The manufacturing and industrial sector is one of the highest consumers of power in India. However, thanks to various reasons including non-availability of adequate supply, poor quality of power generated and high tariff due to cross-subsidization, most industrial units today are increasingly looking towards self-generation of power to meet their in-house requirements. While more than 50 percent of the power generated in this country is consumed by industrial units, almost 30 percent of this requirement is met through in-house power generation. Change on government policies have also led to state electricity boards (SEBs) indulging in cogeneration activities to meet the increasing demand. According to certain industry reports, captive power generation by industry units account for close to 13,000 megawatts while cogeneration accounts for more than 15,000 megawatts.
But though the government has realized its own inability to meet the demand and has therefore taken various policy initiatives to encourage private participation, there are several areas of concern. One key factor is the impact, in terms of revenues, on the deteriorating finances of the SEBs. Environmental issues and the optimal growth of the power sector in the long run, have also raised concerns. This has led to different state governments adopting varied policies in their respective states. Hence, industry units involved in captive power generation are asking for increased incentives and changes in the existing policies.
Global scenario
Globally, power consumption has started picking after the blackout in various regions in 2003. According to the US department of energy, international energy outlook 2005, the energy consumption is expected to increase 57 percent in 20 years. Electricity consumption is expected to double from 14275 billion kilowatt-hours to 26018 billion kilowatt-hours by 2025. Much of this consumption is happening in the emerging economies, where electricity consumption is increasing at 4 percent per year, while the global growth is only 2.6 percent per year. One fact that points to this is the burgeoning electricity meters – expected total global demand for this product is 110-117 million on a present installed capacity of 1321 million.
In such a scenario, generation and transmission of power is increasingly fuelling sales of equipment used in these industries. In the US, the market for power equipment is slated to touch $17.7 billion in 2006, according to research firm Freedonia. While Asia is seeing increasing number of new installations, Europe and North America are predominantly seen as replacement markets currently.
Scene India
In India, till as late as 2003, the power sector was completely controlled by the government. The five-year plans, which marked progress in the country, lay strong emphasis of putting in place a robust infrastructure for generation of power. At the regional level, the responsibility of providing power was vested with the state government. However, an assessment of developments in this sector points to uneven distribution of resources. The strategy of vesting the state government with power development has today resulted in large inter-state imbalances.
And thanks to various government policies, which subsidize the agricultural sector, the state electricity boards or SEBs, as they are more popularly known, incurred huge financial deficits. Most of the SEBs today are burdened with huge debts. This huge deficit has led to a lack of funds to invest in new power generating infrastructure.
The central government took several initiatives to put in place large scale power generation as a matter of policy and, through an amendment of the Electricity (Supply) Act, National Thermal Power Corporation Ltd. (NTPC) and National Hydroelectric Power Corporation Ltd. (NHPC) were set up in the central sector to supplement the efforts of the States. Consequently, total installed capacity of power utilities has increased from 1,362 MW in 1947 to 104918 MW in March 2002. Electricity generation, which was only about 4.1 billion units in 1947, has risen to 515 billion units in 2001-02.
But most of this installed capacity is under government control. The state governments control nearly 60 percent of the power generating capacity. Currently, the central government owns about 30 percent of the power generating capacity in the country, the majority of which is in the thermal sector. Of the total installed thermal capacity of 25366.50 MW in Central sector, NTPC's share is 20092 MW or 76.61 percent. However, these initiatives have not been enough to meet the growing requirements of power consumption in the country. Many factors contributed to the shortfall of electric power in India, including slow completion of new installations, low use of installed capacity because of insufficient maintenance and coal, and poor management.
Hence, considering the importance of power in the development of the nation, the government has finally woken up to the need to reform this sector. The key focus of this reform initiative is to mobilize private sector resources for generating additional power capacity. The government is also looking at these reforms as an opportunity to reduce the government deficit. The central government has also introduced a package of policies to encourage private sector investments from both domestic players as well as multinational corporations. The key aim is to cut down on government spending in these sectors and vest these private agencies with more decision-making powers.
A few of the larger enterprises did generate captive power to meet their in-house requirements, as they cannot always depend on public utilities. According to certain industry reports, large enterprises and manufacturing companies’ accounts for 45 percent of electricity consumed, agriculture 26 percent, and domestic use 16.5 percent. Other sectors, including commerce and railroads, accounted for the remaining 12.5 percent.
The government is now considering the possibility of tapping this potential to not only handle the in-house requirements of these industrial and manufacturing units but also importing the additional capacity to meet local requirements.
Technology trends
A notable shift in power generation technology is the advent of micro turbines, Stirling engines, and fuel cells with many companies launching commercial models for industrial and household use in the past year. Of the two factors inhibiting volume sales of this technology – cost and technology reliability, manufacturers across the world have said they have managed to overcome reliability issues. They are now only waiting for multimegawatt volume sales in industries, corporate and individual, which is expected to drive down costs further, which should occur by 2008.
The initial contracts for fuel cell power are expected to be placed in 2006 by government agencies in the US. More such contracts, experts feel, will provide a boost for sales as well as increase visibility.
Industry observers feel that with increasing number of emission standards (for instance, Kyoto Protocol) being enforced across the world, such technologies will gain popularity. Fuel cell and hydrogen power generation does away with the carbon cycle, which depletes the environment’s resources. Governments like Japan, Canada, Korea, China, and USA are actively promoting activities that will make a wider use of such technologies in the market place. Japan, for instance, has set 2006-2011 as an accelerated introduction stage and 2020 as target for full-scale market expansion of both fuel cell vehicles and stationary generation units. In Japan alone, the government there foresees a market size of $76 billion by 2020.
Energy researcher ABI says that, in the US alone, sales of diesel generators, duel-fuel and natural gas engines will be growing from $5.3 billion in 2003 to $6.9 billion in 2011. The same agency also predicts that use of ‘small-scale’ power generation technologies – like reciprocating engines and wind turbines - will witness a rapid growth of nearly 17 percent each year. The drivers for this is mainly demand for higher quality power and standby power from utilities, residences, commercial and industrial customers who use mission-critical applications.
Power transmission
In the two economies that have witnessed the largest consumption and growth of power, the USA and Canada, sales of power transmission/motion control equipment grew by double digits from January till August 2005, according to the Power Transmission Distributors Association.
In August 2005, sales of PT/MC products of US manufacturers reported to have risen by 11.2 percent as compared to the same period last year. Much of the sales were in mounted bearings, unmounted bearings, standard industrial motors, variable speed drives, positioning systems/linear motion products, gear products, mechanical drive systems and other PT products, clutches and brakes and shaft couplings. The US manufacturers have also reported increase in orders by nearly 15 percent, again more than the similar period last year. In Canada, manufacturers of PT/MC products reported increase of 3.1 percent in the period January to August 2005 compared to same period in 2004. Only sales of mechanical drive systems and other PT products were reported to have decreased. Growth is expected in systems automation, power trading, voltage conversions and equipment upgrades.
In year 2005, various nations went ahead with deregulation of the electrical transmission industry, opening up and providing tremendous success to the market players. But this is not a constant across the globe. It’s reported to be the most systematic in Europe mainly due to the central authority in the EU, which monitors with annual benchmarking, the deregulation process. But other countries too are opening up, with the result that manufacturers and distributors of power are looking at moving beyond products and services classified as “traditional”. The size of the market therefore has also increased. So, transmission and distribution products are no longer OH bare lines, HV insulated cables, switchgear, transformers, insulators and fittings and EHV towers but also power systems and utility automation.
This does not mean that the traditional products are vanishing. Wires and cable remain critical to transmission and distribution.
Alternative Power Investments
Increasing demand on the existing power grids, coupled with rising oil and gas prices, and the emphasis on clean power, have led to investments in alternative energy start-ups in the United States. The money pumped in by venture capital firms into such setups was $520 million, a gain over the previous year shown for the first time in five years.
A Clean Energy Fund set up in California with $30 million is behind this development.
The investments done by the venture capitalists have gone into a range of products – software that controls lighting to hardware used in power meters. Fuel cells though attracted the maximum focus.
The focus on clean power is also seen from instances like the Brazil government setting a goal of having 10 percent of the country’s electricity generated from clean energy sources by 2002. As part of this, the government has started renewable energy incentive programs to promote projects like biomass power plants. While the Canadian Wind Energy Association forecasts the installation of 10,000 MW of wind power across the country by 2010. It has only 444 MW of such power installed as of December 2004. Many countries already have wind turbines of up to 2 Mwe harnessing wind energy to generate power, with capacity across the globe at the end of 2004 totaling 44,000 MWe. The only problem with wind energy so far has been that it has yet to have a proven track record in cost and performance.
There’s also a report prepared in association with the US department of energy, which states that wave energy to generate electricity may be feasible in the “near future”. Wave energy is reported to be one of the lowest cost renewable energy sources due to its high power density.
Issues India
The government initiative to encourage private sector participation has evoked an overwhelming response. But several disparities in project costs, as estimated by the private developers and the government authorities, arose. Hence, the Government has now decided follow the competitive bidding route for all future projects in the interest of transparency as well as to encourage competition. This strategy is also expected to give the SEBs an edge in wrangling a better deal for itself. But the state governments would have to undertake an integrated resource planning exercise to identify the system needs, additional capacities required, and the technical and environmental characteristics as well as the mode of dispatch for individual projects.
Keeping the present scenario in mind, the focus of the government has again necessarily shifted to increasing capacity through the so-called negotiated bid approach to ensure that the country gets power faster than current developments indicate. But basic issues relating to supply of fuel such as the freedom that developers might have in taking fuel supply decisions are still to be resolved.
Also, there is an immediate need to restructure the SEBs and make them more financially viable. There are also certain issues related to permitting private developers to sell electricity directly to large customers, which need to be resolved.
Areas of concern
Manufacturing verticals of infrastructure material like cement, steel, aluminum, paper, iron, fertilizers, etc have significant captive power generation capabilities. However, the captive power thus generated by industry units might have an adverse impact on the finances of the public sector utilities. As mentioned earlier, the government indulges in heavy cross subsidization. Now industrial load is the main source of revenue for the SEBs. Captive generation effectively nullifies this revenue stream. This means that an additional burden is placed on the SEBs, which is already under heavy debts. Cross subsidizing, which is again a policy decision is no longer viable in such a scenario. But the political implications of such a move would have far reaching negative effects on the incumbent party in power.
Other concerns at the macro level include non-optimal growth of the sector, adverse environmental impact, and reliability of the power generated as a regular source. Even management problems could arise especially with the disparity in power generation that exists between different states.
The industry units that generate surplus captive power could export this to the SEBs or even look at charging end-users directly. But thanks to policy issues, the tariff structure proposed by the government is non-remunerative. And once the industrial unit agrees to certain tariff conditions, there is no flexibility currently to hike the prices in case of rising cost of fuel or other overheads.
The solution that the government is looking at is cogeneration. This is an attractive option, as refineries, fertilizer plants, and sugar mills co generate power and heat for different industrial processes. In addition to this, there are several chemical and petrochemical processes that generate heat, which could be converted into power. But till date, no systems have been put in place to export this power. If this wasted energy is tapped effectively then power and thermal energy can be generated from a single fuel source. Both, industry as well utility service providers, stand to benefit from such a move. Industry would include iron and steel, textile, paper, fertilizer, sugar, and the chemical industry among others, as each of these verticals have high heat and power requirements. Conservatives estimates peg the potential of cogeneration at close to 20,000 megawatts. Exact figures are difficult to come by as many small-scale industries have their own co-generation plants, which are not accounted for.
Keeping in view, the growing demand for quality power in the country from various industries and manufacturing units and also the inability of the state run utility service providers to meet this demand it is imperative for the policy makers to introduce flexibility in the current policies. The government should frame a policy, which encourages industry to generate captive power in a cost-effective manner and give incentives to generate surplus power, which can be exported by the SEBs. The policy should also keep in mind the long-term implications of such a move and whether this strategy can be leveraged to ensure optimum power management. Power is a key ingredient to the economic development of any country. The demand in India is increasing and the need to bridge the gap between demand and supply is urgent.
But though the government has realized its own inability to meet the demand and has therefore taken various policy initiatives to encourage private participation, there are several areas of concern. One key factor is the impact, in terms of revenues, on the deteriorating finances of the SEBs. Environmental issues and the optimal growth of the power sector in the long run, have also raised concerns. This has led to different state governments adopting varied policies in their respective states. Hence, industry units involved in captive power generation are asking for increased incentives and changes in the existing policies.
Global scenario
Globally, power consumption has started picking after the blackout in various regions in 2003. According to the US department of energy, international energy outlook 2005, the energy consumption is expected to increase 57 percent in 20 years. Electricity consumption is expected to double from 14275 billion kilowatt-hours to 26018 billion kilowatt-hours by 2025. Much of this consumption is happening in the emerging economies, where electricity consumption is increasing at 4 percent per year, while the global growth is only 2.6 percent per year. One fact that points to this is the burgeoning electricity meters – expected total global demand for this product is 110-117 million on a present installed capacity of 1321 million.
In such a scenario, generation and transmission of power is increasingly fuelling sales of equipment used in these industries. In the US, the market for power equipment is slated to touch $17.7 billion in 2006, according to research firm Freedonia. While Asia is seeing increasing number of new installations, Europe and North America are predominantly seen as replacement markets currently.
Scene India
In India, till as late as 2003, the power sector was completely controlled by the government. The five-year plans, which marked progress in the country, lay strong emphasis of putting in place a robust infrastructure for generation of power. At the regional level, the responsibility of providing power was vested with the state government. However, an assessment of developments in this sector points to uneven distribution of resources. The strategy of vesting the state government with power development has today resulted in large inter-state imbalances.
And thanks to various government policies, which subsidize the agricultural sector, the state electricity boards or SEBs, as they are more popularly known, incurred huge financial deficits. Most of the SEBs today are burdened with huge debts. This huge deficit has led to a lack of funds to invest in new power generating infrastructure.
The central government took several initiatives to put in place large scale power generation as a matter of policy and, through an amendment of the Electricity (Supply) Act, National Thermal Power Corporation Ltd. (NTPC) and National Hydroelectric Power Corporation Ltd. (NHPC) were set up in the central sector to supplement the efforts of the States. Consequently, total installed capacity of power utilities has increased from 1,362 MW in 1947 to 104918 MW in March 2002. Electricity generation, which was only about 4.1 billion units in 1947, has risen to 515 billion units in 2001-02.
But most of this installed capacity is under government control. The state governments control nearly 60 percent of the power generating capacity. Currently, the central government owns about 30 percent of the power generating capacity in the country, the majority of which is in the thermal sector. Of the total installed thermal capacity of 25366.50 MW in Central sector, NTPC's share is 20092 MW or 76.61 percent. However, these initiatives have not been enough to meet the growing requirements of power consumption in the country. Many factors contributed to the shortfall of electric power in India, including slow completion of new installations, low use of installed capacity because of insufficient maintenance and coal, and poor management.
Hence, considering the importance of power in the development of the nation, the government has finally woken up to the need to reform this sector. The key focus of this reform initiative is to mobilize private sector resources for generating additional power capacity. The government is also looking at these reforms as an opportunity to reduce the government deficit. The central government has also introduced a package of policies to encourage private sector investments from both domestic players as well as multinational corporations. The key aim is to cut down on government spending in these sectors and vest these private agencies with more decision-making powers.
A few of the larger enterprises did generate captive power to meet their in-house requirements, as they cannot always depend on public utilities. According to certain industry reports, large enterprises and manufacturing companies’ accounts for 45 percent of electricity consumed, agriculture 26 percent, and domestic use 16.5 percent. Other sectors, including commerce and railroads, accounted for the remaining 12.5 percent.
The government is now considering the possibility of tapping this potential to not only handle the in-house requirements of these industrial and manufacturing units but also importing the additional capacity to meet local requirements.
Technology trends
A notable shift in power generation technology is the advent of micro turbines, Stirling engines, and fuel cells with many companies launching commercial models for industrial and household use in the past year. Of the two factors inhibiting volume sales of this technology – cost and technology reliability, manufacturers across the world have said they have managed to overcome reliability issues. They are now only waiting for multimegawatt volume sales in industries, corporate and individual, which is expected to drive down costs further, which should occur by 2008.
The initial contracts for fuel cell power are expected to be placed in 2006 by government agencies in the US. More such contracts, experts feel, will provide a boost for sales as well as increase visibility.
Industry observers feel that with increasing number of emission standards (for instance, Kyoto Protocol) being enforced across the world, such technologies will gain popularity. Fuel cell and hydrogen power generation does away with the carbon cycle, which depletes the environment’s resources. Governments like Japan, Canada, Korea, China, and USA are actively promoting activities that will make a wider use of such technologies in the market place. Japan, for instance, has set 2006-2011 as an accelerated introduction stage and 2020 as target for full-scale market expansion of both fuel cell vehicles and stationary generation units. In Japan alone, the government there foresees a market size of $76 billion by 2020.
Energy researcher ABI says that, in the US alone, sales of diesel generators, duel-fuel and natural gas engines will be growing from $5.3 billion in 2003 to $6.9 billion in 2011. The same agency also predicts that use of ‘small-scale’ power generation technologies – like reciprocating engines and wind turbines - will witness a rapid growth of nearly 17 percent each year. The drivers for this is mainly demand for higher quality power and standby power from utilities, residences, commercial and industrial customers who use mission-critical applications.
Power transmission
In the two economies that have witnessed the largest consumption and growth of power, the USA and Canada, sales of power transmission/motion control equipment grew by double digits from January till August 2005, according to the Power Transmission Distributors Association.
In August 2005, sales of PT/MC products of US manufacturers reported to have risen by 11.2 percent as compared to the same period last year. Much of the sales were in mounted bearings, unmounted bearings, standard industrial motors, variable speed drives, positioning systems/linear motion products, gear products, mechanical drive systems and other PT products, clutches and brakes and shaft couplings. The US manufacturers have also reported increase in orders by nearly 15 percent, again more than the similar period last year. In Canada, manufacturers of PT/MC products reported increase of 3.1 percent in the period January to August 2005 compared to same period in 2004. Only sales of mechanical drive systems and other PT products were reported to have decreased. Growth is expected in systems automation, power trading, voltage conversions and equipment upgrades.
In year 2005, various nations went ahead with deregulation of the electrical transmission industry, opening up and providing tremendous success to the market players. But this is not a constant across the globe. It’s reported to be the most systematic in Europe mainly due to the central authority in the EU, which monitors with annual benchmarking, the deregulation process. But other countries too are opening up, with the result that manufacturers and distributors of power are looking at moving beyond products and services classified as “traditional”. The size of the market therefore has also increased. So, transmission and distribution products are no longer OH bare lines, HV insulated cables, switchgear, transformers, insulators and fittings and EHV towers but also power systems and utility automation.
This does not mean that the traditional products are vanishing. Wires and cable remain critical to transmission and distribution.
Alternative Power Investments
Increasing demand on the existing power grids, coupled with rising oil and gas prices, and the emphasis on clean power, have led to investments in alternative energy start-ups in the United States. The money pumped in by venture capital firms into such setups was $520 million, a gain over the previous year shown for the first time in five years.
A Clean Energy Fund set up in California with $30 million is behind this development.
The investments done by the venture capitalists have gone into a range of products – software that controls lighting to hardware used in power meters. Fuel cells though attracted the maximum focus.
The focus on clean power is also seen from instances like the Brazil government setting a goal of having 10 percent of the country’s electricity generated from clean energy sources by 2002. As part of this, the government has started renewable energy incentive programs to promote projects like biomass power plants. While the Canadian Wind Energy Association forecasts the installation of 10,000 MW of wind power across the country by 2010. It has only 444 MW of such power installed as of December 2004. Many countries already have wind turbines of up to 2 Mwe harnessing wind energy to generate power, with capacity across the globe at the end of 2004 totaling 44,000 MWe. The only problem with wind energy so far has been that it has yet to have a proven track record in cost and performance.
There’s also a report prepared in association with the US department of energy, which states that wave energy to generate electricity may be feasible in the “near future”. Wave energy is reported to be one of the lowest cost renewable energy sources due to its high power density.
Issues India
The government initiative to encourage private sector participation has evoked an overwhelming response. But several disparities in project costs, as estimated by the private developers and the government authorities, arose. Hence, the Government has now decided follow the competitive bidding route for all future projects in the interest of transparency as well as to encourage competition. This strategy is also expected to give the SEBs an edge in wrangling a better deal for itself. But the state governments would have to undertake an integrated resource planning exercise to identify the system needs, additional capacities required, and the technical and environmental characteristics as well as the mode of dispatch for individual projects.
Keeping the present scenario in mind, the focus of the government has again necessarily shifted to increasing capacity through the so-called negotiated bid approach to ensure that the country gets power faster than current developments indicate. But basic issues relating to supply of fuel such as the freedom that developers might have in taking fuel supply decisions are still to be resolved.
Also, there is an immediate need to restructure the SEBs and make them more financially viable. There are also certain issues related to permitting private developers to sell electricity directly to large customers, which need to be resolved.
Areas of concern
Manufacturing verticals of infrastructure material like cement, steel, aluminum, paper, iron, fertilizers, etc have significant captive power generation capabilities. However, the captive power thus generated by industry units might have an adverse impact on the finances of the public sector utilities. As mentioned earlier, the government indulges in heavy cross subsidization. Now industrial load is the main source of revenue for the SEBs. Captive generation effectively nullifies this revenue stream. This means that an additional burden is placed on the SEBs, which is already under heavy debts. Cross subsidizing, which is again a policy decision is no longer viable in such a scenario. But the political implications of such a move would have far reaching negative effects on the incumbent party in power.
Other concerns at the macro level include non-optimal growth of the sector, adverse environmental impact, and reliability of the power generated as a regular source. Even management problems could arise especially with the disparity in power generation that exists between different states.
The industry units that generate surplus captive power could export this to the SEBs or even look at charging end-users directly. But thanks to policy issues, the tariff structure proposed by the government is non-remunerative. And once the industrial unit agrees to certain tariff conditions, there is no flexibility currently to hike the prices in case of rising cost of fuel or other overheads.
The solution that the government is looking at is cogeneration. This is an attractive option, as refineries, fertilizer plants, and sugar mills co generate power and heat for different industrial processes. In addition to this, there are several chemical and petrochemical processes that generate heat, which could be converted into power. But till date, no systems have been put in place to export this power. If this wasted energy is tapped effectively then power and thermal energy can be generated from a single fuel source. Both, industry as well utility service providers, stand to benefit from such a move. Industry would include iron and steel, textile, paper, fertilizer, sugar, and the chemical industry among others, as each of these verticals have high heat and power requirements. Conservatives estimates peg the potential of cogeneration at close to 20,000 megawatts. Exact figures are difficult to come by as many small-scale industries have their own co-generation plants, which are not accounted for.
Keeping in view, the growing demand for quality power in the country from various industries and manufacturing units and also the inability of the state run utility service providers to meet this demand it is imperative for the policy makers to introduce flexibility in the current policies. The government should frame a policy, which encourages industry to generate captive power in a cost-effective manner and give incentives to generate surplus power, which can be exported by the SEBs. The policy should also keep in mind the long-term implications of such a move and whether this strategy can be leveraged to ensure optimum power management. Power is a key ingredient to the economic development of any country. The demand in India is increasing and the need to bridge the gap between demand and supply is urgent.
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