India is on the verge of becoming an emerging power nation among developing economies. The availability of electricity is directly linked to the Gross Domestic Product (GDP) growth of developing economies, India being no exception. Growth of the Indian electrical industry and its investment appeal primarily depends on government policies. Timely capacity additions to electricity generation, transmission & distribution (T&D) are necessary to improve and sustain GDP growth and reduce the electricity demand-supply gap.
The Indian Power Sector
India’s power generation of installed capacity at the end of FY2014-15 stood at 271.7 Giga Watt (GW). Acute fuel shortage (both coal and natural gas), project clearances and delay in commissioning of new units, affected capacity addition plans.
Although India has the 5th largest power generation capacity, globally (trailing behind China, US, Japan and Russia), a power deficit scenario has been plaguing the sector for more than a decade. India’s per capita power consumption of around 1010 kilowatt hour (kWH) per annum (as at the end of FY2014-15) is significantly below the world average of 2,600 kWH and developed countries’ average of 8,000 kWH. India needs to rapidly increase its generation capacity, in order to achieve the goal set by the Ministry of Power – ‘Power for All’ by 2019.
Power deficit at the end of the 11th five year plan reached 3.6 percent, whereas peak deficit was to the tune of 4.7 percent. Key reasons (apart from missing out on power generation capacity addition targets) for the continued power deficit scenario in the country are:
- Dismal conditions and inappropriate maintenance of existing T&D equipment / infrastructure
- Rampant power theft, leading to high T&D losses (at the end of FY2014-15, T&D losses were to the tune of 20.8 percent) impacting financial condition of Power T&D utilities (DISCOMs & TRANSCOs).
A robust and efficient power T&D infrastructure is imperative for effective transfer of power from generation source to the consumption points / demand centres. Thus, expanding the T&D infrastructure to transmit the power generated to consumer points across the length and breadth of the country becomes imperative.
Transformers are critical components of the Power T&D network that are used to change voltage in the power transmission and distribution process, and hence play a key role.
Transformers can be broadly classified, based on the output rating as:
- Distribution Transformers (31.5 to 5,000 KVA)
- Power Transformers (5.1 to 500 MVA)
- Special Transformers (depending on the type of application like welding, traction, furnace, etc.).
Transformer Industry in India
The Indian transformer industry is more than five decades old, hence mature. Domestic manufacturers have developed capabilities to manufacture all types of equipment to meet the country’s demand for transformers up to 800 Kilovolts (kV) and going up to 1,200 kV. The industry enjoys a good reputation in terms of quality, price, and delivery in the domestic as well as overseas markets.
India’s transformer market is predominantly unorganized with many small participants catering to the smaller distribution transformer markets. However, many are slowly graduating to the medium-sized category, thus expanding the organized participants’ base.
There are approximately 300+ transformer companies in India, with an overall installed capacity of over 370,000 Megavolt Amperes, (MVA) per annum. The market is fragmented with 20 organized players including Bharat Heavy Electricals Limited (BHEL), ABB Ltd, Crompton Greaves Ltd (CGL), Areva T&D, EMCO Ltd, Bharat Bijlee Ltd (BBL), Vijai Electricals, Transformers and Rectifiers India Limited (TRIL), Voltamp Transformers Ltd, among others.
In the power transformers category, companies in the high-end segment (400 kV and above) mainly include international players such as ABB Ltd, Alstom T&D (erstwhile Areva T&D India), and Siemens; and Indian manufacturers such as BHEL, CGL, TRIL, and Toshiba Transmission & Distribution Systems India (Entity formed by acquisition of Vijai Electricals by Toshiba Corporation, Japan). Majority of other companies in this sector are present in the 220 kV segment in power and distribution transformers. Leading players have significant presence in both power and distribution transformer market.
Apart from catering to domestic demand, India exports transformers to over 100 nations including the US, Europe, Malaysia, Singapore, Bangladesh, African countries, and Gulf countries. India is also an importer of transformers; the major source countries include China, Germany, USA, Korea, and Japan.
Indian Transformer Market Size
The Transformer market in India can be pegged at more than INR 12,000 Crores. Power Transformers contribute 45 percent of the total market and distribution transformers, 55 percent. Over the last two years, the market has grown at a very moderate rate at less than 4 percent, due to the slowdown of power generation capacity addition and T&D infrastructure expansion.
Anticipating the huge domestic (due to a power deficit scenario, requirement of power sector expansion) and overseas demand, the transformer industry in India has more than doubled its manufacturing capacity over the last five years. Transformer manufacturing capacity in India stands at ~370 GVA with capacity utilization rates hovering around 60-70 percent on an average over the last 5 years. Transformer over-capacity in the Indian market has led to immense pricing pressure scenario severely impacting the profitability of the market players.
India’s huge power shortage, need to ramp up power T&D infrastructure, economic slowdown of developed markets like Europe and North America and excess transformer manufacturing capacity in China has resulted in India being an attractive destination for transformer companies globally to tap the Indian market opportunity. Anticipating this, many foreign players are already in the process of setting up base in India. Over the last 18-30 months, new players have entered the market either through acquisitions or through setting up of facilities within India. A few notable examples are:
- Canadian company, Hammond Power Solutions Inc. had acquired 70 percent equity stake in the Hyderabad based transformer supplier Pan-Electro Technic Enterprises Pvt. Ltd in Feb’ 2012
- Chinese manufacturer, TBEA has set up transformer manufacturing unit in Gujarat in order to qualify for the bids from PGCIL.
Power Generation Capacity augmentation and Power T&D infrastructure expansion to be in-line with Power generation capacity addition. According to the 12th plan, INR 1200K-1300K Crores likely to be invested in the power sector. This spending on the power sector is expected to be equally distributed between generation and T&D. Spending on Power T&D infrastructure is expected to boost demand for transformers
- Rajiv Gandhi Grameen Vidyutikaran Yojna (RGGVY) scheme to improve rural electricity infrastructure and rural household electrification. The electrification drive is expected to provide impetus to demand for distribution transformers
- Increasing focus on Rural Electrification Accelerated Power Development and Reform Program (APDRP 1-2) in order to minimize Aggregate Technical and Commercial (AT&C) losses at the distribution level and improve the financial health of the State Electricity Boards (SEBs)
- Industrial sector growth
- Replacement of ageing equipment
- These reforms are expected to significantly affect demand for transformers over the next 4 to 5 years.
- Inadequate supply of prime quality Cold Rolled Grain Oriented (CRGO) steel is the biggest challenge faced by transformer manufacturers in the country. CRGO requirement is completely met through imports; it is in fact challenging to assess the true quality of the material that is used by the transformer manufacturers in India. India needs 2.5 lakh tons of CRGO every year and an appalling 70 percent of this is scrap grade material
- Failure rate of Transformers – High failure rate of distribution transformers, is a big concern for the transformer industry in India. The average operational life of a transformer is between 25 to 30 years; however, transformers are known to be recalled for repair in as early as three years. The failure rate of distribution transformers in India is estimated at 10-15 percent (in stark contrast to the less than 2 percent failure rate in developing countries). This is due to the low entry barriers in the distribution transformer market leading to unorganized players entering the market, and competing on the price factor. SEBs historically follow a L1 vendor selection criteria, which has led to proliferation of many small players, that compromise on the quality of transformers manufactured
- Financial Condition of SEBs – SEBs have been facing losses due to the supply of subsidized power to agricultural farmers, theft of power, and inefficient T&D infrastructure. This has restricted private investment in the power T&D sector, thereby reducing the quality of service from SEBs. This, in turn, is affecting the capacity building program and transmission of power
- Lack of testing facilities – The growth in testing infrastructure has not kept pace with that of production, both, quantitatively and qualitatively. Testing infrastructure available at India’s premier agency, the Central Power Research Institute (CPRI) is proving short of demand. Manufacturers of large power transformers at times need to send their equipment for testing to overseas facilities like Korea Electrotechnology Research Institute (KERI) and KEMA which is expensive. Apart from this, huge logistical costs and lead times are also involved.
The Indian power and distribution transformer markets are highly dependent on investments planned by the Government of India for the T&D segment and reform programmes like the Revised Accelerated Power Development and Reform Program and Rajiv Gandhi Grameen Vidyutikaran Yojna. These programmes, when fully implemented as scheduled, are expected to drive the demand for both power and distribution transformers. The Government of India currently plans to strengthen transmission lines and create a National Grid interconnecting the five regions (northern, southern, eastern, western and north-eastern) through the creation of ‘Transmission Super Highways;’ this is expected to drive the demand for higher-rated power transformers. With T&D companies actively striving to reduce Aggregate Technical and Commercial (AT&C) losses, the demand for energy-efficient transformers would get a boost.
With huge investments proposed across sectors such as power, infrastructure, etc., the transformers market in India is slated for strong growth. The excess capacity in the Transformer industry in India, and entry of new players is further expected to increase market competitiveness. Market consolidation over the next few years is inevitable.