India’s renewed focus on setting up power projects can face delays of two to three years as production of transmission system like transformers are facing production delays due to several issues such as global supply chain hiccups, volatility in the price of copper and raw material shortages, multiple government officials and industry players told Moneycontrol.
"Worldwide, transmission is a major issue. The IEA (International Energy Agency) outlook report says that 1,650 GW of renewable energy capacity is waiting to be connected to the transmission system across the world," power secretary Pankaj Agarwal told Moneycontrol.
Agarwal said that India should consider a production-linked incentive scheme or a similar inducement to develop the domestic supply chain of transmission equipment, adding that the cost to develop transmission infrastructure over the next five years will grow at a compound annual growth rate of 14.5 per cent, and called on stakeholders to "optimise the cost of the entire value chain".
Similarly, private think tank Global Trade Research Initiative pointed out that shortage of cold-rolled grain-oriented (CRGO) steel used for making transformers and electric motors could impact India's ambitious power sector expansion plans.
"India's power sector is facing a 30 per cent shortage of CRGO steel, essential for electric motors and transformers," GTRI said in a report on October 28.
Transmission equipment is the system and machinery responsible for transferring generated electrical energy from the power plant to the grid or directly to end users.
CRGO, a specialised steel, is needed for making transformers and electric motors. Local production meets only 10-12 percent of the CRGO demand, with the rest imported. The CRGO shortage may affect India’s ambitious power sector expansion plans.
Electrical steel and copper are two crucial raw materials in a power transformer. Bushings, transformer oil, and insulation are other materials used.
The government aims at setting up coal-fuelled thermal power and renewable projects in the country to meet the surge in demand which is expected to rise to 400 GW by 2031-32, crucial for the Indian economy to reach $5 trillion.
The lead time for procuring 220 kV transformers has increased from eight to nine months to nearly 14 months, Ashish Agarwal, head of solar and storage at BluePine Energy, a renewable energy developer, told Moneycontrol.
“Many Indian EPC (engineering, procurement and construction ) contractors are undertaking projects overseas and utilising the Indian supply chain, leading to increased exports of power transformers,” Agarwal said.
Furthermore, according to transformer companies, meeting the new standards outlined by the Central Electricity Authority of India’s (CEA) guidelines, presents a challenge due to the diverse range of ratings and voltage classes selected by developers to optimise the overall costs.
They added that although CEA has expanded its guidelines to accommodate these requirements, many solar developers insist on strict compliance, reducing the pool of available suppliers and exacerbating demand and lead times.
The immediate cause of the CRGO steel shortage is import uncertainty caused by delayed licence renewals on the part of the Bureau of Indian Standards (BIS) for many foreign suppliers from Japan, South Korea and China, GTRI said in its latest report.
Many of the licences are set to expire soon, which would lead to further shortages and uncertainty in the power sector, the GTRI report said, adding that foreign suppliers require BIS certification under a quality control order, which ensures quality but restricts options to a few approved grades and vendors.
To optimise the cost of the value chain, the process of making each step in the supply chain—from raw materials to final transmission—needs to be made more efficient and cost-effective. This approach would help reduce overall expenses, improve efficiency and enable India to handle the projected growth in transmission infrastructure needs sustainably.
Transformer infrastructure
Transformer makers in India, such as Bharat Heavy Electricals Limited (BHEL) and EMCO Limited, have been struggling since 2016-17 to increase production due to several issues such as global supply chain snarls and raw material shortages. Domestic transformer makers also have been experiencing rising competition from cheaper imports, mainly from China and South Korea. This impacted pricing power and profit margins, limiting their ability to reinvest in scaling production.
The challenges for Indian transformer manufacturers in the thermal power sector are a combination of both cost and global supply issues.
According to a recent report by global energy sector data analytics company Wood Mackenzie, the lead time for procuring transformers has steadily risen over the past two years, ranging from 120 to 210 weeks globally.
Transformer prices have risen 60-80 percent on average since January 2020, driven by higher copper prices, which have risen more than 40 percent over the same period.
Domestic transformer makers have also in the past few months called for government intervention to ease import policies for key raw materials that are in shortage in India. The Indian transformer industry is operating at only 60-70 percent of capacity.
Rising order books of equipment makers
While the supply chain and policy issues are affecting the production of transformers in India, the order books of equipment makers are on the rise.
State-run BHEL received orders worth about Rs 52,000 crore for 9.6 GW of thermal power projects in FY24, the highest ever by value for coal-based projects for the company.
BHEL recorded strong order inflows in Q2 FY25, totalling over Rs 30,500 crore. Key wins include a Rs 13,300-crore order from Damodar Valley Corporation for its Koderma thermal power station, a Rs 11,000-crore order from Adani Power and one for Rs 6,200 crore from NTPC for the EPC of its Sipat thermal power project.
So far in this fiscal, BHEL has secured 10 GW in project orders and is actively tendering for another 8 GW, expected to be finalised by March 2025, according to JM Financial. The order momentum is expected to continue in FY25, with the government planning to set up 80 GW of thermal power capacity by 2032.
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