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No break in demand

Venugopal Pillai ,  Tuesday, December 09, 2014, 14:28 Hrs  [IST]

Despite a rapid increase in power generating capacity and a steady reduction in power deficit, uninterrupted quality power is not something that most of India can take for granted. This shortcoming is translating into healthy prospects for the power continuity industry, notes Venugopal Pillai.

The power continuity industry has tremendous growth potential in a country like India where round-the-clock flow of pure electricity is still a far cry. The power continuity industry represents a series of equipment that ensure uninterrupted flow of technically pure power. This industry makes up for the quantitative and qualitative shortcomings in grid power. The power continuity industry largely comprises gensets, uninterruptible power supply (UPS) systems and inverters. Power continuity broadly includes power backup, which is providing alternate power, and power conditioning, which means improving the technical quality of the electricity supply.

Emerson-03-Liebert-AF3.jpgIndia’s total installed power generation capacity has seen a quantum leap from 1,05,046 mw in March 2002 to 2,23,344 mw in March 2013. This translates to a healthy annual growth of nearly 8 per cent. Such growth was unprecedented in the history of India’s power sector. It may be worth observing that it took 55 years for the country to reach installed capacity of 1 lakh mw but only ten years thereafter to double it. This increase in installed power generation capacity is also being matched by a reduction in power deficit. In the first six months of 2014-15, the energy deficit stood at 4 per cent—a significant improvement over the 8.5 per cent deficit suffered in FY12.

An overall improvement in the power scenario is welcome but not sufficient to handle the huge growth in demand. Over the past decade, demand for electricity has risen from all quarters, and particularly from the services sector. Segments like banking, financial services, healthcare, IT, telecom and hospitality need a 24x7 power supply to ensure smooth functioning. These segments have propelled the power continuity industry.

Legrand-UPS-01.jpgThough India’s overall power deficit has reduced in recent years, there are sharp interregional variations. While western and eastern India have an overall power deficit that is lower than the national average, regions like north, south and northeast have acute power shortage. In the north, for instance, Uttar Pradesh had a power deficit of 16.4 per cent in the first half of FY15 while the comparable metric in Jammu & Kashmir was worse, at 20 per cent. In south India, states like Andhra Pradesh, Telangana and Karnataka faced power shortages that were much higher than the national metric of 4 per cent, in the first half of FY15.

It is reliably estimated that the power continuity industry, despite being a $1-billion enterprise, only helps bridge 17 per cent of India’s power deficit. This only goes to show the huge potential that the sector has, and convincingly explains why established multinational players have a keen interest in the India’s power continuity market. According to "India UPS Market Forecast & Opportunities, 2018", revenues of the Indian UPS market are forecasted to grow up to two folds by the end of 2018, growing at a compounded annual growth rate of around 12 per cent during 2013-18.

Low-rating UPS
The single-phase UPS of rating less than 20KVA represents the biggest slice of the Indian UPS market. It accounts for a share of around one-third in terms of Offline-UPS.jpgtotal number of units sold. The biggest application is to provide power backup to desktop computers. Though penetration of personal computers is dropping, India still has a vast population of desktop computers in both the residential and commercial sectors. Small businesses, regardless of their area of operation, own computers. While computers are necessary in service-oriented industries, the penetration of computers in non-service sector areas has also increased because government-related compliances (e.g. filing of tax returns, bidding for government tenders etc) are going electronic.

India has over 450 suppliers of low-rating UPS systems, most of them flourishing in tier-II and tier-III cities. The price difference between products of reputed suppliers and the marginal ones is very wide. Local players usually import power electronics from countries like China and Taiwan, and conjure up systems using cheap batteries and housing. Since reputed brands find it non-remunerative to compete in regional markets, such local manufacturers maintain a stronghold. Even though such manufacturers can sell their products cheap, there is virtually no after-sales service. Consumers, even in tier-II and tier-III cities, have begun to get wary of such cheap low-rating UPS systems and seen going in for established brands. Experts feel that marginal players will eventually get weeded out and there will be major consolidation amongst quality-conscious suppliers.

The market for desktop computers, particularly as a personal gadget, is diminishing. The PC is being replaced by laptop computers, tablet PCs and smart phones. These gadgets are battery operated and hence do not need continuous supply of pure power, unlike desktop PCs. Industry estimates suggest that over the past three years, the market for low-rating single-phase UPS systems has declined by around 15-20 per cent.

Multinationals eyeing India
The Indian power continuity industry, especially UPS and inverters, has seen much interest from multinationals. Foreign companies have had varying degrees of engagement ranging from making available their products in the Indian markets through imports, setting up local manufacturing facilities and expanding their presence by equity participation in Indian companies.

When it comes to taking over or acquiring major equity stake in Indian UPS companies, there have been four cases in recent years. In August 2009, UK-based Chloride Group acquired 90 per cent equity stake in DB Electronics Power Pvt Ltd, a leading Pune-based UPS maker, for a consideration of Rs.253 crore. At the time of takeover, DB Electronics had three manufacturing units, all in Maharashtra, and one R&D centre. In a subsequent global development of September 2010, Emerson Network fully acquired the Chloride Group.

In 2011, Schneider Electric acquired a very popular homegrown company Luminous Power Technologies. UPS and inverters were logical extensions to Schneider Electric’s power distribution and power management portfolio. In June 2012, Legrand acquired the UPS business of south India-based Numeric Power Systems. The acquired company is now known as Swelect Energy and focuses on power electronics and renewable energy. Japanese conglomerate Hitachi, in October 2011, picked up 60 per cent stake in Gujarat-based Hi-Rel Electronics Pvt Ltd. The company is now known as Hitachi Hi-Rel Electronics Pvt Ltd. It recently opened a new plant at Sanand in Gujarat for making medium-voltage inverters.

Riello-UPS.jpgIn late 2010, Riello UPS, part of Italy-based Riello Elettronica, teamed with up Prime Group’s PCI to form a joint venture Riello PCI India Pvt Ltd. The JV has set up new manufacturing facilities for the manufacture of UPS systems to be marketed under the brand name “Riello” and “Aros”. In October 2012, Su-kam Power Systems, a longstanding player in the Indian power backup industry, entered into an agreement with Israel-headquartered Gamatronic, to manufacture and market Gamatronic products in India. Under this agreement Su-Kam, manufactures and markets Multiplexer series of modular UPS at its Gurgaon facility under the technical guidance of Gamatronic.

Apart from the foreign players discussed above, there are multinationals like Socomec (France), Eaton (US) and Delta (Taiwan) that are serving the Indian UPS and inverter market. Socomec had partnered with local HPL Group but now operates as a wholly-owned subsidiary of its French parent.

The main rationale why multinationals are partnering with local companies is to have access to the latter’s marketing and distribution network. Though India is a very big market with tremendous potential for selling a variety of products, it is a difficult market. Creating a marketing and distribution network will never be easy for any first-timer—be it local or multinational. For a multinational entrant, partnering with local companies therefore ensures that its technology is complemented by a fairly mature marketing and distribution network. For instance, Luminous that was acquired by Schneider had developed a pan-India network of 25,000 sales points during the twenty years of its existence. The brand value of Luminous and its deep-rooted sales network culminated in a 74 per cent equity stake sale for over $300 million. The UPS business of Numeric Power Systems that was acquired by Legrand for Rs.830 crore had a very strong presence in south India. Besides, it had a 75 per cent market share in UPS systems housed at bank ATMs.

Going Green
An emerging trend in the UPS and inverter business has been the drive to adopt “Green” technologies. It refers to the collective effort of reducing the carbon footprint during the manufacture of backup equipment and during its regular operation. To begin with, leading UPS manufacturers are reducing the physical size of the inverter, so as to achieve more watt per unit size (or weight) of the equipment. The sheer reduction of the size of the equipment translates to lesser material and lesser energy expenditure during the production process. Secondly, inverter technology is being made more efficient so as to deliver electrical output that is quantitatively higher and qualitatively superior. Inverters are, for instance, adopting double conversion process to deliver pure power, especially useful for sensitive equipment. In the double conversion process, the input alternating current (AC) from the grid is converted into direct current (DC) and then back to AC for consumption by the load attached to the inverter. In this conversion, any shortcomings in the source AC power are corrected.

The UPS and inverter industry is also making use of renewable and clean energy sources like solar energy, biogas, etc. By using clean energy sources, at least to the extent possible, there is some displacement of grid power. For example, the telecom industry that is a heavy user of power backup equipment is under pressure to reduce its operation costs and keep carbon footprint to the minimum. Diesel-fired gensets are being replaced by high-rating inverters that are less polluting. Even diesel gensets (DG) are being converted into hybrid solutions like DG-battery, DG-solar and DG-bio gas.

There is also effort made towards using solar energy in inverters. In rural areas, the power cuts are prolonged, ranging for up to 10 hours in a day. Oftentimes there are power cuts during the day and this is when solar energy can be harnessed. Bank ATMs in rural areas are a good application area for solar-powered inverters. In fact, companies have devised inverters use a combination of grid power and solar power, depending on their availability. Such hybrid solutions achieve both the objectives of providing power backup and maintaining lower carbon footprint.

Future Reading
The future of the power backup and conditioning industry is promising. Much of the demand will arise from the sheer absence of power or its quality. For the next 4-5 years, the industry should grow by a healthy 12-15 per cent, which would be much higher than growth in the overall electrical equipment industry. There are some features that the power continuity industry will acquire in the coming years, based on current trends.

Government-controlled data centres will become big sources of demand thanks to widespread e-governance initiatives. The services sector, which has been leading growth in the overall economy, will spur demand for power continuity equipment. Banking, financial services, hospitality and healthcare are just some areas that would see increasing demand for power continuity gear.

Diesel gensets are today a prime source for backup power. However, as diesel subsidies are phased out, diesel-fired power will become unreasonably expensive. Even today, electricity generated by diesel gensets costs more than twice that of grid power. Though diesel gensets will continue to be in vogue, there will effort to blend DG power with non-fossil fuel sources, which could include solar and biogas. Also, there would be a gradual move to look at inverters of very high rating, as a substitute for low-rating DG sets, to begin with. Renewables, mainly solar or fuel cells, will play an increasingly domineering role in the power continuity industry as the world would be moving to even stricter environmental norms.

As discussed earlier, the power continuity industry can barely meet 17 per cent of the power deficit, clearly pointing to the abundance in demand. Though more and more of rural India will be covered by the electric grid, power shortages are bound to persist. New demand centres, in the coming years, would include tier-II and tier-III cities, apart from villages.

The UPS and inverter industry is very likely to see big multinational names eyeing the Indian market. There will be major consolidation in the industry with small marginal players getting edged out of the market. This will happen as consumer will get increasingly aware of aspects like lifecycle cost, after-sales service, etc. Some established Indian players have already been taken over by leading multinationals. This trend would persist. Apart from acquisitions, multinationals would also be exploring avenues like joint ventures and technical collaborations. The presence of multinationals could elevate the standards of the power backup industry, with respect to both product quality and after-sales service.

While the complexion of the Indian power continuity industry would change over time, its prospering continuity is abundantly assured.

UPS versus Inverter
A UPS refers to a power backup system where the backup power duration is very limited, usually less than an hour. The UPS system can be online, which is connected to the load at all times, or offline where the UPS comes into play only when there is a grid supply failure. The reason why the power duration time in UPS is limited is that there is a backup system like a diesel generator that comes into play very soon after grid supply fails. In the Indian context, the online UPS finds major application and is used in desktop computers, hospitals, data centres, telecom exchanges, etc. A typical backup device like UPS or inverter has two major components—battery and power electronics. Due to a lower backup time, the battery accounts for only 30 per cent of the total system cost, unlike in inverters where backup time is much higher. An inverter refers to a power backup source where the backup time is usually high—ranging from one hour to eight hours. Inverters are used in areas where there are planned power cuts and load shedding. Inverters have a much higher rating in terms of kVA and the battery accounts for up to 60 per cent of the system cost.
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