The power and distribution transformer sector has been witnessing an upstick due to renewed infusion of investments in transmission and distribution (T&D) sector as a positive impact of the government’s UDAY scheme for strengthening of T&D infrastructure. An International Energy Agency (IEA) report predicts that the power demand in India will triple between 2018 and 2040. Moreover, the government’s schemes such as the Deendayal Upadhyay Gram Jyoti Yojana (DDUGJY), the Integrated Power Development Scheme (IPDS) and the recently launched Sahaj Bijli Har Ghar Yojana (Saubhagya) have generated a spurt in demand for transformers.
What’s on cards
The Ministry of New and Renewable Energy under Green Energy Corridor (GEC) scheme has planned to invest Rs 430 billion for enhancing transmission network under which projects of about Rs 115 billion have been awarded so far both through bidding and regulatory tariff-based route, for the expected commissioning over the next two-year period. This paradigm shift towards alternative energy resources like nuclear and solar energy for power generation is expected to further boost the transformer deployments in the country in near future. Thus, demand for distribution transformers is projected to grow at a CAGR of over 10 per cent till 2020.
Manjit Singh Sethi, Senior VP, Head Transformers, ABB India Limited observes that India’s power and distribution transformers industry has grown in the first half of 2019 as compared to 2018 largely on demand from the central transmission utilities and also from specific state transmission utilities.
Elaborating, he adds, “Opportunities are mainly on account of increased renewable (solar) generation, power evacuation and strengthening grid interconnections for building a strong national grid. The shift towards electrification of transportation is an additional driver.”
However, the Indian transformer industry witnessed a stagnant period due to slowdown in projects both in power and distribution sectors during the last two years. The GST ambiguity rate for capital good products has added to the woes of transformer manufacturers leading to business slowdown. “The recent tender or ordering activity by utilities also show a receding trend. Number of projects in the transmission and distribution sector, which had been initiated, have been put on hold due to delay in approval and paucity of funds,” informs M Vijayakumaran, Senior Transformer Expert, Prime Meiden.
He further mentions that discoms are also instructed to improve operational efficiency. New standard IS 1180 has been made compulsory to improve energy efficiency and reliability of distribution transformers. Central Electricity Authority (CEA) is taking action to standardise the specification for power transformers also and a new standard will be released in early 2020 which will ensure energy efficient and reliable power transformers.
Atul Agrawal, Managing Director, Uttam (Bharat) Electricals, states, “Increase in consumption of electricity in rural areas, urbanisation, industrialisation, electric vehicle charging stations, generation of solar and wind energy etc. are some of the major growth drivers in rising demand of transformers in India. Thus, we can say, India’s T&D market is undergoing a tremendous change as Indian government is focusing towards providing reliable, sustainable and affordable 24×7 electricity to all.”
The Indian Transformer industry has more than 400 manufacturers and has grown at a decent pace, driven by the increase in demand due to various schemes for reforms in power sector during last 10-15 years.
According to Rajesh Joshi, CEO, Tristar Technocrates, the requirement of transformers is expected from sectors like utilities (replacement for higher efficiency or capacity upgradation for O&M), real state sector (housing as well as commercial projects), industrial demand, and export opportunities.
The contracts awarded under some of the above schemes are lagging behind the schedule and still under execution stages. Substantial demand of transformers in utilities is expected to continue for one or two years. Hence, despite challenges in future, 2020 shall be an overall comfortable year for performing MSME and large-scale industries as well.
The government emphasis on the development of infrastructure promises the future growth of transformers industry. The government’s commitment of 24/7 power supply will see spike in demand for transformers. Further, the target of generation of 175 GW of renewable power generation will generate significant demand. Focus of government on railway electrification will lead to demand of electricity and transmission products including transformers.
Metros, dedicated freight corridors, high speed and semi high-speed rail continue to drive the demand further in the transportation sector. With more and more smart cities projects coming up for implementation, the requirements for dry and distribution transformers will surge. Many of the MNCs are now putting up or expanding the data centre capacities in India, a trend which was in vogue in the US for last few years.
According to Sethi from ABB India, the aforementioned demand drivers have the potential to drive transformer industry growth in:
• Large power transformers & reactors for generation plants & power evacuation and grid integration packages on tariff based competitive bid route.
• Requirements from the State Transmission Utilities (STUs) and Central Transmission Utility (CTU) for 765 kV & 400 kV transformer & reactors – for grid interconnection.
• Power transformers up to 220 kV from state transmission utilities, renewable projects (wind & solar) and transport industry (railways, metros and freight corridors)
• The distribution segment will see growth mainly from government initiatives such as power for all, metro projects, smart cities, data centers, wind power generation.
M Vijayakumaran from Prime Meiden expects that the electricity demand will continue to increase because of expansion of commercial and industrial establishment, and increased use of electrical appliances. The development of new power infrastructure and overhauling of existing one will also boost the demand for transformers. The power-starved countries in Africa, south America and ASEAN region are focusing on constructing power generation facilities in coming years. The developed countries are having over aged transformers which will have to phased out one after another by new transformers.
With electricity being a key element in the economic growth of the country, distribution transformers play a very important and vital role in delivering electricity to every corner of India. Atul Agrawal from Uttam (Bharat) Electricals states, “Distribution Transformers are key assets for any distribution network. It has been observed that the demand for distribution transformers are majorly taken care by the domestic industry players and the import of transformers is very marginal or project specific. With industry dominated by unorganised players which are spread all over India on one hand and organised players on the other, both segments are parallelly working towards meeting the demand within India and abroad.
The transformers produced in India have been brought under mandatory BIS certification, resulting in standardisation of the product, which has resulted in improvement of quality and reduction of failure of transformers. The distribution transformers have also been brought under mandatory BEE star labelling scheme which has resulted in the use of modern technology in manufacturing energy efficient transformers. “Replacement of old transformers with energy efficient ones will keep the momentum of up demand for transformers in the country,” informs Agrawal.
According to Joshi from Tristar Technocrates, following are some of the new areas of the growth for the industry:
• Industrial growth is expected to increase in coming years after recent reduction in corporate tax rates and other reforms. This will bring new transformer requirements.
• Real state sector, which was struggling in recent past, is also picking up.
• Use of packaged substations with enclosed switchgears and transformers using corrugated finned wall tanks and also dry type transformers shall increase.
• GIS substations are also on the cards. Already, some of them have been installed in upcoming smart cities and after these, pilots it may be taken up at larger scale.
• Export market may also open up new opportunities after China America tariff war and other developments around the world.
Like any other industry, the transformer industry has its own challenges. Though power as well as distribution network is getting strengthened all across the country, the industry is facing a few stumbling blocks like delay in payments, lack of installation and maintenance practices, extended guarantee periods by utilities and use of secondary CRGO material by manufacturers.
Transformers require a key raw material Cold rolled grain oriented (CRGO) steel that forms around 20 to 30 per cent of the cost of total manufacturing cost of the transformer. India does not manufacture CRGO with negligible manufacturing facility. So, it has to depend on imports. Hence, the transformer manufacturers remain susceptible to forex movements. Joshi suggests, “India being one of the largest consumers of CRGO, efforts are needed to facilitate to set up manufacturing facility either indigenously or even with FDI and technology tie-ups.”
Being a high working capital intensive industry, Transformer manufacturing requires about 70 – 80 per cent towards material cost. So, the industry faces a bottleneck of liquidity crunch arising out of delayed payments from clients including state power utilities, private players and delay in project execution. This severely effects the MSME players with limited resources. “There are some effective measures and steps taken up by the government like reductions of corporate tax and ease in GST returns. Also, recent mergers of banks may enhance their capability of lending,” states Joshi.
He further mentions that execution of the booked orders is tougher than merely bagging of the orders. Many companies have built up or expanded their manufacturing facility more than their financial resources based on one or two big orders. To sustain, they book new orders on throw away prices. Companies have to think on at-least three-year business forecast based expansion and upgradation of manufacturing facility. It is wiser to go for set-up of backward integration like insulation cutting, copper conductor drawing and covering plants etc to facilitate timely execution of orders in hand.
The concept of utilities to place order on quoted price is not based or linked with the material cost evaluation of the product. Quantitative orders are placed on the firms who either are not capable or book orders only to strengthen balance sheet. This places challenge on others who either miss the orders with forced manipulation in the product itself.
“Rates of various raw materials and components used are not so difficult to get from market. Bids can be evaluated more logically e.g. material cost + X or say 15 per cent shall be minimum offered price. It may seem harder to implement due to inherent bureaucratic system, but engineers in utilities have to be technically convincing enough to answer the audits, why they haven’t placed order to someone quoting unjustified price with respect to specifications of product,” suggests Joshi.
Due to lack of proper sector specific manufacturing knowledge, the concerned departments from utilities and the government issue product specifications merely on the basis of type test reports on sample only. This may give birth to corrupt practices leading to financial losses.
Joshi feels that a mechanism needs be built from within the utilities for training of engineers on the manufacturing aspects in existing workshops or outside. It should be made mandatory for the third-party inspecting agencies to keep experts of manufacturing side of the product, in addition to mere testing and documentation only during engagement.
It is expected that transformers sector gain will traction with enhancement in transmission network in India leading to rise in the demand for uninterrupted power supply pan India.
ABB in India is well poised to cater to requirements along the entire value chain. The company has invested in building local capacities – manufacturing and technology – and work closely with stakeholders to understand the evolving requirements of traditional and upcoming segments. Sethi from ABB India informs, “In terms of manufacturing capacity, we have dedicated world-class manufacturing facilities for large power transformers, small power transformers, dry transformers as well as traction transformers we are well prepared to encash market opportunities.”
“Further, we have our transformer bushings, insulation board and components manufacturing facilities to support our internal requirement for the transformer components. We have also taken pro-active measures to enhance our capacities where we see market demand growing,” he adds.
Prime Meiden is one of the leading players in power transformers having state-of-the-art factory for supply of EHV power transformer up to 765 kV in Special Economic Zone (SEZ), Nellore in Andhra Pradesh.
The company is well geared up for the expected rise in demand for transformers. Prime Meiden supplies transformers for solar and wind stations. With popular use of renewable energy, the demand for medium capacity transformer we expect to grow more the large capacity transformers, informs M Vijayakumaran.
Indian Railways is Prime Meiden’s focused customer especially, for supplying traction transformers. We are supplier for 100 MVA 220/27×2 SCOT connected to the Railways which is the biggest capacity SCOT transformer made in India. This transformer was short circuit tested successfully in India. The highest transformer manufactured by Prime Meiden is 315 MVA, 400/220/33 kV auto transformers.
Uttam (Bharat) Electricals believes in huge potential in power and distribution segment in coming years with increase in demand for power leading to load on the distribution transformers. Seeing the current industry scenario, the company has already established a unit for manufacturing PCC Poles which is in synergy of its current business.
“We are also planning to diversify in other electrical products like CT/PT, solar invertor, panels etc. thereby aggressively working on technological and capacity expansions in a few targeted segments to maintain our industrial edge,” informs Atul Agrawal form Uttam (Bharat) Electricals.
In a nut shell, the transformer market in the first half of 2019 was stable and the same trend is expected to continue for 2020 with major demand coming from the transportation, renewables and Ultra Mega Power Projects (UMPPs) in generation sector. In India, transformer sector is well poised to cater to the ongoing as well as upcoming opportunities.