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Power Equipment: Sunny days ahead - Views on News from Equitymaster
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  • Sep 19, 2008

    Power Equipment: Sunny days ahead

    It is a well-known fact that there is a high amount of power shortage in India. To counter the same, the government's ambitious target of supplying power to all by 2012 was initiated. As such, the Planning Commission of India had set a target to add nearly 80,000 megawatts (MW) of generation capacity by the end of the eleventh plan (2007-2012) in order to narrow down the demand-supply gap.

    However, the FY08 target of adding 16,355 MW of additional capacity through government and private participation across thermal, hydel and nuclear sectors was not achieved, as only 10,783 MW was added (an achievement of 65%). At such a rate it will be impossible to meet the target of 80,000 MW by 2012.

    This may seem like a poor performance when it comes to execution, but on the greener side, this translates into a strong opportunity for power equipment manufacturers. With many new players entering the equipment-manufacturing segment (through joint ventures) and the existing players augmenting their capacity, it is likely that the annual target achievements are likely to improve going forward, say maybe by the twelfth plan (2012-2017).

    Over the next four to five years, over Rs 250 bn have been planned for investments in new manufacturing units in thermal power equipment, which will add 25,000 MW in thermal generation. The strong demand for critical plant machinery such as boilers and turbine generators (BTG) has led the manufacturers (both existing and new) to pump in large amounts of investments towards setting up manufacturing units across the country.

    Another factor that has led to such strong investments is the higher amount of equipment imports, especially from China. As the equipment suppliers have not been able to meet the demand for their products, the power companies are resorting to importing equipment. With the government clearly indicating that the suppliers having their manufacturing base in India to be given preference, the new capacity additions will not only boost their revenues going forward, but will also help in cutting down the imports.

    New Capacities

    Planned greenfield investments
    Company/Venture Expected capacity (MW) Expected year
    JSW-Toshiba 3,000 2015
    Rinfra-Shanghai Electric 10,000 2010
    NTPC-BHEL Power Projects 5,000 2013
    Alstom-Bharat Forge 5,000 2011
    Ansaldo Caldie NA 2011
    Skoda Power NA 2011

    Source: Power Line

    Above table lists some of the key projects in the pipeline. It can be noticed that joint ventures seem to be the new route towards tapping the huge opportunity in this space.

    Existing players playing their part
    BHEL, India largest power equipment manufacturer has planned to augment its capacity by 5,000 MW (50% increase) within the next two years. Another prominent power equipment player, L&T, which tied up with Mitsubishi Heavy Industries, is set to achieve an annual manufacturing capacity of 4,000 MW in supercritical boilers and turbine generators within the next two to three years.

    It is estimated that nearly 153 power plants are to be setup during the eleventh plan, translating into robust opportunities for the manufacturers. There are several other players who have laid down their plans for capacity additions. As India has been facing a certain amount of bottlenecking in the BTG space, these capacity additions are likely to counter the same along with narrowing down the demand supply gap in the future.



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