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Capacity Building for Expansion of Power Sector, Shri R V Shahi, Former Secretary, Ministry of Power

"India Electricity 2008" was a grand event organised by Ministry of Power in association with Federation of Indian Chamber of Commerce and Industry and was held at Delhi on 11th to 13th of September, 2008. I recall, in the beginning of 2006, when we were preparing for formulation and launch of the Ultra Mega Project Scheme to invite large scale and wider participation of private sector into power industry, apart from many other ingredients necessary for success of this Scheme, we felt that an international road show would be a good idea to showcase various Legislative and Policy initiatives of the Government. It was decided in the Power Ministry that an industry partner would be necessary in this series of exercise. Accordingly, FICCI was identified to partner with Ministry of Power to organise series of Conferences and Seminars and, if required, Exhibitions throughout the world in important locations, to project the enormous investment opportunities which have emerged post Electricity Act 2003, National Electricity Policy 2005 and a series of other Policies. The Flagship Scheme viz. Ultra Mega Project each of which had a scope of investing almost US $ 4 billion would be at the centre of the focus. It took a few months to conceptualise and structure the "Indian Electricity 2006 - Conference and Seminars." In the third programme in 2008, therefore, one could see, both from the contents including quality and delivery, significant improvements.

I had the opportunity to chair the Plenary Session on "Capacity Building: Equipment Manufacturing". Five lead presentations were made - by the Country President of Alstom India, Regional Executive of GE Energy India, Chief Operating Officer of L&T - MHI Joint Venture Company, Executive Director Engineering of NTPC and Executive Director of NHPC. Relevance of this Session may be understood in the context of equipment supply emerging as the most crucial constraint to meet the ambitious capacity addition programmes during the Eleventh Plan and subsequently. It may be recalled that it is not only for the Eleventh Plan, where we scaled up the targets, of course after considerable amount of preparations during the last three years of Tenth Plan itself, that the equipment supply is posing to be a major area of concern. In fact, one of the most important reasons that a large amount of capacity targeted to be commissioned during the Tenth Plan slipping to Eleventh Plan, was the delayed supplies of plant and machinery and subsequently lethargic progress on construction, erection and commissioning by these equipment suppliers. Composition of the Panel of Speakers in this Plenary Session was balanced, inasmuchas we had both the major equipment manufacturers as also the generating companies, though the presence of the representation from BHEL, though slated on this Session, could not be secured.

I propose to highlight the salient aspects of this Session in the following manner - (a) the perspectives and concerns of the manufacturing sector, (b) the perspectives and concerns of the generating organisations, whose performance in recent years has been adversely affected due to inadequacies in capacity additions and the apprehension is that in the future it could be affected even more adversely, and (c) perception of other stakeholders and of those interested in the development of the sector.

First the perspectives of the Equipment Suppliers.

  • We all know that the power sector showed all the seriousness for a massive expansion during 90's, but the experience showed that the equipment suppliers kept waiting for orders. Therefore, the premise that the sector provides now a great opportunity has been viewed in the manufacturing sector with a degree of disbelief and skepticism. But, it is also a fact that the manufacturing sector has been grossly wrong in making such assumptions, because the opportunities provided now, post Electricity Act 2003 and a host of other Policy initiatives, are not only different but, both quantitatively and qualitatively, there is a significant change in what existed throughout 90's and what the sector offers now. Any concerns, doubts, uncertainties and a degree of skepticism, therefore, are totally misplaced. These should have no place in the changed scenario of Indian power sector.

  • The manufacturers now do recognise that the disconnect that seems to have crept in is entirely due to the miscalculation of the manufacturing sector in not being able to see the writing on the wall and to predict the wave of opportunities which were to come up, a few years ahead of the time they really surfaced. Therefore, the sector has been caught napping; opportunities are there, orders are mounting on manufacturers, but they find themselves in a position that they cannot cope with the demands in the time frame in which these supplies are required to be made.

  • It was heartening to listen to these expressions and admissions of the fact that the manufacturing sector does recognise the folly of its own approach in not believing that the sector was really in for the type of transformation that is happening. This recognition and admission of the disconnect in their approach has indeed led to a number of them coming forward to fill up the gaps as quickly as possible by expanding their existing capacities and, by many, in creating new capacities.

  • It is also a fact that globally the demand for additional power generation capacity, whether on account of need for more power or on account of replacing the existing generation facilities with new technologies, has led to enormous amount of pressures on manufacturers all over the world. This phenomenon is no doubt, more true for those developing countries which are now trying to catch up with the rest of the world, and particularly for large countries like India. But, to some degree, it has emerged as a universal phenomenon. Therefore the crisis like situation of suppliers not being able to meet the needs of power generating companies would remain as an area of challenge for some more years. Preparations which are happening in India and expansions that are taking place elsewhere would definitely lead to lessening of stresses and strains.

  • Apart from the need for additional generation capacities, another factor which is also contributing towards this problem is the development of, in many cases, renovation, modernisation, retrofitting etc. in response to the changing demands on environmental considerations. Coupled with this is also the fact that old plants need to be replaced and new ones need to be set up with latest advanced technology.

  • One of the reasons that the manufacturing sector has remained conservative in its approach towards investments and expansions is its apprehension about the returns on these investments. Beaten by several years of stagnation in demand, throughout 90's, their conservatism stands justified. However, the grievance of the utilities also stands vindicated because this conservatism continued for a much longer period than perhaps was necessary.

  • Technological changes in the power sector have to keep pace with the expectations of stakeholders and public at large on environmental safeguards. Power generation technology definitely needs to be more energy efficient. Limited reserves of fossil fuel in India and the world have to be used in a manner that the conversion efficiency is maximised.

  • Research and development, aimed at technologies which will make the fossil fuel consumption more energy efficient and meet the strictest possible environmental norms, needs to be pursued. On this score a lot is being done by major global manufacturers of power plant equipment and systems. The areas which need deeper research and technology development, are areas in the new and Renewable Energy fields. In the technologies on wind, bio-mass, solar, geothermal etc. good progress has been made but a lot more is required.

  • Apart from these major areas of technology and capacity expansions, an important issue which needs a better degree of appreciation by the power project developers is in relation to the Qualifying Requirements for tenders for projects, based particularly on new technologies. Quite often, attempts at developing new technologies and systems get dampened and discouraged, and sometimes even frustrated, because of the approach, attitude and mindset of these power project development companies which want, as a prequalification criterion, certain years of experience. In such a situation the exercise and initiative on new technologies can become a non-starter. It is needless to say that a new technology will obviously have no operating experience, and if it has operating experience it cannot be a new technology. Therefore it is the considered view of manufacturers - and it needs to be appreciated by all - that in the development of new technology, efforts of manufacturers are as important as approach and considerations by those who are going to use that technology.

Now let us analyse the perspectives of the generating companies.

  • For India, economic growth is closely and directly dependant on electricity. If the country could not achieve a sustained GDP growth of 9 to 10% over the last 25 years, as China could do, it was primarily because electricity generation growth did not support such a growth pattern. Now that all other ingredients of two digit GDP growth to be achieved, in a sustained manner, in next few decades, are being put in place, all of us need to commit and ensure that the electricity sector does not come out as the main obstacle in securing such an economic growth rate.

  • After several years of slow progress in capacity addition programmes, mainly on account of less enthusiastic response from developers, lenders and equity partners, the sector is now poised for a rapid capacity addition programme. What has been experienced in last 5 to 6 years, during which there has been unprecedented flow of orders for supply of power plant equipments and systems, the deliveries have let down the project developers on schedules.

  • BHEL, the main power plant equipment supplier for boiler, turbine, generator and transmission systems, is not the only organisation which has been the focus of attention on such delays and defaults, though they constitute the main proportion of such a problem, in fact, Balance of Plants (BOP's) have equally been the target of attention. These suppliers have also been standing in the way of smooth execution and commissioning of new power plants.

  • After several months of delays, when plants and machinery arrive at the sites, invariably it has been experienced by most of the utilities that the preparedness of the suppliers of the equipment has been far from being satisfactory. Thus several months of delays in supply have invariably been compounded with several months of further delays because of construction and erection agencies being inadequate in their tools and tackles as also their manpower. It has also been experienced that when several sets are in the advanced stage of commissioning, the commissioning teams of equipment suppliers have been found to be lacking in numbers, and sometimes also in skills, thus further delaying the project commissioning.

  • In the recent years because of the pressures on power plant suppliers and suppliers of associated systems, contingency arrangements have become routines than exceptions. As a result, most of the sets though commissioned, take several months before their smooth commercial operation commences.

  • It need not be repeated that perhaps living for too long a period only with the BHEL as the only power plant manufacturer of boiler, turbine and generator has proved costly for power sector. Less than aggressive - in fact too conservative - approach of BHEL in not seeing the tides and predicting the future opportunities has kept BHEL somewhat complacent in their expansion programmes. During the period in which countries like China not only multiplied their manufacturing base in the existing factories but also increased the number of factories itself, in India we have remained stuck up with the same number of factories even within BHEL. To place the issue in the right perspective, it would be relevant to mention that at this point of time when the country needed about 20,000 MW per year of manufacturing capacity we are at less than 8,000 MW capacity, in fact, a year back we were only about 5,000 MW of annual capacity.

  • Balance of plant sector such as coal handling systems, ash handling systems, transmission equipment etc. have also been falling behind in terms of their manufacturing capability. There are several examples that main plant got ready but commercial operations lagged behind in view of inadequacies from the suppliers of these balance of plant facilities.

  • Hydro electric sector, which has a significant potential in the country, of the order of 150,000 MW, but tapped to the extent of only 35,000 MW, has been attended to even to a lesser degree by the domestic manufacturing industry. The first largest project of the country viz. Naphtha Jakhri Project which has 6 Units of 250 MW each has the main plant supply from outside India. Similarly the 1,000 MW Tehri Project (5 Units of 200 MW each) has also the main plant supply from outside. Technological upgradation in hydro sector, in so far as the domestic manufacturing goes, has been far from being satisfactory.

  • Our manufacturing track record on Combined Cycle Gas based power plants has remained far behind in terms of technology. We continue to depend almost fully on import for large integrated Combined Cycle Power Plants.

  • Super Critical Technology, which was to be brought in Indian manufacturing during the Tenth Plan, has not only lagged behind, but even in the Eleventh Plan its manufacturing in India seems unlikely. In the face of global pressure on India against excessive dependence on fossil fuel based generation, there is an urgent need for a good amount of coal based capacity based on Super Critical Technology to be added in the Indian power sector profile. Hopefully marginal additions should happen towards the end of Eleventh Plan and a little more in the initial years of Twelfth Plan. But unfortunately these would not be based on manufacturing from Indian origin. Therefore, there is an urgent need for self introspection by the Indian manufacturer as to why the Indian power sector has remained deprived of deploying the latest technology of power generation.

  • Transmission sector, specially from the point of view of Extra High Voltage (EHV) and Ultra High Voltage (UHV), has not made significant headway and assimilated into manufacturing the global advancements of technologies in HVDC.

  • There has been reasonable progress on power generation through wind energy and we must compliment the manufacturers in this area not for only meeting the domestic needs but also exporting a good amount of capacity. But in other areas of new and Renewable Energy generation such as solar systems, geothermal etc. the progress is not at all satisfactory.

  • In the wake of the latest achievements on global collaboration in the nuclear field, preparedness of Indian manufacturers for nuclear power plants will need to be taken up on a priority.

  • Indian coal has its advantages but it also has a lot of limitations and disadvantages. Keeping in view the expectation on account of environmental considerations it has been long overdue that Indian power sector is provided with IGCC Technology. Some efforts have been made in last 15 years but there is considerable scope for accelerating these efforts with enhanced commitments on the part of the manufacturing sector.

  • A presentation was made by the latest initiative of L&T and MHI of Japan to set up the boiler factory to meet the Super Critical Technology requirement. It is gratifying that after the initial concerns and noises about the inadequacies of Indian manufacturing sector, there are a number of agencies which have come forward to set up boiler turbine and generator factories. L&T initiative is one of them. In fact, even NTPC and BHEL have decided to set up the facility to produce super critical turbine and generators. Bharat Forge has also planned to set up a factory. It is understood that there are a few others as well. On the balance of plant also a number of new initiatives are being put in place to set up factories of different capacities. Also the existing ones are being expanded. Therefore, this subject has captured large scale attention and that is leading to appropriate scaling up of the manufacturing base in the country. It is not to say that India's total needs to create additional capacity would have to be met only through domestic supplies. At the same time it is important to emphasise that, if, India plans to add 25 to 30,000 MW a year after about 10 years or so, its domestic base should atleast be of the order of 20,000 MW if not more. The attention of a number of private sector manufacturing companies as also of public sector organisations including BHEL in this regard has been a very positive development and its significant impact is going to contribute effectively in the power development programmes of the country.

An important point that emerged, as a conclusion, is in relation to the need for change in the approach of power project developers in respect of formulating the Qualifying Requirement in their tender. It was agreed that unless developers come forward and facilitate and encourage new factories to come up by suitably structuring their qualifying requirement, the benefit of competition in supply of power plant equipment, may not be right for them to expect. To some extent their approach has been responsible in throttling the process of new initiatives in setting up manufacturing capacities. No doubt, their approach, coupled with suitable commercial arrangements such as extended warranties with commercial backups, could lead to a win-win situation, in which new factories could come up and at the same time the power plant owners could have their level of confidence raised through extended warranties on performance.

If India has to have 800,000 MW by 2032, its domestic annual manufacturing capacity has to rise to atleast 20,000 MW in next 10 years and to atleast 30,000 MW in next 15 years. Corresponding expansions will be required in respect of the Balance of Plants. Similarly, commensurate capacity building would be necessary for construction and commissioning of plants. Such expansions would be, it is expected, forthcoming from public sector as well as private companies. Concerned Government agencies may need to facilitate these developments.