India has well-established manufacturing facilities for main plant equipment like boilers, turbines and generators (BTG), with the current industry size estimated to be over 30 GW. However, the general slowdown in the power sector has led to a decrease in orders for such equipment, resulting in major underutilisation of the existing manufacturing facilities. During the past three years, average power project awards have been less than 9 GW against the annual rate of 25-30 GW per annum of orders during 2007-10. Delays in power projects and lack of investor interest in the sector due to structural issues have led to fewer projects in the pipeline. While a few contracts have been awarded by central and state sector utilities, there have not been any significant new orders from the private sector.
Nonetheless, equipment suppliers remain optimistic about the power sector’s future growth and expect opportunities on the back of demand for replacement of old thermal power plants (TPPs) with new superctitical units as well as equipment and solutions to comply with revised emission guidelines laid down by the Ministry of Environment, Forest and Climate Change, among other things.
Of the indigenous manufacturing capacity of over 30 GW, nearly 20,000 MW is with one player, state-owned Bharat Heavy Electricals Limited (BHEL). BHEL’s power division secured orders worth Rs 385.29 billion for 9,221 MW of power projects during 2015-16, taking the company’s market share to 74 per cent. These orders include 10 turbines and generators and 12 steam generators for supercritical sets, a record number for a single year.
Much of the growth in the equipment industry’s capacity can be attributed to the introduction of the bulk tender concept in India. Back in 2009, bulk orders for supercritical units for NTPC Limited and the Damodar Valley Corporation were approved by the government. These bulk orders incorporated the mandatory requirement of indigenisation of manufacturing of supercritical units by successful bidders as per a pre-agreed phased manufacturing programme (PMP).
Encouraged by the bulk orders awarded by the government with mandatory PMP provisions, most joint ventures today are in advanced stages of completion of their manufacturing facilities and have also started rolling out components, subassemblies, etc.
Balance of plant (BoP) constitutes a critical part of a power plant and accounts for 40-45 per cent of the total project cost. Over the years, BoP equipment suppliers have expanded their portfolio to offer turnkey BoP solutions instead of catering to stand-alone orders. Further, most of these suppliers, especially those providing material handling systems, are now catering to various other industries such as cement and steel for similar product offerings. This has allowed them to fully utilise their production capacities.
However, a key challenge for vendors has been the financial crunch being faced by them. According to developers, the availability of good BoP system vendors has been limited, especially for coal handling plants (CHPs) and ash handling plants, owing to the poor financial health of vendors. As a result, BoP agencies have taken on works that are beyond their capacities and thus have not been able to make timely deliveries to meet project commissioning targets.
A key trend shaping the industry is the growing demand for environment-friendly BoP equipment. New, advanced technologies for BoP systems such as high concentration slurry disposal type ash disposal systems, closed pipe type conveyors for CHPs, and large-size reverse osmosis systems are expected to play a major role in the sector in light of the new environment norms.
Though the Central Electricity Authority’s draft National Electricity Plan predicts that there is no new requirement for coal-fired power plants between 2017 and 2022, the government’s effort to replace and modernise old plants is expected to open up a significant market for equipment manufacturers. It is estimated that about 22 per cent of India’s coal-based plants are over 25 years old, thus necessitating performance improvement and efficiency upgrades. Nearly 10,180 MW of new supercritical units have been proposed to be set up in the public sector, in place of the retired subcritical units totalling 5,228 MW.
Further, TPP compliance with the new environment norms is likely to improve market prospects. According to ICRA’s estimates, the capex requirement of Rs 1.2 trillion for operational TPPs to comply with the revised pollution norms is also likely to boost the capital goods sector’s order inflows. For BoP vendors, major demand drivers in the future are expected to be installation of flue gas desulphurisation systems, zero-liquid discharge systems and water treatment solutions.
Overall, the revival of equipment order inflows is expected to be a gradual process. Most orders in the near term are expected from the central and state sectors while private players are expected to focus on consolidating their position rather than venturing into new projects.