India’s transformer capacity has grown significantly over the years. The total alternating current (AC) transformer capacity (at 220 kV and above) stood at 1,006,360 MVA and the high voltage direct current (HVDC) transformer capacity stood at 30,500 MW as of June 2021. Between 2013-14 and 2020-21, the AC transformer capacity has grown at a CAGR of over 10 per cent and HVDC transformer capacity has grown by over 13 per cent. This significant growth has been made possible by the presence of a well-developed and mature domestic transformer industry, with ample manufacturing capacity to produce equipment up to ratings of 1,200 kV.
The domestic transformer manufacturing industry is a highly fragmented, marked by the presence of many large players as well as a significant number of unorganised players, especially for distribution transformers. The total transformer market size is estimated at about Rs 109 billion as of 2020-21, as per IEEMA of which 54 per cent is accounted for by power transformers (PTs) and 46 per cent by distribution transformers (DTs). The total market size has contracted sharply over the year, with that of DTs witnessing a slide of 37 per cent and that of PTs declining by 3.7 per cent. This can be attributed to lower production volumes and sales due to the outbreak of Covid-19 and the subsequent lockdowns. The demand from end-user industries, including power, also declined as capacity addition slowed down and capex plans were curtailed in light of the economic impact of the pandemic.
Key recent developments
Recently, in April 2021, the Central Electricity Authority (CEA) released the Standard Specifications and Technical Parameters for Transformers and Reactors (66 kV and above voltage class). The notification of standards had been a key demand of the industry and utilities alike, as prior to this there were no uniform standards for design practices and technology specifications of transformers and reactors. The newly released standards take into account domestic as well as international requirements by incorporating best design practices, quality control and testing requirements. This is expected to simplify the procurement process, bringing in faster delivery, overall efficiency, quality and productivity in the entire value chain of transformer procurement and operation. Notably, in light of the challenges faced during the Covid-19 crisis, the standards have introduced virtual inspection and testing of transformers as an alternative to the existing practice of utility representatives being physically present at a manufacturer’s workshop during inspection and testing. Further, the CEA has emphasised design review, as it is the most important task to be carried out before commencing the manufacturing of a transformer to ensure its quality. It is also necessary to ensure that proper condition assessment/monitoring and maintenance of a transformer/reactor is carried out effectively for long and trouble-free service.
Moreover, in July 2021, the cabinet gave approval to the production-linked incentive scheme for speciality steel. Electrical steel is one of the five categories of steel that has been chosen to be a part of the scheme. This is a key positive development for domestic transformer manufacturers as cold rolled grain oriented (CRGO) steel, which is a critical raw material for the equipment, is largely imported, making players subject to significant forex fluctuations. As per the Indian Steel Association, India has not been able to produce CRGO steel locally for years. It estimates that nearly 20 per cent of the CRGO requirement in the country is met through imported scrap CRGO discarded overseas, which is used for transformers in India. The Thyssenkrupp Group has set up facilities at Nashik in Maharashtra to produce CRGO steel. The company’s Nashik plant, which was originally set up to manufacture non-grain oriented electrical steel, has been converted entirely into a CRGO steel producing facility.
In July 2020, the Ministry of Power (MoP) issued an order notifying import restrictions and compulsory testing of equipment imported from countries such as China and Pakistan, in order to ensure that the equipment is free from malware, Trojanware, etc., and maintain the safety and security of the power system, which is a strategically important sector. The order applies to any item imported for end use or to be used as a component, or as a part in manufacturing, assembling of any equipment to be used in the power supply system and any activity directly or indirectly related to the power supply system. The MoP’s move is a big positive for Indian companies, which have lobbied for a long time against low-priced Chinese imports as they do not get reciprocal access to the Chinese market. As per the IEEMA, the import of power transformers stood at Rs 1.71 billion in 2020-21, a decline of 38 per cent over that in the previous year. Likewise, the import of distribution transformers declined by 33 per cent to reach Rs 3.91 billion in 2020-21.
With the decarbonisation, decentralisation and digitalisation of the energy sector, transmission and distribution (T&D) utilities are taking steps to transition and upgrade their power systems to cater to future grid requirements. These changes have given way to the emergence of advanced transformer technologies.
The key emerging transformer technologies include digital transformers, HVDC converter transformers, phase shifting transformers, coupling transformers and mobile transformers. HVDC technology has gained traction in recent years due to its ability to transmit large amounts of electricity over long distances with fewer losses. Converter transformers form the core of HVDC projects, as they transfer power between an AC system and the DC transmission network. In June 2021, Powergrid commissioned Monopole I of the ± 320 kV, 2,000 MW Pugalur (Tamil Nadu)-Thrissur (Kerala) voltage source convertor (VSC)-based HVDC system. Monopole II of the project had been commissioned in February 2021, and with the commissioning of Monopole I, the project has attained its full capacity. The Pugalur-Thrissur HVDC project, entailing an investment of Rs 50.7 billion, is a part of the 6,000 MW Raigarh-Pugalur-Thrissur HVDC system and enables the transfer of 2,000 MW to Kerala through the VSC HVDC station at Thrissur. Notably, the major equipment used in the project, including interface transformers and insulated gate bipolar transistor-based power converters, gas-insulated switchgear substations, controls, and relay panels, has been supplied by Indian manufacturers in line with the central government’s Make in India initiative.
Digital transformers, another emerging transformer type, are expected to witness significant growth in the coming years. These transformers independently regulate voltage and maintain contact with the smart grid in order to allow remote administration and real-time feedback on power supply parameters. They are equipped with intelligent electronic devices, and intelligent monitoring and diagnostics features. The benefits of digital transformers are plenty, including better efficiency and functionality, greater reliability of assets and safety of substation operators, and lower cost and space requirements.
Meanwhile, phase-shifting transformers are special purpose transformers, which are used to control the active power flow in the network by regulating the phase of line voltage. These transformers are
used in networks where intensive power wheeling takes place due to deregulation. They help ensure optimum utilisation of transmission lines, thereby enhancing their efficiency.
Apart from this, coupling transformers are used in flexible AC transmission systems (FACTS) to enhance the control and stability of the system and increase its power transfer capabilities. These transformers connect the grid with a static synchronous compensator, which is a FACTS device that ensures the supply of a dynamic, precise and adjustable amount of reactive power to the AC power system that the transformers are connected to.
Some other transformer technologies gaining traction among T&D utilities are dry-type transformers, green transformers and ester-filled transformers.
Issues and the way forward
The fluctuations in the price of raw materials needed to manufacture transformers are a key concern for industry players. The prices of the raw materials, including copper, CRGO steel, transformer oil and aluminium, form the majority of total raw material costs and are highly volatile in nature as they are linked to international demand-supply dynamics. Moreover, the presence of a large number of unorganised players in the DT market results in excessive competition for utility tenders, thereby putting pressure on the pricing and margins of transformer suppliers. In addition, there are implementation challenges related to delays in clearances for projects and the weak financial health of the discoms, which affect order inflows.
These challenges notwithstanding, the long-term outlook for transformer demand is positive, given the massive investment planned in T&D networks to meet renewable energy evacuation needs. Key projects such as the Green Energy Corridors and a transmission system for renewable energy zones are under way to facilitate the integration of renewable energy into the grid. In addition, the recent launch of the Rs 3 trillion Revamped Distribution Sector Scheme, which focuses on infrastructure enhancement by discoms, is also likely to spur the demand for equipment such as transformers.