Business landscape

February 26, 2016 2:19 am0 commentsViews: 154

coverstory_business_landscapeA rough and bumpy road ahead for Indian equipment manufacturers, says JD Kulkarni.

The entire Indian power sector is going through a difficult phase since a long time. May it be generation, transmission or distribution, all the sectors are facing problems. No new major investment is coming into the sector and the existing investment is not able to fetch returns due to various issues. As a result the Indian equipment manufacturers who are dependent on the sector for selling their goods are facing problems as the market itself is going through difficult times. Not only have equipment sales got affected but margins have shrunk due to fierce competition. Major turbine, generator and switchyard equipment manufacturers are trying to survive by reducing their margins to remain in the market. But the slowdown of new generation projects and bankruptcy of distribution companies is severely affecting the equipment manufacturers’ ability to survive.

If this market trend continues they would meet the same fate as some developers who invested their money in coal and gasbased conventional generating plants. The developers are unable to repay the loan since there are no takers for their power. Investment in conventional thermal generation sector has come to a standstill due to many reasons; major being fuel availability and market price of electricity. Large capacity of gas based power plants are lying idle due to non-availability of gas. The government had given subsidy from Power System Regulatory Fund, created by CERC, but no amount of subsidy is a permanent solution for running gas-based plants unless gas becomes affordable for power generation. Electricity prices in the spot power market fell to a record low during last year. Last month the market clearing price on the Indian Energy Exchange Ltd (IEX) averaged at Rs 2.56 per unit. The reduction in imported coal price is allowing some generators using imported coal to bring down their selling price which is having an adverse effect on domestic coal-based power plants which are becoming uncompetitive. The distribution companies are not drawing the quantum agreed from long-term contracts and are preferring to source it from the spot market. Cheaper power is available from imported coal-based power plants with the reduction in international coal prices. The domestic coal-based plants are forced to reduce prices and are struggling to keep their units on line. Utilities now find it cheaper to buy power from power exchanges, even after paying a fixed cost component as per longterm supply contracts. The variable cost component is payable only when power is bought while the fixed part is payable irrespective of whether electricity is consumed or not. Cheap power is supplied mostly by independent power producers operating merchant power plants and those that have not signed supply agreements with the distribution companies. They are able to produce power when demand increases and reduce export when demand falls. The financial position of distribution companies influences the generator’s decision about selling power in a specific region. Non-availability of Open Access in many states either due to policies of the state or large crosssubsidy surcharge is making it impossible for them to sell power in the region of their choice.

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