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Power transmission industry is expected to grow manifolds in coming years with the help of
ambitious “power for all” program by 2022 and with few other initiatives taken by the
government. This report gives a brief analysis of the role of SMEs in transmission industry and
assessment of the industry trends along with key success factors, opportunities, challenges,
future outlook and much more…
POWER TRANSMISSION CAN SMEs POWER UP THE SECTOR?
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Table of Contents ABOUT THE AUTHOR ..........................................................................................................................2
EXECUTIVE SUMMARY .......................................................................................................................3
INDUSTRY OVERVIEW ........................................................................................................................4
TRANSMISSION TOWERS MARKET ..................................................................................................5
CONDUCTORS MARKET ..................................................................................................................5
PROJECT CYCLE ..................................................................................................................................6
COMPETITION ....................................................................................................................................6
PROFITABILITY ...................................................................................................................................7
EXPORTS ............................................................................................................................................7
EXTERNAL ENVIRONMENT & ITS IMPACT ............................................................................................9
GOVERNMENT INITIATIVES ................................................................................................................9
OPPORTUNITIES FOR SMEs ............................................................................................................... 10
CHALLENGES FOR SMEs .................................................................................................................... 11
WAY FORWARD ............................................................................................................................... 12
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ABOUT THE AUTHOR
Rohan Agarwal has 2 years of experience in projectmanagement in Realty sector. He has keen interest in Operationsand Finance area and is currently pursuing MBA from InternationalManagement Institute (IMI) New Delhi. He is a graduate in CivilEngineering from Delhi Technological University.
Kumar Rishi is a Post Graduate in Marketing from IMTGhaziabad and a Mechanical Engineer from Thapar University,Patiala. He has experience in auto component industry andmarket research.
Ashwani Kumar holds wide experience helping SMEs growthin Steel & Automotive Component industries using Operationalexcellence, LEAN & Six Sigma concepts. He is a graduate fromIIM Rohtak with a Mechanical Engineering background from IITDelhi and currently running Sookshm Management ConsultingFirm catering to SMEs.
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EXECUTIVE SUMMARY India’s energy requirement displayed a growth at
CAGR of 5.5% during FY07-FY16. According to
ministry of power till Feb’17, India has generation
capacity installed of 315.4 GW and the Peak
Demand of about 159 GW.
Despite huge investments being planned for the
two 5-Year Plans (12th and 13th), investments in
power transmission sector are still not
satisfactory. For investments made in generation
of power, at least 50% should be invested in
transmission of power in addition to it. But in
India, this ratio stands at 30%.
When we are looking at the industry from SME
point of view, then understanding the cost
structure becomes crucial. In transmission
industry, few activities such as tower design,
supply of conductors and material amount for 80-
85% of the total costs and efforts of the project.
And project life cycle spans over 3-4 years for
completion including finalizing of plan and
conducting surveys.
PGCIL and state Transco award projects to various
private players. In the past, healthy profitability
levels (RoCE of 25-30%) attracted new players.
This heightened competition has deteriorated the
financials of players. The sharp drop in RoCE (from
earlier level to around 18%) was due to rising
working capital requirement and aggressive
bidding by smaller competitors.
The transmission tower EPC industry is expected
to generate revenues of INR 275 Billion in 2017-18
at CAGR of 7-9% over 2014-15 which is mainly due
to domestic demand. A sharp drop in global
commodity prices over the last year has squeezed
budgets of several resource-dependent
economies. Thus, impacting their investments and
international demand. But domestic projects
helped in arresting the decline.
Transmission towers has major export market in Middle East, South East Asia, Latin America and Europe. As Middle East countries look to expand as well as stabilize transmission network along with interconnection of grid. Germany is also looking for grid connectivity with neighboring countries to sell unused green power.
If we look at the external environment of the
industry, tariff based competitive bidding, land
acquisition, biological health effects, 100% FDI in
the sector and technological advances like FACTS
devices and HTLS Conductors all are impacting the
industry growth for good or bad.
Government initiatives like Make in India and
Union budget 2017 are aimed at promoting skill
development, 100% rural electrification by 2018,
Implementation of Indian Customs Single
Window, reduction in corporate tax on SMEs,
removed tariff protection, lowered custom duties
and mandated domestic sourcing of equipment
for all central and state funded projects.
SMEs are facing various challenges, be it Chinese
firms bidding for power transmission projects in
India or insufficient capabilities for R&D and
innovation or large Indian players who provide
complete solutions.
But the future outlook for the industry looks
promising, as it offers many exciting opportunities
for SMEs like estimated investments in power
transmission for 13th five-year plan is around INR
2.6 lakh crore, using technology in
implementation of project, market-oriented
reforms like ‘Power for All’ by 2022, target
capacity of 175GW in renewable energy and up
gradation of existing infrastructure are some of
the opportunities where SMEs needs to stay
competitive in future.
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INDUSTRY OVERVIEW India’s energy requirement displayed a growth at
CAGR of 5.5 per cent during FY07-FY16. As per
ministry of power as of Feb’17, India has
generation capacity installed of 315.4 GW and the
Peak Demand of about 159 GW with generation
mix of Thermal energy (68.2%), Hydro energy
(14.1%), Renewable energy (15.9%) and Nuclear
energy (1.8%).
In the last 5 years, power generation capacity has
grown by around 50%, whereas transmission
capacity has increased by around 30%. Despite
INR 4800 Billion worth of investments being
planned for two Five Year Plans (12th and 13th),
investments in transmission sector are still not
adequate. For 1 dollar invested in generation of
power, minimum 50 cents should be invested in
power transmission. In India, this ratio stands at
30%. The rising demand for energy has led to
increasing capacity addition for power generation.
Increasing investments in capacity has resulted in
rising demand for power generation and
transmission equipment.
Major components of transmission includes
transmission towers and lines and conductors.
Various stakeholders in electricity system are
shown in diagram-1:
Diagram 1: Stakeholders in electricity system
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TRANSMISSION TOWERS MARKET The transmission tower EPC industry generated
INR 220 Billion in revenues in 2014-15 as given in
Fig-1. Of which domestic demand accounted for
INR 132 bn (60%) and international demand for
INR 88 bn (40%). Scope of the project differs
depending on whether it’s under PGCIL
(conductors supplied by PGCIL) or under state
transmission authority (conductor may or may not
be supplied).
Domestic market for towers declined in 2014-15
because of decline in PGCIL projects in 2012-13. As
projects generally spans over 2 years hence the
decline. But projects from states such as UP,
Gujarat, TN and Maharashtra helped in arresting
the decline. Market is expected to grow to INR 275
billion in 2017-18, translating into a CAGR of 7-9%
over 2014-15. This is mainly due to the domestic
demand.
CONDUCTORS MARKET Overall conductors market grew at CAGR of 4.7%
(in MT) and CAGR of 9.6% (in INR CR.) between FY
2010-11 to 2014-15 and has a market size of
around INR 100 Bn in 2016. Production of Indian
conductors industry was around 4.2 Lac MT of
conductors in FY 2010-11. Production figures were
at maximum in 2012-13 to around 5.5 Lac MT. The
industry witnessed production at around 4 Lac MT
in the last two years (i.e. 2013-14 and 2014-15).
This trend is largely a reflection
of PGCIL conductor contracts until FY 2011-12 and
swell in its inventory levels in the following years.
Three type of conductors considered are:
Aluminium Conductor (AAC), All Aluminium Alloy
Conductor (AAAC) and Aluminium Conductor Steel
Reinforced (ACSR). Amongst them ASCR
conductor market is on the rise as we can see in
the figure-2.
Figure-1: Transmission tower market size
132 136 152132
5362
7988
0
50
100
150
200
250
2011-12 2012-13 2013-14 2014-15
Rs
Bill
ion
FY
Domestic International
Generation capacity: 315 GW
MARKET SIZE:
Transmission tower EPC: INR 275 Bn
Conductors: INR 100 Bn
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PROJECT CYCLE The transmission project cycle consists of 5 main
phases, as mentioned: Attracting Players, Planning
& Project Award, Project Execution and
commissioning, Operations & Maintenance and
Exit. There are different challenges associated
with each phase.
Key steps in the development of a transmission
line are survey, tower design, type testing, laying
of the foundation, supply of the material, erection
of the towers, and stringing of the lines. Of these,
tower design, supply of conductors and material
amount for 80-85% of the total costs and efforts.
The entire process generally takes 3-4 years for
completion including finalizing of plan and
conducting surveys.
Figure-2: Conductors market trend
COMPETITION Established players like KEC, etc. captures about
60% PGCIL orders. For contracts bid out till August
in 2015-16, the share of relatively newer players
such as EMC, Skipper Ltd and Karmatara
Engineering Pvt Ltd was steady at around 40%. The
presence of foreign players is limited in the
transmission tower segment. In order to bid,
foreign players typically enter into joint ventures
with local players. For instance, Spanish firm Isolux
Corsan has entered into a joint venture with C&C
Constructions Ltd. Players in domestic market are
listed in table-1.
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PROFITABILITY As we can see in the figure-3, in the past, healthy
profitability levels, i.e., Return on Capital
employed (RoCE) of 25-30% attracted new players
from related businesses such as electric
equipment and construction. This heightened
competition deteriorated the financials of players.
The sharp drop in RoCE was due to rising working
capital requirement and aggressive bidding by
smaller competitors. As a result only few
companies are surviving in the industry with
sustainable profit margins.
Figure-3: RoCE trend for industry
EXPORTS The international market is expected to grow 8-
10% CAGR over the period 2014-15 to 2017-18, a
much slower pace compared to the earlier 18-20%
CAGR between 2011-12 and 2014-15. A sharp
drop in global commodity prices over the last year
has squeezed budgets of several resource-
dependent economies. Thus, impacting their
investments.
Indian Electrical Equipment Industry had an
estimated Production for 2014-15: INR 1280
billion and Exports worth INR 340 billion.
In FY14, for Conductor export market, African
countries accounted for more than 42% of Indian
Conductors exports. Over the last 5 years, Kenya
Table-1: PLAYERS IN DOMESTIC MARKET
MAJOR INDIAN EPC PLAYERS FOREIGN PLAYERS STR. & EQUIPMENT SUPPLIERS
Kalpataru transmission ltd, KEC international, Jyoti structures, L&T, Gammon India & TATA projects
Isolux, Cobra, Instalaciones Inabensa
Man structurals, Karamtara group, Sujana towers, Ramsarup industries, Skipper ltd.
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has been amongst the top 10 importers of Indian
conductor.
Transmission line towers has major export market
in Middle East (Saudi Arabia, UAE, Oman, and
GCC), South East Asia (Indonesia, Malaysia); Latin
America (Brazil) and Europe (Germany and UK). As
Middle East countries look to expand as well as
stabilize transmission network along with
interconnection of grid. Germany is also looking
for grid connectivity with neighboring countries to
sell unused green power.
Several African countries such as Zambia, Algeria, South Africa, Angola, Mozambique, etc., which are dependent on exports of key commodities, have
already witnessed sharp increases in their trade deficits and slower growth. Thus, affecting the exports as they are investing less in infrastructure.
Major international market for turnkey projects
are Africa, Central Asia and Middle East, whereas
North America was mainly supply only market,
due to strict norms.
India’s exports and imports market of electrical equipment industry from 2005-06 to 2014-15 are shown in Figure-4. Export market has seen a decline in trend post 2011-12 mainly due to economic slowdown whose effects were visible after 3-4 years due to the project life cycle in industry.
Figure-4: India's Exports & Imports of Electrical Equipment in INR Crores
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GOVERNMENT INITIATIVES Government has taken crucial steps for skill
development by promising 1500 multi-skill
training institutes, industry-academia
partnerships and certain service tax
exemptions for skill development and
vocational training services.
Excise duties and Custom duties have been
changed for T&D to promote “Make in India”.
Under MAKE IN INDIA, domestic sourcing of
equipment has been made mandatory for all
central and state funded projects.
Setting up of the Electrical Equipment Skill
Development Council (EESDC) which would
focus on identifying critical manufacturing skills
required for the electrical machinery industry.
VISION 2022 for electrical equipment industry:
Clusters will be established for electrical
equipment industry. And plans to make India
the country of choice for the production of
electrical equipment and reach an output of
US$100 billion by balancing exports and
imports.
Implementation of Indian Customs Single
Window project has made progress to promote
import/export of capital goods by reducing
dwell time and cost of doing business.
In Union budget’17, 100% rural electrification
by 1st May 2018 has been set as target. This
provides great opportunity for Transmission &
Distribution firms.
EXTERNAL ENVIRONMENT &
ITS IMPACT Adverse environmental and health impact:
Reduces the commercial value of the land,
often leading to protests from the land
owners. It also affects the nearby eco-
system, while passing through the forest
cover or populated areas.
Entrance of Chinese firms for bidding in
Central and State sector projects: It is likely
to increase competition for Indian
manufacturers including SMEs.
Differential treatment of private players
from PGCIL for award of forest clearances
and Section 164 authorization. Private
developers are required to acquire the
compensatory land for afforestation and
hand it over to the Forest Department
whereas PGCIL has to pay double the
afforestation compensation for getting the
clearance.
Tariff based competitive bidding has been
put in place for awarding projects over cost-
plus regime. This will increase the
transparency and competitiveness in the
system. But cost escalations in case of
project delays cannot be passed through in
this system.
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OPPORTUNITIES FOR SMEs
Market-oriented reforms, such as the target of ‘Power for All’ and plans to add 100 GW by 2022, provide high incentives for capacity addition in power generation, which would increase the demand for electrical machinery and transmission infrastructure.
Of the target capacity of 175GW in renewable energy, 100 GW from solar power, 60 GW from wind energy, 10 GW from biomass and 5 GW from small hydro power, according to the ministry of new and renewable energy. This push for green energy provides opportunities for T&D sector.
Majority of Power transmission in India is being currently carried out in the 220 KV and 400 KV range, is expected to move up to a higher range of 765 KV and high-voltage direct current. This presents a significant opportunity to manufacturers (both established and SMEs) with capabilities in high-voltage (HV) to develop technology that can handle the need of such high voltages in the country.
In 13th 5-year plan, PGCIL's focus is on undertaking system strengthening projects, particularly
in the South and North-East and increased ordering by PGCIL and state transmission
companies will drive domestic demand. As a result domestic transmission tower industry is
projected to expand at a CAGR of 6-8% between 2014-15 and 2017-18.
100% FDI in electrical machinery industry has facilitated the entry of global majors into the electrical machinery industry in India. There is an opportunity for SMEs to partner with these firms and use their resources and capabilities for various technological trends like HTLS conductors, FACTS devices and others.
Transmission of 1200 KV was started through National Test station at Bina (Madhya Pradesh)
in May 2016. This National Testing station will be monitored for 2 years and if successful will
be replicated. Thus, an opportunity for SMEs in UHVAC technology.
There is likely to be an estimated investments of INR 2.6 lakh crore in power transmission in 13th plan according to CEA (Central Electricity Authority). Of this INR 1 lakh crore will come from POWERGRID and rest INR 1.6 lakh crore from states. Thus, large number of projects are likely to come up in next 5 years.
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CHALLENGES FOR SMEs
Large players provide complete solutions or turnkey projects thus SMEs face a big challenge in winning projects as generally they have capability in one part of EPC.
Buyers are limited and majorly government agencies. Thus, buyer power is high and can frame eligibility criteria for awarding projects which might be difficult for SMEs to fulfill.
Deficiency in current transmission infrastructure leading to T&D losses of more than 20% over past 5 years. And focus is insufficient on up gradation of existing transmission lines.
There are major issues related to the slow pace of project commissioning and critical resources being under-utilized like land and Right of Way that have slackened the growth in transmission capacity.
Insufficient focus on innovation be it in terms of new conductors or transmission tower designs by SMEs is hindering their growth in fast changing times.
Poor Operations & Maintenance of existing systems by the existing players. Thus, affecting future prospects for winning the project bids as operations and maintenance is also an important criteria for awarding a contract.
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THE WAY FORWARD…
Even after facing various challenges, SMEs are able to sustain in the market and could grow manifolds
by partnering with firms having R&D capabilities of their own, this can be achieved through various
routes. This will help SMEs to compete against larger domestic players for power transmission projects
and helping SMEs grow by implementing various strategies and tools has been the objective of
Sookshm since inception. Some of the crucial aspects which the transmission industry and SMEs will
need to adopt for sustainable growth are as follows:
Reducing the concentration of projects with PSUs as PGCIL and other state entities. As of
March ‘16, private sector accounts for only 5.87% of transmission lines. Currently, there is no
substitute to transmission lines. And having 315 GW of installed capacity is not compensated
by adequate transmission infrastructure. Because of choked transmission infra, power surplus
region are not able to supply to power deficit regions. There is huge need for participation of
private sector investments or PPP mode for building up adequate infra.
Incentivize early commissioning and speedier execution. These norms should be made part of
the standard bidding documents.
Key areas where technology can be used while implementing projects are:
1. Survey: Carry out transmission line optimization through LiDAR survey (light detection and
ranging tech.)
2. Tower design: Use of green tower (least amount of steel), delta configuration for 765kv
line, etc.
3. Selection of conductor: Use of high performance conductors (HTLS: high temperature low
sag) needs to be taken up to increase power transfer intensity. Up gradation and re-
conductoring of existing lines can save valuable time, cost, row, and forest cover. This
would also mean lesser delays, and faster commissioning at a much lower cost to the
nation.
4. Mechanized construction methods: Transmission line erection and line stringing using
helicopters.
As power sector in India is expanding and need for independent transmission system
operators is increasing, stability and power flow will be important. Thus, FACTS (Flexible AC
Transmission Systems) will become the focus point such as SVC (Static Var Compensation) and
STATCOM (Static Synchronous Compensator) devices for better power quality. FSCs (fixed
series compensators) for improving existing lines. STATCOM can be used for weak power
generation sources like wind and solar.
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About Sookshm
Aiming to Achieve Growth through
CREATIVITY & INNOVATION
About Sookshm
Aiming to Achieve Growth through
CREATIVITY & INNOVATION
We believe that there is always a better way to manage a business.
At SOOKSHM, we are reinventing the way Businesses
think, operate and grow.
Our vision is to be India’s leading advisory
in Business Consulting for Indian Business
Houses
We seek to develop systems to help Businesses
work more efficiently, thereby raise themselves
to World Class Business Institutions.
In the next 5 years, we wish to impact 1000
businesses, hand holding them in their
journey towards Business Excellence.
OUR SERVICES
Marketing and growth
strategy
Operations optimization
Organizational Redesigning
Technology in Business
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E-mail- [email protected]
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