During the past couple of years, equipment orders from the generation segment have remained muted. According to industry estimates, equipment orders for projects aggregating to 6.36 GW were placed in 2017-18, declining from 10.26 GW in 2015-16. While the central and state gencos have placed a few orders, the private sector failed to finalise any order during 2017-18, as it faces considerable stress on account of lack of fuel and power offtake arrangements. That said, what could improve the segment’s outlook is the huge replacement opportunity in the thermal power segment for old and inefficient plants, as well as in the emission control systems segment with the tightening of emission norms.
Key trends
The domestic boiler, turbine and generator (BTG) manufacturing market stands at over 30 GW, with Bharat Heavy Electricals Limited (BHEL) accounting for around 20 GW of manufacturing capacity. During 2016-17, the company had received orders for 3,622 MW of capacity aggregating over Rs 72 billion, marking a decline of 60 per cent (in capacity terms) and 80 per cent (in value terms) over the previous year. The other key players in the market include indigenous joint ventures L&T-MHPS Boilers Private Limited (with a manufacturing capacity of 4 GW of boilers and 4 GW of turbine generators [TGs]), Alstom-Bharat Forge (4 GW of TGs), Toshiba-JSW (3 GW of TGs), Doosan Power Systems India (2.2 GW of boilers), and Thermax-Babcock & Wilcox Energy Solutions (3 GW of boilers).
During the past year, ordering activity has continued to remain weak, primarily due to delays in clearances and the fast depleting project pipeline. Similar to the previous year’s trend, orders came from central and state sector companies. Technology-wise, the majority of these orders were for supercritical and ultra supercritical technologies.
The balance of plant (BoP) segment has also witnessed subdued orders for the past few years, the poor performance of the BoP equipment market has led to delays in the commissioning of thermal power plants (TPPs) in the recent past. This has been attributed to various reasons including equipment manufacturers taking orders beyond their capacities, undertaking work at lower prices, and facing a cash crunch. Taking cognisance of the challenges facing the BoP segment, the National Electricity Plan recommends the setting up of an organisational mechanism for information sharing on BoP vendors.
Opportunities
A new demand avenue in the BTG segment is the replacement opportunity in the thermal segment which is expected to come up with the Central Electricity Authority (CEA) identifying several old and inefficient plants which are over 25 years old. Developers are thus required to modify the operations of BTGs either by scrapping the old plants to setting up new higher capacity supercritical plants.
The total quantum of such capacity identified by the CEA study is around 33 GW, of which around 7 GW could be scrapped and replaced by around 18 GW of supercritical units. According to a report by Axis Capital, of the 51 GW of capacity (with a unit size of over 500 MW) installed before 2003, around 35 GW (mainly plants that are over 25 years old) needs to be scrapped. Further, it estimates that the scrapped plants will be replaced over the next four-five years by those that have 50 per cent higher capacity, resulting in new capacity of about 50 GW. Overall, the rise in volumes coupled with increasing revenue realisations is expected to expand the BTG market size to around Rs 530 billion per annum by 2019.
Meanwhile, the emission control market is also expected to open up significant growth op-portunities for equipment providers, with the MoEFCC notifying tightened emission norms in December 2015. In order to meet the new standards, emission control systems, including flue gas desulphurisation (FGD) systems and electrostatic precipitators (ESPs), needed to be installed and retrofitted at power plants. According to CEA estimates, about 72 GW (36.5 per cent) of the total coal-based capacity of 197 GW is non-compliant with the new particulate matter norms and requires retrofitting or upgradation of ESPs. Of this, ESPs are planned to be upgraded across 231 units of 66 GW capacity. Meanwhile, FGD systems are planned to be installed in plants aggregating about 160 GW of capacity.
Further, in the BoP equipment market, new and advanced technology systems like high concentration slurry disposal-type ash disposal systems, closed pipe-type conveyers for coal handling plants, and large-size reverse osmosis systems are expected to play a major role in light of the new environmental norms.
To conclude, overall, the equipment market for TPPs is facing headwinds with the drying of the project pipeline and growing emphasis on renewable energy sources. However, the demand for equipment to meet the tightened emission norms is giving some respite to manufacturers in an overall poor demand scenario.