Transformer Industry Poised for Growth

The government’s plans of generation of renewable energy and 24*7 Power for All will generate a positive growth opportunity for transformers. – Supriya A Oundhakar, Associate Editor

Being the key link for delivery of power between the point of generation and the end-user, transformers have been witnessing buoyant growth on account of various reforms in the Indian power sector. Power transformers are deployed in transmission networks at high voltages, while the distribution networks install distribution transformers (DTs) at low voltages. Apart from the Ujwal Discoms Assurance Yojana (UDAY) for operational and financial turnaround of state-owned Power Distribution Companies (DISCOMs), 100 per cent village electrification under Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), the government’s roadmap for achievement of 175 GW capacity in renewable energy by 2022, and the focus on attaining ‘Power for All’ are stimulating the generation capacity of the power sector. In turn, the enhanced capacity additions will escalate the demand for transformers.

TechSci Research Report on power and distribution transformers projects a growth at CAGR of 10.5 per cent during 2015-20. Under the 12th Five-Year Plan, the government has focused on expansion of the country’s Transmission and Distribution (T&D) network with significantly higher investments than previous Five-Year Plans, which is expected to result in robust growth of the power and distribution transformers industry over this period.

Further, the government projects like Green Energy Corridor for power generation from renewable sources would give a boost to the overall power and distribution transformer installations in the country. India has also entered into a technological collaboration with Germany under which Germany would extend its technical assistance for upgrading India’s existing power grid and facilitate flow of renewable energy through the grid.

According to Indian Electrical and Electronics Manufacturers’ Association (IEEMA), growth in power transformers is attributed to demand for High Voltage (HV) and Extra High Voltage (EHV) transformers with support from growth in exports also; whereas in distribution transformers, growth is led by domestic demand especially rural electrification program.

Stumbling Blocks

Indian transformers industry has been facing the various challenges of availability of adequate quantity of raw material, testing facilities and skilled manpower. Issues like high input cost due to exchange rate, crude price, and working capital management for MSME sector continue to be the hurdles in the sector.

According to International Copper Association India (ICAI), the distribution transformer business has had its own set of challenges in the past few years, mainly emerging out of reasons below:

  • Mandatory certification of BIS as per IS1180 and MEPS through BEE’s Star labelling program that initially was not in harmony with national standard by BIS and observed by utilities. The process also failed to recognise customised requirements, generally of limited quantity, placed by industrial users.
  • Dual certification by two government authorities created hurdles in carrying out smooth business. The transformer manufacturing cycle was also ignored considering ongoing orders under execution take 4 to 12 months or more to complete.
  • Initial absence of clarifications on confusion created by above orders and amendment on cards caused discord. It also caused economic burden to those who followed rules and standards and left others unintentionally unlawful.
  • Unfair competition, due to abnormally low pricing pattern of some manufacturers, who, in absence of proper enforcement and monitoring mechanism, were able to supply the actual product deviating from specification. Others are left with options either to adopt unfair practice or with reduced margins or even loss of business.

“After much needed effort from various quarters the situation looks like light at end of tunnel supported by electrification schemes of the central government. Even now, this is changing at a slow pace, and it is suspected that utility transformer business may be affected, as many projects like DDUGVY, IPDS, Saubhagya etc are scheduled to be completed in 2019,” states Manas Kundu, Director (Energy Solutions), ICAI.

Further, the misuse of warranty or guaranty period insisted by the DISCOMs or utilities in the tender hurts the interests of the transformer manufacturers. DISCOMs or utilities are imposing warranty or guaranty period for 60 to 66 months in their tender documents against standard guidelines of Ministry of Power of 12 to 18 months. Due to the long warranty or guarantee period over five years backed by the bank guarantee, the cash flow or working capital limits of the manufacturers gets adversely affected, and day to day business transactions suffer. “Moreover, the utilities or DISCOMs do not adhere to proper maintenance schedule of the DTs resulting in premature failure of the transformer, and the manufacturer has to replace the transformer free of charge within the warranty period,” states U C Misra, President, Indian Transformers Manufacturers Association (ITMA) and former Director, Power Grid Corporation of India Ltd. “The matter has already been brought to the notice of authorities at the Central Government and state power utilities. In this connection, the utilities or DISCOMs may consider to insure their assets i.e. DTs towards failure beyond the warranty period for any claims, and warranty should be restricted as per standard guidelines i.e. 12 to 18 months,” he further adds.

In addition to this, delay in payments by utilities or DISCOMs has aggravated the problems of the transformer industry. It has a cascading effect on the production process and discharge of liabilities towards banks and other institutions. “Online payment on delivery of the equipment needs to be ensured as per the Prime Minister’s commitment in various forums. Further, the utilities or DISCOMs are advised at national level to get themselves registered with the Receivables Exchange of India Ltd (RXIL), a joint venture between SIDBI and NSE, in order to facilitate prompt payments to the MSME industries for doing business with ease,” advises Misra.

In distribution transformers, many small manufacturers are slowly switching over to manufacturing of the large capacity category transformers, thus expanding the organised participants’ base. “This makes the market more competitive and sensitive to price rather than quality. If an organisation focuses on quality manufacturing of transformers, they cannot sustain the competition due to rock-bottom cut-throat rates quoted by the small players,” informs M Vijayakumaran, Senior Transformer Expert, Primemeiden.

Availability of CRGO steel

The production of transformers requires cold-rolled grain-oriented (CRGO) steel as the key raw material. Procurement of CRGO steel is one of the major bottlenecks for the transformers industry as this material is not produced in India, and the industry has to depend on imports for its requirement. The transformer industry is facing the scarcity of high-grade material CRGO. The cost of CRGO accounts for around 25 per cent of the total cost of the production of transformers.

With the enforcement of quality control orders bringing CRGO, along with distribution transformers under mandatory certification of BIS with energy efficiency levels defined, the demand for high quality CRGO steel has swollen manifold. This in turn increased pressure on suppliers, importers and manufacturing mills too.

Worldwide, the production, supply and price of CRGO is dominated by around 14 to 15 mills located in USA, Japan, Germany, South Korea, UK, Russia, Poland, Brazil and China. According to ITMA, the global production of CRGO stands at 35 lakh metric tons per year whereas India presently requires about four lakh metric tons. India’s demand for CRGO is likely to accelerate to 7.5 lakh metric tons per year during the period 2017-2022 as power generation from nuclear, hydro, solar, wind etc will be more than approximately 400 GW. Recently TKES German Steel company at Nasik has started production of about 10 thousand metric tons of CRGO which is of no significance for the transformer industry. “The government has been endeavouring for the establishment of plant in India that will help to ease our position. The technology is not easily available. Tata Steel UK and Arcelor Mittal in Eastern Europe have technical knowledge. However, they are not coming forward to help India. The government has started R&D projects, but no serious efforts are being made to ease the availability of CRGO material in the right earnest,” informs Misra from ITMA.

“In order to tide over the high import price and scarcity crisis, the Government has taken a serious attempt to develop good quality CRGO in public sector steel companies with active support from renowned CRGO manufacturer POSCO,” states Vijayakumaran.

The availability issue was due to mandatory BIS certification at different mills located overseas. This issue is resolved as almost all mills are have been certified now. Hence, the availability of higher grades is improved. However, the challenge for MSME sector manufacturers continues, as all of them are generally not capable of importing directly from the mills and depend on importers with core cutting lines and other suppliers, informs Rajesh Joshi, CEO, Tristar Technocrates.

Failure Rate of Distribution Transformer

The failure of distribution transformer is one of the major concerns for the transformer industry. The failure rate officially stands at 14 per cent. According to International Copper Association and Frost & Sullivan Distribution Transformer Market Tracker, based on officially available data, the failure rate at pan-India level stands at around 13 per cent, of which, around 80 per cent of the failed distribution transformers are repaired and the remaining are replaced by a new distribution transformer unit, resulting into around Rs 2,600 crore expense every year.

The causes for failure are multifarious like:

  • Non-adherence to national standards and tweaking of standards at some level
  • Compromised procurement
  • Improper manufacturing practices
  • Inadequate Quality Control (QC) supervision
  • Inadequate operation & maintenance practices
  • Aged legacy assets
  • Non-availability of funds.

Operating conditions like transformer overload, through faults, etc often result in transformer failure, highlighting a need for transformer protection functions, such as over excitation protection and temperature-based protection. Extended functioning of the transformer under abnormal conditions such as faults or overloads can compromise the life of the transformer. Adequate protection should be provided for quicker isolation of the transformer under such conditions. The type of protection used should reduce the disconnection time for faults within the transformer and minimise the risk of catastrophic breakdown to simplify eventual repair, suggests Pradeep Azad, Managing Director, UP Transformers (India) Ltd.

Nationwide efforts like QC order, enhanced warranty, quality input materials, and few islanded efforts in quality manufacturing practice, asset management practice etc are on to address reliability in DTs. Enormous economic burden is caused to the country due to premature DT failure causing CAPEX deployment every five years for an asset that should give minimum 20 years of life technically. This also affects public utilities tariff to rise as against the principle set out in the Act earlier.

The OEMs and utilities have to see each other as not adversaries but join hands to ensure growth of the power distribution sector in creating sustainable infrastructure. Customers too must pay for what they use i.e electricity, one’s lifeline today, advises Manas Kundu.

ICAI has proved an innovative concept to give new life to old legacy transformers in improving their reliability. This has not only resulted in life extension but also additional kVA at optimum incremental cost to the utilities while meeting energy efficiency levels contemporary with prevailing standards.

ITMA has prepared guidelines both for manufacturers and users of transformers in order to avoid this colossal loss at national level, and the same has been submitted to the Ministry of Power and Central Electricity Authority (CEA) for issue of comprehensive guidelines for the DISCOMs where there is hardly any attention on operation and maintenance of the distribution system. The maintenance staff of DISCOMs should be sensitised and trained. This will definitely make marked improvement in failure rate, informs Misra of ITMA.

In order to improve the quality and overall reliability of DTs, short circuit testing as recommended by CEA should be made mandatory for reducing failure rate. But it is not achieved due to limitations in facility for performing the same and cost implication, states M Vijayakumaran.

Outlook

The government’s plans of generation of renewable energy and 24*7 Power for All will generate the positive growth opportunity for transformers. It is expected that more than 85,000 ckt. km of transmission lines and 230,000 MVA of transformer capacity are expected to be added to the grid by 2021-22. Further, transformer demand other than utility business is proportional to industrial growth.

The demand of transformers will be continuously propelled due to addition of generation capacity. there is a need to increase per capita consumption to a reasonable level from 1000 KWH to international standard level say 2000 KWH, which will necessitate multiple fold growth in generation, transmission and distribution network. Now with emergence of requirement of charging stations for electric vehicles at the national level, the transformer requirement will see further growth, states Misra from ITMA.

Kundu from ICAI envisages the growth of the transformer industry at moderate rate of 6 to 7 per cent year-on-year given the central schemes reaching completion in this year added with general election knocking at the door.


Supriya A Oundhakar, Associate Editor