-Amol Kotwal is Associate Director,
Energy & Power Systems Practice,
Frost & Sullivan
Several transformer
companies in the
small and
unorganized sector
are slowly
graduating to the
medium-sized
category, thus
expanding the base
of organized
participants.
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 and
distribution are necessary to improve
and sustain GDP growth and reduce the
electricity demand-supply gap.
INDIAN POWER SECTOR
India’s power generation of installed
capacity at the end of XI Five-Year
Plan (March 31, 2012) stood at
approximately 200 GW. Of the total,
approximately 78 GW of power
generation capacity addition was
planned during the XI Five-Year Plan
period, which was subsequently
revised to 62 GW, of which only 55
GW of capacity was added. Acute fuel
shortage (both coal and natural gas),
high coal prices and delay in
commissioning of new units, affected
capacity addition plans.
Although India has the fifth 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 700
kilowatt hour (kwh) per annum 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 to achieve 1,000
kwh per capita consumption
annually, in order to achieve the goal
set by the Ministry of Power – ‘Power
for All’.
Power deficit at the end of XI Plan
reached 8.5 per cent, whereas peak
deficit was to the tune of 10.5 per
cent. 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 XI
Plan, T&D losses were to the tune of
23.3 per cent) impacting financial
condition of power T&D utilities
(discoms and 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 KVA
to 5,000 KVA)
- Power transformers (5.1 MVA 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 800kV and going up to 1,200kV. 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 300+ transformer
companies in India, with an overall
annual installed capacity of over
370,000 MVA. The market is
fragmented with around 20 organized
players such as Bharat Heavy
Electricals Ltd (BHEL), ABB Ltd,
Crompton Greaves Ltd (CGL), Areva
T&D, EMCO Ltd, Bharat Bijlee Ltd
(BBL), Vijai Electricals, Transformers
& Rectifiers India Ltd (TRIL), Voltamp
Transformers Ltd, and others.
In the power transformers category,
companies in the high-end segment
(400kV 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 Vijai Electricals. Majority of
other companies in this sector are
present in the 220kV segment in power
and distribution transformers. Leading
players have significant presence in
both power and distribution
transformer market.
Large players such as BHEL, ABB
Ltd, Alstom T&D (erstwhile Areva T&D
India), and CGL have installed
capacities exceeding 15,000 MVA per
annum. However, these are diversified
power equipment players and the
transformer segment is not a major
revenue contributor. Among players
who primarily manufacture
transformers, TRIL is the largest in
capacity followed by EMCO, Vijai
Electricals, Voltamp Transformers, and
Bharat Bijlee. The unorganized sector
primarily caters to smaller rating
transformer requirements.
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
TRANSFORMER MARKET SIZE
IN INDIA
The transformer market in India can be
pegged at more than Rs.13,000 crore.
Power transformers contribute 45 per
cent of the total market and distribution
transformers 55 per cent. Over the last
two years the market has grown at a
very moderate rate at less than 4 per
cent, 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 per cent on an average
over the last five years. Transformer over-capacity in the Indian market has
led to immense pricing pressure
scenario severely impacting the
profitability of the market players
New entrants 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 12-15 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 per
cent equity stake in the Hyderabad
based transformer supplier Pan-
Electro Technic Enterprises Pvt. Ltd
in February 2012.
- Chinese manufacturer, TBEA has set
up transformer manufacturing unit in
Gujarat in order to qualify for the bids
from PGCIL.
- Another Chinese player, Baoding
Tianwei Baodian Electric Co.
(TWBB) has set up a joint venture
(JV) with Anand-based Atlanta
Electricals Private Limited for
setting up a transformer factory in
India.
- South Korea's Hyundai Heavy
Industries is also planning a facility
for manufacturing transformers in
Sanand, Gujarat
MARKET DRIVERS - Power generation capacity
augmentation and Power T&D
infrastructure expansion to be in-line
with power generation capacity
addition. According to the XII Plan,
Rs.12,00,000-13,00,000 crore is
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
Yojana (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
- Industrial sector Growth
- Replacement of ageing equipment
- These reforms are expected to
significantly affect demand for
transformers over the next four to five
years.
MARKET CHALLENGES - CRGO: 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 tonnes of
CRGO every year and an appalling 70
per cent 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 in India
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 per cent
(in stark contrast to the less than 2
per cent 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 state utilities:
State power utilities 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 time are also
involved.
THE WAY FORWARD
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 programs like the
Revised Accelerated Power
Development and Reform Program and
Rajiv Gandhi Grameen Vidyutikaran
Yojana. These programs, 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 northeastern)
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 energyefficient
transformers would get a
boost.
The financial bailout package for
SEBs announced by the Cabinet
Committee on Economic Affairs
(CCEA) in September 2012 is expected
to improve the commercial viability of
distribution utilities. This restructuring
scheme expected to improve the
liquidity position of the discoms, since
50 per cent of short term liabilities
would be taken over by state
governments. The restructuring of the
balance 50 per cent of liabilities is to be
accompanied by concrete and
measurable action (performance
linked) by the discoms/states to improve
operational performance of discoms.
Power tariff increase is one of the
metrics, which the utilities have to
undertake as part of the restructuring
package.
The improvement in SEBs financial
condition would enable them to
undertake power T&D infrastructure
expansion in line with the requirement
resulting in driving transformers
demand.
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.