The Indian transformer industry is valued at around Rs.1.40 trillion as of FY15, accounting for a share of 10 per cent of the total electrical equipment industry. According to estimates made by industry body IEEMA, the industry showed negative growth of 2.9 per cent in FY15. The total capacity of the Indian transformer industry is an estimated 4.3 lakh MVA, which, in fact, suggests a situation of over-capacity.
In the X Plan period (FY03 to FY07) and the XI Plan period (FY08 to FY12), India was expected to add significant power generation capacity. According to original estimates, the total capacity to be added during these two five-year plans periods was around 1 lakh MW. However, the actual performance belied even the most conservative estimates. In anticipation of this huge power generation capacity build-up, most transformer manufacturers increased their installed capacity, resulting in significant over-capacity that persists even today.
Demand Analysis: There are two approaches for estimating demand for transformers. One is based on the power generation capacity addition and the other is based on outlay of the power transmission & distribution (T&D) sector. Industry experts suggest that every mw of new power generation capacity needs 7 MVA of transformation capacity. However, this is based on power transmission levels of 400kV that was the norm till a few years ago. India is now moving to higher voltages where 765kV is slowly becoming the norm with a sprinkling of even higher voltages like 800kV. In the next 3-4 years, one can look forward to commercial power transmission lines of ultra high voltages of 1,200kV. In view of this, experts now feel that 1 mw of new power generation capacity would need 10 MVA of transformation capacity.
In the ongoing XII Plan period (FY13 to FY17), India has targeted to add 88,537 mw of new power generation capacity as against which the actual achievement in the first three years has been around 61,000 mw. Assuming that the capacity addition target is achieved—in fact, there are reports that it might even be surpassed—the years FY16 and FY17 should see capacity addition of 25,537 mw. Going by the transformation ratio discussed above, this should translate to a total business opportunity of around 2.5 lakh MVA for the transformer industry for the years FY16 and FY17. This should be easily serviceable by the current installed capacity.
In order to consider the demand potential in value terms, we use the capex approach. Investment in the power T&D sector will come from Power Grid Corporation of India Ltd (PGCIL) and state power utilities. According to information released by PGCIL, it is expected to incur capital expenditure of Rs.22,500 crore in each of FY16 and FY17. It is estimated that around 10 per cent of PGCIL’s capital expenditure would go towards transformers. Hence, one can expect an order inflow of Rs.2,250 crore for transformers in each of the years FY16 and FY17.
State utilities are expected to spend Rs.76,000 crore in capital expenditure in each of the years FY16 and FY17. This is based on the assumption that their capex plans would be maintained as in recent years. It is estimated that around 15 per cent of capital expenditure in the power T&D sector is towards transformers, which includes both power and distribution type. Hence, one can look forward to an order inflow of Rs.11,400 crore from the state utilities’ sector.
Taking both PGCIL and state utilities into account, the demand for transformers works out to around Rs.13,650 crore per year, in FY16 and FY17.
This demand estimate is on the lower side as it does not take into account the replacement and the exports market. It also does not look at transformers used by the industrial sector, associated with captive power plants.
The typical life of a transformer is 25-30 years. Hence, transformers installed in the period 1985-90 would be due for replacement in the coming years. Experts believe that the demand from the replacement market would be around 3,000 MVA per year.
Based on empirical data, around 70 per cent of the total sale of transformers is accounted by for utilities, followed by 20 per cent by the industrial sector and 10 per cent by exports.
Considering all these factors, the Indian transformer industry should expect an order inflow of around Rs.15,000 crore for each of the years FY16 and FY17.
Though the transformer industry is now showing signs of revival, after a sustained period of depression, the industry does face challenges. The pace of implementation of power generation projects must improve. Currently, generation projects are dogged by several pre-project impediments like absence of firm coal linkages, delays in land acquisition, tardiness in securing environmental clearance, etc. Even if the rate of addition of power generation projects is seen improving, it is merely compensating for the inadequacies of the past.
Several issues surrounding the use of CRGO (cold rolled grain oriented steel) have proved debilitating to local transformer manufacturers. CRGO is an important raw material used in the manufacture of transformers and may account for up to 40 per cent of the total cost of the equipment. India does not produce CRGO and hence relies entirely on imported material. The issue of Indian transformer manufacturers, particularly distribution transformers, willfully using substandard imported CRGO is well known. To combat this, the government recently mandated that only BIS-certified CRGO should be used. This guideline has practical limitations, according to several industry players.
Firstly, the process of foreign suppliers seeking BIS certification for their products has only begun. It will be some time before all suppliers actually complete formalities and get their products registered. Secondly, the guideline does not apply to imported transformers, creating bias in favour of foreign suppliers. Thirdly, manufacturers are of the opinion that it is practically impossible to examine manufactured transformers for BIS-certification of CRGO used therein. The total dependence on imported CRGO is not going to recede anytime soon given that India’s plans to locally produce CRGO have not covered much ground in the long bygone years.
It is important to note that the penetration of imported transformers, especially from China, has grown over the years. It is estimated that of the total value of transformers sold in India, around 35 per cent represents imported equipment. With Chinese economy entering slowdown mode, apprehensions of a bigger onslaught of Chinese transformers are rife.
Another typical challenge faced by Indian distribution transformers is the lack of standardization of parameters across various state utilities. This preempts economies of scale at the manufacturers’ end. The L1 procurement practice followed by state utilities has spawned a growing class of manufacturers using substandard material. It is also appalling to note that the failure rate of distribution transformers in India is as high as 25 per cent, amongst the highest in the world.