Sustaining a 7 to 8 % GDP growth over the next decade will call for a build-up in Power Equipment capacity of 30 GW per annum. The key players in this growth would be Bhel, Bharat Bijlee and MNC equipment players ABB, Areva and Siemens.

According to McKinsey’s Report, to meet India’s growing power demand, investments of US$600 billion will be required across the value chain. Of this, around US$300 billion will be necessary for generation, about US$110 billion for transmission, and the balance US$190 billion for distribution. By 2017, the sector will present an annual profit (EBITDA) pool of US$135 billion to US$160 billion.

With the creation of 300 GW of generation and related capacity, India will be among the largest markets in the world for equipment and component suppliers. Attractive opportunities include the supply of key components, such as heavy castings and forging, special steel pipes, balance of plant and engineering, procurement and construction services.

India’s pace of capacity addition must increase fivefold to tenfold.

To fulfill its power requirement of 315 to 335 GW by 2017, India will need a generation capacity of 415 to 440 GW, after adjusting for plant availability and a modest 5 % spinning reserve.

This implies a tripling of installed capacity from the current level of about 140 GW, which, in turn, translates into an annual addition of 20 to 40 GW. This is fivefold to tenfold the 4 GW per year that was achieved in the last 10 years.

The Exponential Growth In Power Demand Will Come From:

Growth in residential consumption

Rising incomes have driven, and will continue to drive, demand across consumer classes in rural and urban India. Growing at 14 % over the next 10 years, India’s residential power consumption will grow faster than its GDP growth at 8 %.

Electrification of rural India. According to the 2001 census, 125,000 villages are yet to be connected to the power grid, and an additional 23 million households below the poverty line do not receive power. The government aspires to cover these areas and provide ‘power for all by 2012’ through the Rajiv Gandhi Gramin Vidyutikaran Yojana and Bharat Nirman programmes.

Realization of latent and suppressed demand. Scheduled blackouts suppress demand as residential and commercial consumers go without power for several hours every day. In addition, many industrial consumers are forced to use expensive diesel-based power. If added to the overall pool, these consumers will add significantly to the demand by 2017.

Manufacturing growing faster than before. As the manufacturing sector in India accelerates, its relatively higher consumption of electricity will lead to a disproportionately higher demand. Already, manufacturing sector has growth from 5.9 % during 2000 to 2004 to 9.5 % in the last three years.

Create 30 GW of annual capacity for power equipment and the related supply chain:

At present, this is one of the most visible bottlenecks in the sector. Due to long lead times in the supply of equipment, several players have locked in overseas equipment capacities and are setting up engineering, procurement and construction divisions.

While additional capacity to assemble equipment is important, supply chains are also essential to provide critical components and balance of plant equipment. These include several capital-intensive components like heavy castings and forgings, pressure piping and fabrication.