Indian Power Plant Makers See Poor Orders for Next Two Years

  • Order flows could shrink to 6-8 GW in next 2 years: Thermax
  • Lack of capital, weak distributors main hurdles in the sector

India’s power plant builders see weak orders for at least two years as lack of capital and surplus generation capacity discourage investments in new plants.

Orders for boilers, turbines and generators for thermal power plants could shrink to 6-8 gigawatts in the next two years, M.S. Unnikrishnan, managing director at Thermax Ltd., an Indian power plant builder, said in a phone interview. Power generators placed orders for about 20 gigawatts in the two years ended March 31, according to Rohit Natarajan, an analyst at Mumbai-based IDBI Capital Markets Services.

Demand for electricity is about half of generation capacity as money-losing distribution companies curtail purchases, highlighting the country’s paradox of having both an oversupply while at the same time leaving one in five people without electricity. India added power plants at a record pace over the past decade to meet its energy needs even as the state-distribution companies racked up losses. Banks have termed several power projects bad assets and are now cautious of funding them.

“Barring NTPC Ltd., every other generation company has balance sheet limitations,” Unnikrishnan said, referring to India’s biggest utility. “Even if they somehow manage to get the equity, banks would be reluctant to provide the debt in the current scenario.”

Peak Demand

The country had an installed capacity of 303 gigawatts as of May 30. The peak demand in May was half the capacity. Coal-fired plants, which generate more than 75 percent of the country’s electricity, ran at 62 percent of their capacity, compared with 64 percent in the same month in 2015.

As existing plants idle capacity, the target for new ones is being cut back. India is considering adding about 57 gigawatts of coal-fired power plants in the five years to March 2022, according to preliminary estimates. All of these are plants already being built and no new capacity is being planned, according to people familiar with the discussions.

Some, including the federal coal secretary Anil Swarup, estimate that number could be lower. Of the 80 gigawatts of projects in the pipeline, merely 40 gigawatts may come through, Swarup said in May.

“The tepid order inflow is explained by the surplus generation capacity and weaker demand,” IDBI’s Natarajan said. “The first thing that needs to happen is the utilization of the existing power plants has to go up.”

Narrow Margins

As new orders dry up, bids to build power plants are getting increasingly aggressive, narrowing profit margins. Bharat Heavy Electricals Ltd., which controls almost half the market, reported a loss in the year ended March 31, its first in at least 25 years. Atul Sobti, chairman of Bharat Heavy, didn’t answer several phone calls and a text message seeking a comment.

Bharat Heavy declined 2.8 percent to 140.10 rupees, the biggest decline in a month, at the close in Mumbai. Thermax dropped 1.2 percent to 907.80 rupees, while BGR Energy Systems Ltd. declined 1.5 percent to 118.35 rupees.

“The future looks bleak,” said R.N.S. Tomar, president at the boiler unit of BGR Energy Systems Ltd., a Chennai-based equipment maker. “There are no new orders in sight. The manufacturers are quoting aggressive price levels to secure business at hand.”

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