By Subhajit Roy | Group Editor
According to a CRISIL Research report, India’s power demand to log a compound annual growth rate (CAGR) of 5-5.5 per cent in the five fiscals through 2024, faster than 4.9 per cent in the previous five fiscals. However, the agency anticipates, in fiscal 2020, demand is expected to be subdued due to the recent slowdown in industrial activity, lower agricultural consumption stemming from above-average rainfall across the country, and electricity supply disruptions caused by flooding in major states. Post fiscal 2020, the steps were taken by the government to boost consumption, economic revival and rekindled private investments are expected to shore up demand, CRISIL report said.
The agency also expects around 87 per cent of the total around 31 GW capacity additions between fiscals 2020 and 2024 to be coal-based, led by a large number of planned projects that are at advanced stages of completion and have some sort of fuel supply and offtake arrangement already in place. The share of renewable energy capacity in all India installed power generation capacity has increased from 11 per cent (18 GW) as on March 2011 to 22 per cent (80 GW) as on June 2019, aided by strong policy support and improved tariff competitiveness of renewables, especially wind and solar energy.
However, the unstable policy environment poses a significant risk for the country’s renewable energy targets. CRISIL expects the government to resolve the twin issues of tariff caps and policy incoherence to restore developer confidence and stem the fall in subscriptions to achieve its installed capacity targets. Here we take a look at how the Indian electrical and power equipment industry is expected to thrive and grow over the next year.
Segmental growth drivers
Transformer
According to industry experts, the government emphasis on the development of infrastructure has envisaged the future growth of transformers. It is anticipated that the commitment of 24/7 power supply will see a spike in demand for transformers. Further, the target of 175 GW of renewable power generation, as well as push on railway electrification, would lead to the demand for electricity and transmission products including transformers. Smart cities, metro rails, high- and semi high-speed rail will drive the demand for dry and distribution transformers.
Cables & Wires
The wire and cable market in India, which comprises nearly 40 per cent of the electrical industry, is growing at a CAGR of 15 per cent on account of the growth of the power and infrastructure sectors. However, currently, the industry is staring at a bleak future. Shashi Amin, President and SBU Head for Cables, Polycab India informs, “In the current fiscal, we are experiencing sluggishness in demand and the industry outlook for 2019-20 does not seem to be very encouraging. Private investments have dried up due to poor consumer demand and government projects have been hampered by the general elections initially and now due to liquidity crunch.” Though the industry is upbeat about the government’s recent move on cut in the corporate tax rate, experts feel it will take some time to translate into real benefits with demand picking up only by the fourth quarter of 201920. Some of the sectors that will drive growth for cables and wires industry include railways, electric vehicles (EVs), oil & gas, steel, metro rail, defence, renewable energy etc.
Metering
With the advent of the Internet of Things (IoT), the metering industry in India has come of the age. Today smart metering is the talk of the town as these are designed to enhance consumer convenience and rationalise power consumption. To overcome roadblocks of billing inefficiencies and unauthorised power consumption that contribute to DISCOMs’ financial woes, the government has announced the Smart Meter National Programme (SMNP) that aims to retrofit 25 crore conventional meters with smart meters in the next five years. It is anticipated that the SMNP will help to improve the fortunes of India’s beleaguered power sector. Energy Efficiency Services Ltd (EESL), a joint venture of PSUs under the Ministry of Power, has successfully installed over 5 lakh smart meters in Uttar Pradesh, Delhi, Haryana, Bihar and Andhra Pradesh, under SMNP.
Lighting
Lighting has come a long way and become more intelligent, opening up a whole new range of applications powered by digitisation and IoT. According to Sumit Padmakar Joshi, Vice Chairman and Managing Director, Signify Innovations India, the lighting industry in India will continue to grow over the next decade, owing to increasing urbanisation, enhanced consumer awareness about LEDs and the growth of smart cities. On January 5, 2015, the government launched the Street Lighting National Programme (SLNP) that envisages replacement of 1.34 crore conventional street lights with smart and energy-efficient LED street lights by March 2019. However, as on October 1, 2019, the number of LED street lights in the country has reached to 1 crore. Now the target for replacing the rest of the street lights has been fixed for March 2020, an official statement said. It is also believed that human-centric lighting would dominate mainstream trend where LED lights can be tuned to positively help people, whether in terms of providing the optimum light setting to help someone concentrate, energise or relax.
Industry headwinds
Rs 1 lakh Cr ‘bad loans’
Around Rs 1 lakh crore of loans to the thermal power, the sector has gone bad, equating to a whopping 18 per cent of total outstanding loans to the power sector or 0.6 per cent of GDP, according to The Energy and Resources Institute (TERI). “The causes of these stranded assets were the imprudent capacity expansion that occurred in the period 201015; demand growth slowdown after 2012; and upstream (coal linkages) and downstream (PPA tie-ups) challenges in the power sector value chain,” TERI has said in a research paper.
The study observes that due to the occasionally reckless expansion of coal-fired generation capacity in the period 2010-2015, there is now a substantial capacity of coal-fired plants that are stranded or stressed assets. About 54 GW of coal-fired capacity and 7 GW of natural gas-fired capacity are stranded or stressed assets. According to the paper authored by TERI Fellow Thomas Spencer, while supply has improved and the energy deficit has come down significantly, many parts of India still face unreliable supply with rural areas still facing typically more than 20-30 interruptions per month.
May miss 175-GW RE target
According to a report by rating agency CRISIL, India may miss the renewable energy target by 42 per cent due to enduring policy uncertainty and tariff glitches. “The country’s installed capacity in renewable energy could increase by just 40 GW to 104 GW by fiscal 2022 from 64.4 GW in fiscal 2019. That would be a good 42 per cent short of the government’s target of 175 GW,” the agency report said. The report adds, despite the increase in tendering volume, not only has an allocation of projects slowed down but both under-subscriptions and cancellations of awarded tenders have also increased. Citing “growing incoherence between the policy thrust on renewable energy, on the one hand, and the actual action by implementation agencies like the Solar Energy Corporation of India (SECI) and state distribution companies, on the other,” the report opines that the unstable policy environment poses a big risk for the country’s renewable energy targets.
Giving an example of tariff re-negotiations in Andhra Pradesh, the study said, at the end of July, the state’s DISCOMs owed around Rs 2,600 crore to renewable energy producers, part of which was because the state government had been delaying payments over a tariff dispute. Such prolonged payment delays and disputes not only set a negative precedent but also put at risk existing and planned investment, the CRISIL report adds.
Future outlook
A new Electricity Bill on the anvil
The power distribution sector in India continues to remain critical. Despite implementing several schemes to improve the health of DISCOMs, the financial losses of DISCOMs stood at Rs 28,369 crore in FY19, up 89 per cent year-on-year. Further, the DISCOMs’ over-dues to the power generating companies are now close to Rs 70,000 crore in September 2019. To address this as well as other major challenges facing the power sector, the government plans to introduce a new Electricity Bill. The ‘forward-looking’ legislation is being designed to enhance the rights of all stakeholders. Talking about the same, power secretary Sanjeev Nandan Sahai said, “We are in the process of writing the new Electricity Act in India. This will be designed to enhance the rights of all the stakeholders.” He further informs that the new Act will include a chapter on the market, market mechanism and trading of energy. Researchers believe that some policies such as renewable purchase obligations and penalties for delays in payments can be formalised by including them in the Electricity Act.
Policy push to boost e-mobility
In 2017, the Indian government had set an ambitious target of converting into a 100 per cent EV nation by 2030. According to Society of Manufacturers of Electric Vehicles (SMEV), EV sales in India saw a sharp jump from 56,000 vehicles (including two-, three- and four-wheelers) in FY18 to 7.59 lakh in FY19. Commenting on the future of e-mobility, power secretary said, “E-mobility is a great thing to happen. Besides making us economically better-off, E-mobility is environmentally friendly.” Despite witnessing significant growth over the past couple of years, the path forward, however, isn’t smooth for EV industry in India.
The major challenges include inadequate charging infrastructure, the high price of EVs, and lack of quality maintenance and repair options. Of late, with an aim to become a global hub for EV manufacturing, the GST Council has reduced the GST rate on EVs to 5 per cent from 12 per cent. Also, in order to encourage the adoption of EVs, GST Council has approved an exemption from GST on the hiring of electric buses by local authorities. Earlier, to make EVs affordable for consumers, the government announced additional income tax deduction of Rs 1.5 lakh rupees on the interest paid for a loan taken to purchase EVs.
In order to address the concerns of the EV owners, the power ministry has approved amendments in EV charging guidelines and specifications. The guidelines envisaged a phase-wise installation of an appropriate network of charging infrastructure throughout the country. At least one charging station should be available in a grid of 3 km x 3 km in the cities and one charging station at every 25 km on both sides of highways/roads, the new guidelines suggest. To address the concerns in intercity travel and long-range and/or heavy-duty EVs, it has also been envisaged that fast-charging station for long-range and/or heavy-duty EVs like buses/trucks etc., shall be installed at every 100 km, one on each side of the highways/road located preferably within/alongside the public charging station (PCS). The power ministry has also clarified that setting up of PCS shall be a de-licensed activity and any individual/entity is free to set up PCS, subject to the conditions as specified in the guidelines.
Privatisation of DISCOMs?
In 2018, the government think tank NITI Aayog in its strategy document titled ‘Strategy for New India @75’ suggested a plethora of reforms for the power sector including privatisation of DISCOMs by 2022-23. “Privatising state distribution utilities and/or the use of a franchisee model will reduce AT&C losses. DISCOMs may adopt a franchise model for its retail business in rural areas and stipulate a minimum level of performance parameters, including the use of decentralised generation sources and storage systems for local reliability and resilience,” the strategy document said.
Manoj Kumar Upadhyay, Deputy Adviser (Energy & International Cooperation Vertical), NITI Aayog, opines, “Now the time has come when states need to adopt three models – complete privatisation, concession based public-private partnerships (PPPs) and franchise to restructure the DISCOMs. States may also create separate DISCOMs for cities with a population above 25 lakh including urban agglomerate areas for the viability of the DISCOMs.” Tarak Mehta, President – Electrification Business, ABB also suggests, “India has a lot of power that is lost between generation and the time it comes to plugs and sockets – whether it is through the free power we give to a lot of people who don’t necessarily appreciate it. There is a big challenge for distribution companies to get returns on investment. So, privatising it might be one avenue.”
Energy storage – An emerging business space
Energy storage is all set to become a practical alternative to new-build electricity generation or network reinforcement. According to a forecast from research company BloombergNEF (BNEF), India may emerge as the third-largest country in terms of energy storage installations by 2040. The forecast indicates, only 10 countries are on course to represent almost three-quarters of the global market in gigawatt terms. “South Korea is the lead market in 2019, but will soon cede that position, with China and the U.S. far in front by 2040. The remaining significant markets include India, Germany, Latin America, Southeast Asia, France, Australia and the U.K,” the report adds.
