On September 21, 2020, GE announced that it would exit completely from the new-build coal market. Here is a summary report on the impact that the parent company’s decision would have on the business activity of its Indian arm, GE Power India Ltd.
This report is based on the transcript of an investors call conference filed by GE Power India Ltd on stock exchanges. The conference was held on October 23, 2020, and was addressed by Prashant Jain, Managing Director, GE Power India Ltd.
Business Structure
GE Power India Ltd (GEPIL) operates under three broad business heads. One business has three segments within it. The business structure of GEPIL may be summarized as follows:
- Steam Power
- Boilers
- Air Quality Control Systems (AQCS)
- Services
- Hydro
- Gas Power
(Note: AQCS includes the FGD (flue gas desulphurization) business.)
Scope of Impact
The announcement of GE of September 21, 2020, has bearing only on the Steam Power business of GE Power India.
Order Book Position
The order book position of GEPIL’s Steam Power business, as of June 30, 2020, was as follows:
- Steam Power (Rs.6,027 crore)
- Boilers (Rs. 650 crore)
- AQCS (Rs.4,822 crore)
- Services (Rs.527 crore)
The Steam Power business accounted for around 80 per cent of the total order book of GEPIL, as of June 30, 2020, which stood at Rs.7,498 crore. (Note: Figures are indicative and may not add to the group total.)
Impact Analysis
As discussed, the impact of GE’s announcement of September 21, 2020, is limited to the Steam Power business of GEPIL. Here is a brief account of the impact on each of the three sub-segments of the Steam Power business.
Boilers
This segment primarily caters to boilers (steam generators) of coal-fired power plants. This market was around 35 GW per year some ten years ago, but today it has crashed. The overall market has been to the tune of only a few GWs over the past few years. For GEPIL, there have been no new orders in this segment during 2020. Therefore, GEPIL sees no impact on its Boilers business. In fact, over the past two years, GEPIL’s focus has been moving away from the Boilers business to the Services business, the third segment of the Steam Power business. The main assets related to the Boilers business include the factory and township at Durgapur in West Bengal.
Overall boiler market is shrinking in India. Current order book of GEPIL will be completed in two years. Future of Durgapur boiler factory will be assessed.
The outstanding order book position of the Boilers business was around Rs.650 crore, as of June 30, 2020. These outstanding orders will be completed within the next two years. According to Prashant Jain, the dwindling of the boilers business was a market reality. GEPIL would be looking at what it could do in terms of adjusting the order backlog with the capacity of the Durgapur plant, and the future of the Durgapur factory itself. Jain however pointed out, “So here, I would say this is a market reality that we face and if I have to say does the announcement have an impact per se on this area of the business, the answer I would say is no.”
AQCS
This is the largest segment within the Steam Power business, in terms of order book. As of June 30, 2020, this segment had an outstanding order book of Rs.4,822 crore that accounted for 80 per cent of the order book of the Steam Power business, and a little over 64 per cent of GEPIL’s total order book, as of said date.
The AQCS segment includes mainly the flue-gas desulphurization (FGD) business. FGD units are retrofitted on existing coal-fired power plants with a view to curb SOx, NOx emissions. The government has stipulated that all old (existing) coal-fired power plants must be equipped with FGD units.
Though GE would exit from FGD business, GE Power India will continue and work towards developing independent bidding-qualification capabilities.
Due to the government’s recent policy on restricting bidders from land-touching neighbouring countries, the competition from international contenders (mainly Chinese) is shrinking. This has enlarged the opportunity window for Indian companies. Also, GEPIL expects that the government would extend the emission implementation deadline by another two years.
Now, the parent company’s decision to come out of the new coal-based business includes FGD. However, GEPIL does not intend to move out of the FGD business. GEPIL however is in discussion with GE to acquire and develop independent capabilities to bid for local contracts. It must be noted that GEPIL is fully capable of executing FGD contracts independently. Explaining the discussion with GE to acquire local capabilities, Prashant Jain said, “The support that GE Power India Ltd receives from GE is for certain vendors in the qualification criteria where there are requirements to furnish references and where there is a requirement to get DJU or a bond from GE headquarters to submit that bid. So that is an area where GE Power India Limited is in discussion with GE to acquire and develop independent capabilities to bid.”
Services
Despite the thrust on renewable energy-based power generation plants, GEPIL feels that there will be stable generation from coal plants for the next ten years and these plants would need services. Coal plants would also need flexible operations regime—an area where GEPIL is doing well. GEPIL plans to focus on growing in the Services business.
GE to stay in Services business, GE Power India optimistic of this segment.
The order book position in the Services business was Rs.527 crore as of June 30, 2020. GEPIL has estimated that its market share in this business has grown from 3 per cent in 2018 to about 5 per cent in 2020.
Even in this segment (like AQCS), GEPIL depends on GE in fulfilling qualification criteria whilst bidding for local projects. “We are focusing on building the capability to build independently,” noted Prashant Sharma, adding that the Services business was an area that parent company GE also planned to continue.
Estimates on energy mix in 2030: Whilst justifying the bright prospects of the Services business of GEPIL, Prashant Jain observed that India has planned to achieve 430 GW-plus of installed renewable power capacity by 2030. Assuming that all of this gets installed, it will translate to 801 billion units of renewable electricity getting fed into the grid, annually. The annual electricity demand for 2030 is projected at around 2,500 billion units. Hence, there will still be demand from coal-fired electricity. GEPIL has estimated that of the total electricity consumed in 2020, around 72 per cent came from coal-fired power plants. This metric in 2030 is likely to be around 54 per cent, indicating that coal-based power will continue to play an important role at least up to 2030.
Featured photograph shows inside view of a coal-fired power plant (Photo: GE)
