEs in technology upgradation and testing; standardising product ratings and specifications; and keeping a provision for type testing of small equipment picked up from site.
The government also needs to support the industry by providing funds at globally competitive rates of interest. Further, it needs to help the industry establish clusters of electrical and component manufacturers and provide them funds for technology upgradation.
Subramanian Sarma, Whole-Time Director & Sr. Executive Vice President (Energy), L&T
The power sector is one of the sectors affected due to the Covid-19 crisis. The decline in power demand owing to a slump in commercial and industrial activity has increased the stress on discoms and led to a slowdown in fresh capital investments. Like other industries, the power sector also witnessed issues due to the return of migrant workers to their home states, which disrupted the construction sites and affected the manufacturing operations of several MSMEs. This situation was further exacerbated by restrictions in transportation during the period, impacting the supply chain.
However, we are now seeing signs of recovery as India is slowly easing the lockdown and economic activity is picking up pace. We are hopeful that the government will push public sector developers to expedite their investments to keep the economic activities in the power sector running.
What has been the industry response to the pandemic?
This current situation has made all of us undergo accelerated learning, understanding the new normal, managing actions and ensuring smooth operations remotely. Most of us realised the importance of leveraging digital infrastructure, remote operation and most of all, ensuring positive outcomes. We are prepared for the new normal, and for most of us, this was more like an opportunity to test our design, capabilities and how well we can sustain in these difficult times.
More importantly, we also realised the strength of our talents (human assets). They are the ones who could recover the supply chain reasonably fast, and in the power sector they have been ensuring that consumers get power supply despite the multiple constraints.
In addition to government directives, organisations across sectors have come together to minimise the impact of Covid-19 on employees at offices, factories and sites by developing and strictly adhering to various standard operating procedures. Further, organisations have invested in creating a safe working environment for the essential staff through various sanitisation measures, PPE kits, transportation and quarantine facilities, etc. Due to restrictions and risks associated with travel, industries have found innovative ways and means to collaborate with customers, suppliers and other stakeholders by using various digital platforms. Employee safety is given the utmost priority. For example, Thermax has commissioned a large capacity boiler for a customer in Egypt through remote support.
Covid-19 has also triggered the acceleration of digitalisation efforts to adapt to the new normal. Most companies have adopted the work-from-home model by leveraging technology and are delivering almost similar levels of output as before. Over a period of time, organisations have come to believe that we need to learn to live with the pandemic and have developed operating models and processes accordingly. The focus has also sharply shifted to conserving cash and reducing operating costs so as to lower the break-even level. Maintaining the cash flow has become the new mantra for conducting business at all stages.
This pandemic gives us an opportunity to launch aggressive, forward-thinking and long-term strategies leading to a diversified, secure and reliable energy system that will ultimately support future growth in a sustainable and equitable way. The recovery in the energy sector is expected to follow that of the overall economy. Kick-starting economic activity will depend on the effective containment of the virus and the availability of a vaccine for the general public. The fortunes of the energy sector will also be determined by certain factors native to players in this sector.
The industry has responded to the challenges posed by the pandemic with reasonable resilience. Digital technologies have gained currency and the industry has started to successfully deploy them in many areas. Meetings over a web platform, remote inspection, digital approval of documents, etc., which were practised in a limited manner prior to the pandemic, have become the new normal. At L&T, we have gone a step ahead with the remote commissioning of critical systems using digital tools in our gas and coal power projects.
The traditional construction industry has also widely adopted digitalisation and automation in a bid to improve productivity and quality. Innovations are also helping in catering to the Covid norms of social distancing at sites and maintaining safe work environments. These transformations are surely expected to benefit the industry in the long run.
On the financial front, “cash is king” was best realised during this pandemic. We have received support from all our stakeholders for managing the cash flow and we have provided the required support to our vendors and subcontractors as well. Being responsible corporates, we also provided all medical and other essential services to the labour during the pandemic.
What is the outlook for the sector?
Due to extensive efforts made by the government to improve electricity access in the country, the Indian power sector is witnessing an expansion in the share of renewable energy sources in the power generation overall energy mix. Further, 100 per cent FDI has been allowed under the automatic route in the power and renewable energy sector.
The ongoing energy transformation of the country, with a switch to clean renewable energy, is palpable. The government’s efforts are aimed at rapidly infusing renewables into the system. An increase in technology adoption and implementation is also needed. India’s present renewable energy (solar and wind) capacity is 74 GW, and the country has set an ambitious target of reaching 175 GW by 2022. Other major initiatives include the installation of smart meters and incentives for tariff rationalisation under the UDAY 2.0/ADITYA and other schemes.
It is important that production gets back to higher levels to enable the industry to produce and invest in expansion. This will boost demand and thus help power consumption to return to pre-Covid-19 levels. In this scenario, both the baseload expansion of thermal power and the implementation of renewables will continue. We see an increased focus on round-the-clock power requirements, where a combination of renewables with storage comes close to the costs of thermal. The increased use of digital solutions to improve the efficiency and performance of existing and new plants will not only support the needed grid stabilisation but will also help decarbonise the assets of power utilities and industrial operators. In addition, the power sector needs solutions to minimise AT&C losses, and digitalisation and a smart grid to boost the market for electrification.
The government’s reforms for the power sector should also help improve state-level transmission networks, driving modernisation and upgradation of distribution grids. Further enhancements and policies are expected to contribute to the achievement of the decarbonisation goals set by the government; for instance, sector coupling or power-to-x, involving further flexible storage capabilities and hydrogen technologies, could emerge as critical innovation areas.
Given the current circumstances, we believe that it may take a while for the situation to return to the pre-Covid scenario, especially in capex-intensive sectors like power. Having said that, many private sector projects, specifically in the cement, sponge iron, food, pharma and chemical industries, have gathered steam. On the solar energy front, there is lower capacity addition due to sustained weak power demand and constraints in debt financing.
Our industry needs to innovate and upgrade its technological prowess. Whether it is forecasting demand in the midst of volatility, managing supply chains, collecting dues efficiently, managing and maintaining critical assets or responding to rapidly evolving ground situations, all these aspects of day-to-day operations should incorporate the latest technological tools. By adopting these tools in daily operations, the industry will be able to enhance its performance as well as its capability to react and respond.
While thermal power is still envisaged to be the mainstay of India’s energy mix, we are now going through an interesting transformational phase, moving towards decarbonising the sector. This will create opportunities in the field of clean coal technologies and efficiency improvement. The majority of the utilities are seriously looking at this aspect and NTPC signing an MoU with us for a CO2-to-methanol plant is a prime example. The efforts to reduce emissions will also lead to the decommissioning of old and polluting thermal power plants, thus creating the prospect for new capacity development in the coal power project business.
In addition, the steps taken by the government under Atmanirbhar Bharat and Make in India to promote the indigenisation of various power equipment and systems will also create opportunities in the sector. Further, various schemes announced by the government like the promotion of energy storage, bundling of thermal power with renewable energy to address the intermittent nature of renewable sources and setting up of ultra-mega renewable energy projects have opened up new avenues in the sector.
What are some of the opportunities for equipment providers in the post-Covid world?
Remote management is going to be the new and innovative way of operations, maintenance, remote meter reading, remote asset management, efficient inter-department communication and enhanced optimisation, providing actionable insights that drive efficiency. Digitised tools connect remote experts for faster diagnosis and enable them to monitor substation equipment remotely.
While the government is promoting the expansion of renewable energy capacity, it is a core necessity to strengthen the existing infrastructure for uninterrupted power supply. The electrical infrastructure is being pushed to do more, making the grid smarter and stable by using digital technology. IoT-led smart equipment will significantly reduce the frequency and length of power outages, leading to improved security and lower operational costs.
We expect progress in the implementation of policies such as the Hydrocarbon Exploration and Licensing Policy and the Open Acreage Licensing Policy to benefit the sector in the future, and an increase in the use of digital solutions to improve the efficiency and performance of the assets of power utilities and industrial operators. These drivers are expected to boost the market for electrification solutions as well as smart grid solutions to pare AT&C losses. The government’s visionary Power for All programme has provided a huge fillip for accelerated capacity addition. India is going through a transformation, and reliable electricity will play a key role in powering ambitious infrastructure projects. Increasing electrification and industrialisation, and improving infrastructure will drive growth in power consumption.
We believe this is a massive opportunity considering the demand, and the push for renewables and smooth integration in the grid. The government is also promoting research and development to match the best in the world. This can give a huge boost to the equipment industry. High voltage technologies such as power transformers are in demand for seamless and economical power transmission. An electrical equipment skill development council is also being planned to focus on the critical manufacturing skills required for the electrical machinery industry. The sector needs to aim for increased decarbonisation in order to contribute to a carbon-neutral society. Therefore, the implementation of flexibilisation and efficiency improvement measures is needed. The industrial, building and mobility sectors offer significant opportunities to shift energy allocations by better integrating their high demand and storage capacities. Hydrogen technology, along with biofuels, is emerging as one of the indispensable conversion and storage technologies for balancing demand and supply in an increasingly renewables-based energy system. They are presenting a sustainable alternative to oil and gas, given the long-term goal of decarbonising the energy sector. Another prospect for innovation lies in how we manage the complexity in the grid and seamlessly integrate traditional energy sources and renewables across generation, distribution and consumption.
One of the major factors driving market opportunities is the government’s decision to curb imports from China. This may open up avenues for local manufacturing and promote the indigenous development of solar cells and modules. Energy efficiency is expected to improve as customers are likely to focus on maximising the utilisation of existing assets rather than going for capex. We are experiencing traction from customers looking for practical and implementable solutions to drive down their plant operating costs. IoT will drive most of these implementable solutions. We believe that outsourcing of operations and maintenance will increase as customers will try to reduce their fixed cost and de-risk their business profitability.
The electrical equipment manufacturing segment is one of the most robust industry segments in India, with a combined turnover of $42 billion and a contribution of more than $7 billion to exports. This has helped us in successfully completing the massive campaign of 100 per cent electrification through the products and services of the Indian industry. We have a very strong consumer base and robust electrical equipment manufacturing capacity, but the industry needs more readiness to serve the country in these difficult times.
The indigenisation of equipment and systems to minimise the dependence on imported items is a major opportunity, especially with the government’s policy support in this area. Technology tie-ups with foreign original equipment manufacturers that would shift their production bases to India will open up a global supply market for Indian equipment providers.
The adoption of energy storage
solutions and the decarbonisation of power generation through clean coal technologies will create new revenue streams for thermal equipment suppliers. Another opportunity lies in accelerating digitalisation, automation and mechanisation seamlessly in all spheres of the sector to reap benefits in the long run.