Reducing the carbon footprint of the Indian power sector remains a challenging task, given the country?s dependence on coal-fired generation to meet its fast-growing electricity requirements. The government has envisaged phased switchover to more energy-efficient supercritical power generation technology in a bid to push power generators to cut their carbon emissions. However, the policy guidelines formulated by the government to support induction of supercritical technology may not be helpful in reducing price and popularising the technology among generators. Rather, they may end up scuppering the possibility of India keeping abreast of the global supercritical technology.
Following a directive from the government, central utilities NTPC and Damodar Valley Corporation (DVC) have jointly issued a tender for the bulk ordering of 11 units of 660-mw and 800-mw capacity equipment for their envisaged power projects. The policy guidelines, however, stipulate that only suppliers with manufacturing facilities in India can bid for these projects.
The Centre is now mulling denying fuel linkages to new proposals for sub-critical units. The government?s argument is that the stipulated conditions will encourage development of indigenous manufacturing capacity that would, in turn, help absorb the technology while bringing down the price. However, that may not happen in practice. For, to absorb a technology, you need a strong research & development (R&D) capabilities, an area where most Indian manufacturers score poorly.
It is true that companies like Hitachi, Mitsubishi and Toshiba were not technology licensors when they initially got into the business of power equipment manufacturing. Rather, they sourced their technology from western companies like General Electric, just as Bhel did.
However, these Japanese companies not only mastered these technologies, but also learnt to innovate because of their R&D culture. And gradually, they started developing their own technology, becoming technology licensors in their own right. But Bhel still remains just a user of technology, despite 40 years of experience in power equipment manufacturing. It has failed to innovate on sourced technology.
As for private players who are setting up manufacturing facilities and hope to benefit from the government?s policy for bulk supply of supercritical equipment, they do not have any prior experience of manufacturing boiler and turbines for power plants. They are banking on technology support from their foreign joint venture partners to deliver on contracts.
There is no doubt that Bhel and private manufacturers will be able to reduce the costs by undertaking production of supercritical power equipment on a massive scale. However, the moot question is if they will pass on the benefits of cost reduction to their customers and if they will be able to deliver timely project execution. Another relevant question is whether they will keep abreast of latest changes in supercritical technology. It looks unlikely, given the history of the Indian power equipment market.
Bhel has been the lone domestic supplier of sub-critical power equipment before the Chinese entered the Indian market in 2004. There was upward pressure on the price of power generation equipment because it was basically a seller?s market. The per megawatt cost of power generation capacity addition had gone up to Rs 4.5 crore. But, following competition from Chinese suppliers, per megawatt cost came down to Rs 3.5. Though prices have again shot up in recent years, it is because of the rise in raw material costs for equipment manufacturers.
It looks unlikely that there will be any major improvement in project execution because of the manufacturing facility conditionality imposed in the policy guidelines. Sub-vendors have a key role to play in timely execution of power projects. However, the sub-vendor base cannot be broadened overnight. It takes time. That means all equipment suppliers will tap the same vendor base. So, there is little chance of improvement in project execution.
Domestic suppliers are unlikely to adapt to technological changes. Technology licensors usually do not share manufacturing rights for latest versions with joint venture partners. Meanwhile, the government?s policy guidelines would restrict the imports of supercritical equipment. That means domestic manufacturers will not be under any pressure to keep pace with the advancement in supercritical technology worldwide.
India?s record in adding power generation capacity has been dismal. For example, only half of the capacity envisaged by the Union power ministry under the Tenth Plan could be added. Prospects look better in the current Plan. But this is not because of any improvement in the ground reality; it?s due to the fact that a big chunk of capacity is a slippage from the previous Plan.
The government does not seem to have learnt any lessons from past failures. Instead of focusing on capacity addition programme, it is pursuing the goal of self-sufficiency in equipment manufacturing capacity.