Diesel generator (DG) sets are an important source of power supply for various sectors such as railways, marine, mining, building and construction, and telecom and data centres. Their usage has, however, declined in the commercial and industrial (C&I) as well as domestic segments due to improvements in grid power supply and emission-related concerns. Further, the DG set market witnessed a dip in demand in the year 2020-21 due to the economic impact of the Covid-19 pandemic. DG set manufacturers experienced supply chain bottlenecks, temporary closure of production facilities, liquidity crunch, slowdown in receipt of new orders and delays in execution as a result of national/local lockdowns. However, the economy started gaining traction from the third/fourth quarter of 2020-21 as pent-up demand was realised from key segments such as data centres, healthcare, infrastructure, construction, rental and retail.
Power Line presents a round-up of key trends and developments in the diesel engine and genset space…
Market trends
As per the Central Electricity Authority, the diesel-based generating capacity of utilities across the country aggregated 509.71 MW as of November 2021, this was just 0.13 per cent of the total installed capacity. Over 42 per cent (212 MW) of diesel-based capacity is concentrated in Tamil Nadu, 31 per cent (160 MW) in Kerala, and the remaining in the Andaman & Nicobar Islands (40 MW), Andhra Pradesh (37 MW), Manipur (36 MW) and Karnataka (25 MW). In addition, a small proportion of captive power generation capacity is fuelled by diesel/ liquid fuel-based plants. India Infrastructure Research has tracked over 3.2 GW of diesel/ liquid fuel-fired captive power capacity across industries such as metals and minerals, petrochemicals, fertilisers, and paper and pulp. The states of Tamil Nadu, Maharashtra, Haryana and Gujarat together account for 50 per cent of this tracked capacity.
In terms of ratings, the DG set market is classified into low (5-75 kVA), medium (75.1-350 kVA), high (350.1-750 kVA) and very high (750.1-3,000 kVA) rating segments. Low rating DG sets constitute a major share of the market and are used in the telecom sector for backup power in grid-connected areas and as baseload power in off-grid areas. The medium to high kVA rating DG sets are mainly deployed in the hospitality, healthcare, information technology (IT) and IT-enabled services (ITeS), construction, real estate and large industrial segments. Very high kVA rating DG sets are used to provide emergency backup, critical standby or baseload power to segments such as data centres, healthcare, manufacturing, government bodies, mining and large commercial units.
The DG set market comprises both organised and unorganised players, with the former accounting for a major share of 79 per cent. Unorganised small-scale players typically manufacture low rating DG sets of up to 25 kVA, owing to their use of simple technology. The organised segment includes large multinational players as well as home-grown conglomerates such as Ashok Leyland, Caterpillar India Private Limited, Cummins, Eicher, Greaves Cotton, Mahindra & Mahindra, Kirloskar Oil Engines Limited and Perkins.
Growth drivers
The demand for gensets and engines is directly related to growth of end-consuming sectors such as C&I and domestic consumers, railways, marine, mining, building and construction, and telecom and data centres. Many of these sectors offer growth prospects led by increased spending under key government programmes.
For instance, Indian Railways’ ambitious target of achieving electrification of its broad gauge network by 2023 is driving the demand for diesel electric tower cars (DETCs). These DETCs are self-propelled units used for inspection as well as for patrolling and maintenance of overhead lines on electrified routes. DETCs comprise several pieces of equipment, including the diesel engine, compressor, traction alternator, diesel alternator unit and cable laying apparatus.
The mining sector also relies heavily on DG sets to provide uninterrupted electricity supply in order to power the heavy machinery used at mining sites, which are often remotely located. The massive drills and other machinery used for excavating, along with belts, pulleys and carts, are all powered using DG sets. With Coal India Limited’s target of achieving 1 billion tonnes of coal production by 2023-24, as well as the onset of commercial coal mining auctions, growth is expected in the coal mining segment, which will drive up the demand for DG sets in the near future.
The marine sector also requires dependable and efficient power supply under extreme conditions. Diesel gensets and engines are crucial for propulsion and auxiliary applications. The Indian Navy’s fleet expansion plan under the Make in India initiative is expected to drive the demand for diesel engines and gensets. Further, the Rs 200 billion Pradhan Mantri Matsya Sampada Yojana, launched in 2020 for the fisheries sector, also lays emphasis on the upgradation of existing fishing vessels and the building of deep-sea fishing vessels. The scheme that runs till 2024-25 is also expected to impact the demand for diesel engines and gensets positively in the long run.
The demand for gas compression engines is also set to grow as the country plans to increase natural consumption to account for a share of 15 per cent in the energy mix by 2030 from the current 6.3 per cent. Significant investment is planned by the oil and gas sector to strengthen gas supply infrastructure, including laying of about 15,000 km of pipelines.
A major chunk of demand for diesel engines and gensets is expected from the construction sector. About 60 per cent of investment under the Rs 102 trillion National Infrastructure Pipeline will be accounted for by construction-intensive sectors such as roads, railways, irrigation, urban infrastructure and ports. Since construction sites are often located in remote areas, they cannot secure grid supply, and DG sets come in handy in running various machinery.
Last but not least, the data centre segment is expected to grow as companies take steps to digitalise operations, especially post Covid, thereby fuelling demand for DG sets. Every data centre includes backup power supplies in the form of high horsepower DG sets. This requires multiple DG sets of 750 kVA and above.
Challenges
The demand for diesel engines and gensets from residential as well as C&I consumers is likely to remain muted, as peak and energy deficits have become negligible. As of November 2021, the energy deficit stood at 0.4 per cent, while peak deficit stood at 1.2 per cent. Further, there is rising adoption of rooftop solar by C&I consumers owing to a decline in the capital costs of solar panels and potential savings in energy costs with renewable energy technologies.
In addition, emission-related concerns have forced states and environmental agencies to ban DG sets from time to time. A case in point is Delhi NCR, where the Central Pollution Control Board banned the use of DG sets in October 2021 when air quality in the city turned very poor. The use of generators was allowed for emergency services such as the metro, hospitals, airports and railway stations. However, certain areas in Haryana and Uttar Pradesh depend on high capacity DG sets for power back up, as grid supply is erratic. In 2019 and 2020, the Uttar Pradesh and Haryana governments sought exemptions from the CPCB, as many private housing complexes were dependent on DG sets for power supply.
The government is also taking steps to reduce diesel-fired capacity in Lakshadweep and the Andaman & Nicobar Islands. While till a few years ago DGs had catered to the islands’ power demand, rising tourism combined with the operational and environmental costs of diesel made a strong case for renewable energy deployment in these union territories (UTs). To this end, in 2016, the Ministry of New and Renewable Energy launched a programme to increase the renewable energy capacity on the islands. It approved the implementation of 40 MW of distributed grid-connected solar PV capacity in Andaman & Nicobar and Lakshadweep, with an estimated central financial assistance of Rs 1.92 billion. Further, in November 2018, the government announced that, going forward, the entire power demand of both the UTs would be met through renewable energy sources.
Technology trends and outlook
DG set manufacturers are rising to the challenges and incorporating the latest technologies to launch models that comply with the latest emission norms. New generator variants have also been launched that integrate battery energy storage systems and solar power with DG sets to provide cleaner power supply to consumers. There is also a greater focus on dual-fuel gensets that can run on natural gas as well as diesel.
In addition, intelligent DG sets equipped with IoT sensors are increasingly preferred by consumers owing to features such as remote monitoring of key parameters including fuel level, fuel consumption, coolant level, engine temperature, abnormal noise level, power generated, capacity utilisation, and running hours. Another growing trend is the deployment of containerised DG sets, which offer the benefits of silent operation as per strict acoustic standards, high temperature and weather resistance, and ease of maintenance. Energy efficient DG sets are also gaining traction, as they reduce the fuel requirement.
Net, net going forward, the demand for DG sets and diesel engines is expected to remain strong in the short to medium term from sectors such as railways, marine, mining, construction and data centres. However, over the long term, the industry is expected to face disruption due to the growth of solar as well as battery storage, especially as the country takes steps to meet its target of reducing emissions by 1 billion tonnes by 2030.
