India is on the verge of becoming major power nation among developing economies. Electricity is a key constituent for the economic growth of the country and is directly linked to GDP of the country. There has been a surge in demand for power in India due to increase in capacity utilisation, industrialisation, urbanisation and population.
The power and distribution transformers industry in India, “Currently through reforms such as ‘Power for all’, government plans to add 93 GW by 2022, this would fuel the demand for power transmission and distribution equipment. The Indian power and distribution transformer market is forecast to reach $2.9 billion by 2022. Presently the government is taking major steps to strengthen the power transmission and distribution network and has undertaken imitativeness such as UDAY for financial turn-around of power distribution companies. Further, the government has projected an investment of Rs 146,000 crore. In transmission sector by FY 2019 which results in demand for distribution and power transformers. As per various researchers, the industry is going to increase by more than 10 per cent CAGR in the next 5 years.”
With implementation of UDAY and other discom schemes there is a huge acceleration of infrastructural amendment in India. This has influenced invitation for bids for refurbishment and up-gradation of existing T&D network, “Till date 27 states and UTs have opted for the scheme. Thanks to Indian government in bailing out most of the discoms in order to make them financially self-sufficient so that they distribute electricity at reasonable cost to domestic and industrial users. It has really taken care of all the issues spread across India right from remotest village to the nearest town. So naturally transformers are on demand all across India because energy distribution always needs this single most important device in the network that is transformer.”
Both power as well as distribution network is getting strengthened all across the country. Also the discoms are instructed to reduce losses to the tune of 10 to 12 per cent which means they have to go for efficient transformers. Recently, BIS circulation has issued strict norms on transformer losses and it is expected that in next 3 years time discoms have to replace all existing transformers with level 3 transformers (Level 3 means 5-Star Rated Transformers). Transformer manufacturers have to manufacture and supply these new transformers in millions to the discoms in a maximum period of 3 years.
Industry has observes that the Indian transformer industry has been stagnant over the past 1-2 years due to slowdown in projects both in the power transmission and distribution sectors. “Ambiguity around GST rates for capital goods products has added further to the business slowdown. The transformer industry largely depends on the spending from transmission and distribution utilities and recent tenders/ordering activity by utilities clearly demonstrate the downward trend. It has also been observed that the number of projects, especially in the transmission sector which have been initiated have been put on hold due to delay in approvals and lack of funds.”
Major growth drivers
The government initiatives like DDUGJY, IPDS and growing FDI in power industry are few growth drivers in the industry. The growth in renewable energy sector also substantially helps in increase in demand for transformers.
“Design team of transformers should be very strong and is one of the major growth drivers in industry. They need to make the designs in such a way that material required for manufacturing transformers should be available freely (many suppliers) and less customised materials need to be ordered. The windings should be made easy so that workmen find them easy to assemble. The other growth driver is coordination between different departments (active path and tanks).”
Apart from manufacturing transformers, transformer service industry can also be started thus achieving third-party contracts from governments or other private players. Current transformers and potential transformers can be manufactured from the wastage of distribution and power transformers reducing the manufacturing costs.”
Government schemes such as DDUGJY and IPDS which are aimed at improving the distribution networks in rural and urban areas, respectively, largely drive the distribution transformer demand in India. The demand from these schemes is expected to continue and in addition new schemes such as Saubhagya scheme which aims to provide last mile connectivity to rural consumers should increase future demand. Infrastructure segment (especially Metro Rail Projects) are witnessing increase in demand for distribution transformers and increased government spending in this segment is set to drive demand in future.
“For power transformers, intra-state transmission projects (400 kV and below) are expected to drive demand. State TRANSCOS will majorly drive this demand and float new transmission projects through the TBCB model. PGCIL, which is mainly into executing and implementing interstate projects, is planning to aggressively enter intrastate projects by forming joint ventures with state utilities,”
We believes, distribution transformers up to 2 MVA remains the hot cake as this is the range defined by BIS however with increase of power demand and up-gradation of substation is continuously chasing behind the main power transformer. The power transformers hence also needs replacement or relocation to less populated demand centre. Most of the solar power generation built last year are now almost connected to the national grid and often throwing huge power flow in the cycle which is meeting country 23 per cent power demand in few demand centre during peak hours. The solar boom has crashed a new demand of Inverter duty special transformers. NTPC, NHPC and SECI have been continuously inviting GW bids and with Indian government’s dream of 20 GW by 2022 has created a restless situation is solar field raising a high need with high speed supply derivatives.
“The prevalent scenarios suggest a optimistic growth potential within the organised sector of the industry. Initiative like rural electrification, privatisation of utilities and ‘Make in India’ shall be the primitive drivers towards the growth story of the industry. However, to our understanding, only efficient and quality focused organisation can be benefited from such drivers,” stated Divyansh Kohli, Executive Director, NDL Power Ltd.
The challenges
India’s transformer market is predominantly unorganised with many small participants catering to the smaller distribution transformer markets. However, many are slowly graduating to the medium-sized category, thus expanding the organised participants’ base. This makes the market more competitive and price sensitive rather than quality. If an organisation focuses on quality manufacturing of transformers, they can sustain the competition and have incremental growth.
Major challenges, “The supply of CRGO is one of the major challenge in this industry as it needs to be imported and there is less supply. This challenge needs to be overcome by forecasting material planning properly. The failure rate of transformers is also a concern.”
“There are wide variety of products and different star ratings requirement from customers/clients. So, certifications of each and every product become an expensive process due to less number of testing facilities. Testing infrastructure available at India’s premium agency, the CPRI is proving short of demand as they are not in pace with the production both quantitatively and qualitatively. So, large power transformers are sometimes sent to overseas facilities for testing. It takes around 2-3 months for BEE certification. Dual certification from both BIS and BEE is required in India which is even more challenging.”
We believes, new BIS efficiency standards were introduced last year: the transition to meet these new standards has led to a few hiccups on the distribution transformers market. Most of the manufacturers were not ready with mandatory BIS certification and has a result the supply to DISCOMs was affected resulting in low demand. The stringent efficiency levels are also expected to consolidate the market; currently only 250-300 manufacturers have applied or obtained BIS certification out of the total industry size of 500 plus manufacturers. This is mainly because of unorganised manufacturers who were highly price competitive and majorly rely on use sub-standard raw materials.
The demand from the manufacturing segment is still a major concern for the industry, the manufacturing sector is yet to see an investment uptick due to low capacity utilisation and this has led to slowdown in new as well as expansion projects.
“The slowdown in the manufacturing segment has a ‘Domino’ effect on the overall transformer industry – low power demand from the manufacturing segment is one of the major reasons for reducing peak power deficit in the country, excess power from the manufacturing sector is diverted to residential and agricultural sectors shortening power outages in these sectors. Unless power demand from manufacturing segment increases the utilities will be not be very enthusiastic to spend on improving power availability or expanding the network. Hence, demand expansion in the core manufacturing sectors is very critical for the transformer industry,”
Renewable energy sector projects, especially in the solar segment have witnessed a serious slowdown in projects after showing significant growth in 2015 and 2016. This has hampered spending on transmission projects resulting in delay in project approvals and project cancellations. In a recent move, Indian government imposed 70 per cent safeguard duty on imported solar cells; this could increase the overall project cost and is further expected to impact growth in solar projects and will cause low spending in associated transmission projects.
“Challenges remain always for quality manufacturers because MKT Realisation versus cost always will race with each other. The cost of manufacturing of quality transformers as per Level 3 is quite high (IS 1180 transformer almost costs double of IS 2026) so few competitors are finding nook and corners to sacrifice on materials to bag orders which ultimately does not serve the basic purpose that is to reduce distribution losses by supply highly efficient transformer. Government has to come forward and promote quality suppliers to permanently raise the health level of electrical network. It is worth to mention that more and more inefficient transformers in distribution circuit actually make the total T&D system paralysed because there is huge line losses on 24×7 basis totalling millions of rupees. Wastage which otherwise could have helped the country to progress.
What remains to be seen, is how our industry can cope the challenges that we face today. Right from the lack of technology for Indian produced CRGO core, which in-turn translates to utilisation of poor quality, or pre-used / scraped core in the majority market; to the lack of awareness in the mid-sized industries towards reliable management of transformer and power system; what we need is a paradise shift in our approach as a nation.
Key targets to achieve in transformer business
The immediate target for the transformers industry as well as the policy makers will be to curb the losses associated with distribution transformer failure which are relatively higher in the Indian context compared to global benchmark. Standardise and improve the efficiency of the transformers over a period of time which will add to overall efficiency gains and savings across the T&D grid operation.
Transformers account for significant capital expenditure for the utilities. One of the key goals for the industry will be to gradually move from CAPEX based mindset to look at the transformer total cost of ownership which in long run will benefit the utilities.
