Report on India's Diesel Genset Markets, 2020-2030

29 Jan 2023

Industry experts attribute the rise in diesel gensets to the largely erratic and uneven power supply in the country, besides issues faced at the transmission and distribution level. "Diesel generator sets are operated only for a short period of time during the day and are used as a back-up power supply," said Ashok Sethi, chief operating officer and executive director for Tata Power.

"The rise is not surprising as generator sets are a solution for erratic power. Unless, the country moves towards reliable power supply and solves the transmission and distribution related issues, this trend will continue," said an Industry official who did not wish to be identified. Power demand deficit peaked at 0.8% or 1,197 MW in April due to erratic power supply in the country.

Another industry consultant added that the increasing number of new factories and buildings in the country may have also contributed to the rising number of diesel-run generators sets as they require a running supply of power for operations.

The estimated figure gains significance when it is juxtaposed with the country's total generating capacity of 3, 30,260.53 MW, as per data compiled by Central Electricity Authority (CEA). The total generating capacity, however, does not include the capacity of power generated by diesel-run generator sets.

Even as the power ministry looks to focus on providing power supply to all, besides ensuring generation of surplus power, the number of diesel power generator sets in the country may be on a rise.

None of the government agencies publicly share any data related to the number of operating diesel generator sets (gensets) in India. However, data sourced through Industry sources shows that diesel power generator sets capacities have raised at a rate of around 5,000 megawatts (MW) per annum in the last two years in the country.

According to data sourced through its internal research, private power producer Tata Power said capacity of diesel gensets is estimated to stand at 90,000 MW as on 2016-end, from 80,000 MW in 2014.

Increase in capacity is rather surprising as the past three years have seen the government focusing on increasing power supply in the country, besides witnessing a surplus condition in some scenarios. To be sure, the power exchanges in the country or the spot market for power have been trading at cheaper rates, as compared to their performance a few years back. Power Minister Piyush Goyal took to social media platform Twitter and said that around 4,396 megawatts of power was available at rate of Rs. 2.59 per unit for states. 

Industry experts attribute the rise in diesel gensets to the largely erratic and uneven power supply in the country, besides issues faced at the transmission and distribution level.

"Diesel generator sets are operated only for a short period of time during the day and are used as a back-up power supply," said Ashok Sethi, chief operating officer and executive director for Tata Power.

"The rise is not surprising as generator sets are a solution for erratic power. Unless, the country moves towards reliable power supply and solves the transmission and distribution related issues, this trend will continue," said an Industry official who did not wish to be identified. Power demand deficit peaked at 0.8% or 1,197 MW in April due to erratic power supply in the country.

Another industry consultant added that the increasing number of new factories and buildings in the country may have also contributed to the rising number of diesel-run generators sets as they require a running supply of power for operations.

The estimated figure gains significance when it is juxtaposed with the country's total generating capacity of 3,30,260.53 MW, as per data compiled by Central Electricity Authority (CEA). The total generating capacity, however, does not include the capacity of power generated by diesel-run generator sets.

Strengthening construction sector, booming transportation systems coupled with growing social infrastructure in the country would spur India diesel gensets market forecast revenues over the next six years. Diesel gensets have become a major source of power in the construction of modern infrastructure. Further, gensets are also heavily deployed to provide back-up power across several application areas such as construction, residential and commercial verticals.

India Diesel Genset Market Size is projected to grow at a CAGR of 5.6% during 2019-25. Diesel gensets with 5 kVA-75 kVA rating accounts for significant India diesel gensets market share due to their wide usage across various applications, ease of availability, and low cost. Increasing utilization of lower rating gensets across domains such as telecom infrastructure in unreliable and off-grid areas would help 5 kVA-75 kVA diesel genset market segments to maintain its dominance during the forecast period.

By region, the Southern region accounted for the highest revenue share in the overall market in 2018. The Northern region would however, witness a significant increase in demand for diesel gensets over the coming years on account of upcoming large-scale infrastructure projects such as Delhi Metro expansion and Lucknow Metro.

India Diesel Genset market report thoroughly covers market by kVA ratings, applications and regions. India diesel genset market outlook report provides an unbiased and detailed analysis of the on-going India diesel genset market trends, opportunities/high growth areas and market drivers which would help the stakeholders to devise and align their market strategies according to the current and future market dynamics.

According toreport, “India Diesel Gensets Market By Rating, By End User, Competition Forecast & Opportunities, 2011 – 2021”, the diesel gensets market in India is anticipated to register market revenues of around $2.9 Billion by 2021. Diesel gensets play a crucial role in providing reliable and high-quality power backup during power outages as well as stand-alone power generation systems. Diesel gensets are increasingly being used for meeting power requirements from various end users across industrial, commercial and residential sectors. Broadly, diesel genset finds application as standby power system when prime source of power is unable to meet electricity requirements. Diesel gensets are also used as prime power source as well as for peak shaving purpose.

Geographical Outlook

The high-volume adoption of 5 kVA–75 kVA gensets in commercial applications, including telecom towers, retail outlets, offices, malls, and hotels, is projected to drive their usage. Domestic and cross-border investments, along with the digitization projects undertaken by the government and revival in the commercialreal estate sector, are expected to result in the establishment of single- and multi-tenant data centers, thereby propelling the installation of 5 kVA–75 kVA diesel generator (DG) sets.

The market in the country is projected to witness a negative impact of the COVID-19 pandemic, on account of the shutting down of commercial and industrial establishments, in order to curtail the spread of the disease. Furthermore, this has temporarily put the production of diesel gensets on hold. There has been a slump in the demand for diesel gensets from the first quarter of 2020, due to the locking down of various commercial establishments, including retail stores, offices, telecom towers, hotels, and airports, which account for a major share in the India diesel genset market. However, with the lifting of the government-imposed lockdown and allowance of air and rail travel, the industry is likely to witness slow recovery in the near future.

In 2019, Tamil Nadu, Andhra Pradesh, Karnataka, Maharashtra, and Uttar Pradesh were the highest-revenue-generating states in the India diesel genset market. This can be ascribed to the rise in the investments in the telecom sector and development of commercial infrastructure, along with an increase in the prime and backup power requirements in the residential facilities in these states.

As per the Indian Brand Equity Foundation (IBEF), India’s retail sector is anticipated to increase from USD600 billion in 2015 to USD1,300 billion by 2020, exhibiting a CAGR of 16.72% during 2015 – 2021. While, the FMCG sector of the country is likely to grow at a CAGR of 20.61% during 2016 – 2020, reaching USD103.7 billion by 2020. In 2016, India surpassed the United States to become the second largest smartphone market in the world, with around 220 million active unique smartphone users registered in 2015. According to the Indian Brand Equity Foundation (IBEF), the telecom infrastructure has expanded at a CAGR of 20% during 2008 – 2015, reaching 571,000 towers in 2015. On an average, the country’s telecom tower network consumes over 11 billion kWh annually, and this is likely to increase to 17 billion kWh by the end of 2016. Hence, with anticipated high growth in the end user sectors of diesel gensets in India, the demand for diesel gensets in the country is expected to grow at a healthy pace during forecast period.

“Telecom Regulatory Authority of India (TRAI) has mandated telecommunications companies to switch from diesel gensets to renewable sources of power generation, as the total switch-over cost from diesel gensets would save nearly 2 billion litre per year of diesel, amounting to around USD1.19 billion annually. This is expected to curb the carbon footprint in the country over the next few years. In addition, the Department of Telecommunications has mandated many telecom companies to increase the proportion of hybrid-powered tower sites to 75% in rural areas and 33% in urban areas by 2020. All these developments are expected to positively influence the country’s diesel gensets market over the span of next five years.”

“India Diesel Gensets Market by Rating, By End User, Competition Forecast & Opportunities and 2011 – 2021” has evaluated the future growth potential of India diesel gensets market and provides statistics and information on market size, structure and future market growth. The report intends to provide cutting-edge market intelligence and help decision makers take sound investment evaluation. Besides, the report also identifies and analyses the emerging trends along with essential drivers, challenges and opportunities in India diesel gensets market.

Power generation industry in India is largely split into conventional & non-conventional ways of generating electrical power. Historically, in India, prominent sources of generating electrical power are, hydel (water based), thermal (coal based), nuclear (atomic based) along with these sources diesel engine based electrical power generation has been popular. Indian diesel generator set market (only based on high speed diesel) has been witnessing growth owing to infrastructure expansion, establishment of new industries & changing business environment in the country. Strong economic growth coupled with power deficits in many parts of the country would foster the demand for diesel generator sets. Also, growing number of telecom towers in the country are expected to boost the diesel generator set market.  Diesel engine-based power generation has been growing during this decade, in applications such as prime power or continuous duty as well as in backup or standby. It is worthwhile to understand the significance of start-ups in this industry in the context of challenges & opportunities. ‘Power generation’ is a casually used term but when it comes to receiving end of usage, power generated gets transmitted through transmission network which is then followed by local distribution using distribution network.

Power generation industry

Imagine a day or night without electrical power. Every day or night, any human being needs electrical energy. Presently, in India, the electrical power need is fulfilled using conventional & non-conventional sources of energy. Basic electrical need across the nation gets catered using boiler (coal fired) or turbine (steam or nuclear or hydel operated) & diesel generator set. Day-by-day, with the influence of ‘Make in India’ initiative, infrastructure segment in India & other industries across India have started peaking up the electrical power demand. In the year 2015, IBEF has done extensive survey on ‘Electrical Machinery’ potential mapping in the Indian market, till year 2022. They have covered power generation machinery, distribution machinery & transmission machinery under ‘Electrical Machinery. Study indicates that electrical power generation machinery installed capacity is expected to grow from 267 GW to 350 GW from year 2015 to year 2022 which is CAGR of 3.9% whereas power demand is expected to have growth at CAGR of 17%. This clearly indicates that there is high probability of having peak demand for electrical power across country. During the same research, IBEF, in reference with a report published by Ministry of Heavy Industries, GoI, indicated to have CAGR of 27.2% for backup power generation units. Generators are expected to have 5-fold growth till 2022.

Boilers are contributing to 63% of total generator industry followed by turbines with 27% & remaining approximate 10% is catered by Diesel engine driven power generator.  High Speed Diesel is the one which is famous ‘Diesel’ utilized to power automobiles or generator sets. Presently, in the Indian market, High Speed Diesel engine-based power generation is enjoying 72% of market share against other sources. IBEF report indicates that the electrical machinery market has been opened for 100% FDI starting 2013 end, which is in line with the Central Pollution Control norms implementation strategy by the GoI. Even though there are government efforts to make India free from power-cuts & generate surplus power with continuity in supply & better quality of power, still there are gaps in present establishments & hence the option like UPS or Diesel engine-based power generation is becoming a popular source of back-up electrical supply.

With this change in pollution level norms on diesel engine-based power generation, various multinational generator set manufacturers have invested in India & have started challenging the established domestic giants. In the recent past, government has assigned various regional SEZ’s which are attracting these multinational giants to set up plants or factories & become competitive in global market as well. Some of them are directly investing or some of them are coming in via joint venture route. One of the well-known research organizations in this field, RNCOS, have indicated in their report ‘India Diesel Market Outlook-2018’ that generator set market in India is on a growth path primarily due to peak demand in electrical power & also due to lack of continuous availability of power with better quality. Also, the ‘back-up’ power availability has started playing a crucial role in Indian industries such as engineering, infrastructure, realty, hospitality & many more. This report indicates that the generator market has seen a growth of 9.5% in the year 2013 over its previous calendar year.

It further indicated that it would have similar growth in next 5 years to come. The Indian diesel generator market is expected to grow at 11% CAGR in the product range of below 100 KVA & higher rating product ranges are expected to grow at CAGR of 7.8% till the year 2018.Power generation industry has been through various phases of evolution. Generator manufacturers have started understanding the need of market or customers from their product than merely selling the generator sets. One of the critical evolution phases was sustaining in the change of pollution norms laid down by the GoI. First norms were laid down 10 years ago (CPCB-1) & the second were laid down in the year 2014 (known as CPCB-2). These have compelled the industry players to work on the structured or well organised sales process. The reason to change norms was purely based on environment protection & bringing in technical advancement in product, buying options for the buyers including the imported & domestic products. This has resulted in introduction of full-time availability of imported generator sets in India. Imported generator-set manufacturers have increased their capacities in India helping in boosting the Indian economy. To start with, the boost in economy looks to be negligible but the plans for next five years would attract investment of approximately USD 10 Bn. In the era of CPCB-1, India power generation segment has seen most dominating domestic players like Cummins India Ltd., Kirloskar Oil Engine, Greaves, Ashok Leyland & to some extent Mahindra & Mahindra.

As compared to presence of only 4 major domestic players in the past, there are 8 major players now, essentially adding 4 giants from global market (Caterpillar, Perkins, MTU & Mitsubishi). Over the years, since 2013, market potential for diesel generator sets has gone up from 75,000 units per year to 100,000 units per year, making it to approximate increase of turnover in value terms as INR 3000 crore annually. This estimates out to 25% growth in potential & doubling the number of players.

Power generation industry evolution

Power generation industry has travelled a long way from its first articulate level of ‘chaotic or chaos’ to present days ‘reportable’ stage. In one of the recent articles by ‘Markets & Markets, on generator set industry growth prospects worldwide (till year 2020), growth indicated to be around US $ 20 Bn USD from present level of US $13 Bn (2015) which means at CGAR of 5.4%. Primary reasons for this growth are indicated to be growing need of continuous power supply & increasing power outages. The report also segments the diesel generator market on the basis of end-user, which includes industrial (power generation/ utilities, oil, gas & others), commercial (IT & telecom, healthcare, & others) and residential. The industrial segment is one of largest users of diesel generators and occupies more than 50% of the total market share in the end-user segment of the diesel generators market. This market is expected to grow at the highest CAGR during the forecast period, owing to chronic power outages & rapid growth of industries, infrastructure, IT & tele-communication industry across the world. Growing industrialization & frequent power outages are driving the demand for diesel generators in this region.

The diesel generator market in India is expected to grow at the highest CAGR, owing to growing IT, data centre, telecom, & ongoing infrastructure development programmes in the country. Start-ups are essentially of two kinds. The first one starts ground up or the one which no one has thought about. In last two to three years, many such start-ups came in & vanished on their own. This type of start-up is difficult to create but once created often sees unprecedented growth. The second type is primarily the ones that do not want to reinvent the wheel. They are interested to adding old sauce in a new dish with little value addition, either superficial, or in actual, to create something new &innovative. Both these major types of start-ups are seen in all industries. Whatever may be the kind of start-up, Indian start-ups face their own set of challenges & some stellar opportunities.

With India power-starved, the millions of diesel generator (DG) sets working to meet the shortage in industrial and commercial units now add up to a cumulative capacity of 90,000 MW. That figure is nearly equal to what was India’s total installed power generation capacity just over a decade ago (March 2002) and about 36 per cent of the current installed generation capacity.

As per more figures compiled by the country’s power regulator, the DG capacity is growing at a rate of 5,000 MW to 8,000 MW every year. That is higher than the cumulative nuclear and solar capacities being added year-on-year in the country.

Besides, the estimate, presented by the Central Electricity Regulatory Commission (CERC) at a recent meeting of its Central Advisory Commission here, is largely restricted to just the big DG sets of over 100 kvA (kilo volt ampere) used by industrial and commercial units as a back-up to the unreliable and insufficient power supply to non-domestic consumers across nearly all states.

Taking into account domestic loadrunning on gensets would take this figure to beyond 90,000 MW.
Apart from the fact that they spew tonnes of carbon-dioxide, the gensets run on subsidised diesel. The cost of generation from a mid-sized DG set is over Rs 14-15 per unit.

Currently, thermal generation capacity of over 48,000 MW is stranded in the country in the absence of coal linkages and non-closure of power purchase agreements (pacts with buyers of electricity), or due to the lack of flexibility in diversion of coal.

Aggravating matters is the fact that despite a cumulative installed generation capacity (as on August 31, 2014) of 2,50,257 MW, demand up to only 1,40,000 MW is met, primarily due to transmission infrastructure failing to keep pace with generation capacity.

Interestingly, as per the Central Electricity Authority’s latest estimate, the country’s diesel-fuelled power capacity is just 1,199 MW. This means that the massive capacity of 90,000 MW from DG sets is completely outside the realm of policymaking and official statistics.

While the break-up of this DG capacity was not available, officials involved in the exercise said the data was largely collated from manufacturers of DG sets.

At the consumer level, the spread of DG sets is increasing with every passing year, considering that practically all commercial establishments, mid-to-large sized factories and apartment complexes are equipped with back-up power that runs on diesel.

The specific suggestion put up before the CERC at the May 16 advisory commission meeting was that state electricity regulators (SERCs, which are the equivalent of CERC) be asked to impose “restrictions” on use of diesel gensets in order to mitigate the risk of energy security and for the protection of environment.

A CII representative countered this saying that industry, by and large, does not run DG sets out of choice, but as a matter of compulsion. In the absence of reliable and quality power supply from distribution utilities, most of which are state-owned electricity boards, industry is forced to rely on back supply, despite the prohibitive costs. This also involves bribing fuel pump owners to ensure a regular supply of diesel, the representative said.

A July 2014 report prepared by research and consulting firm GlobalData, focusing on energy and healthcare industries, also notes that while the US, China and India are currently the top markets for diesel gensets, their market share will improve only in China and India by the end of the forecast period of 2020.

According to Siddhartha Raina, Senior Analyst for GlobalData: “China and India each face a considerable gap between their power supply and demand, creating attractive markets for diesel genset manufacturers. High power deficits, coupled with significant economic growth potential, are expected to be the strongest drivers behind these markets’ expansion.”

Conclusion

Expanding activity across all segments in the manufacturing sector, construction and infra sectors, and standby power from the residential segment, all add up to generating a robust demand for gensets in India, across all types and capacities.

A trend boosting market growth for gensets is technological advances. Improved fuel economy continues to be the most significant advancement in diesel engine technology. Though many end-users prefer gasoline-powered equipment, the diesel engine segment has a solid end-user base in data centers as it is an economical option - an important parameter considered for owning power backup equipment.

Over the years, several initiatives and changes have been implemented to improve the overall efficiency of engines in a diesel genset. Most of the modifications involve igniting of power within the engine itself, derived from a combination of oxygen and fuel.

According to the report, a key growth driver is frequent power outages. Power outages form one of the common problems faced by developing countries such as India. India, being one of the fastest developing nations in the world, depends largely on electricity for its industrial, commercial, infrastructure, transport, and other sectors. India is the third largest electricity producer and consumer in the world after the US and China. However, an estimated 27% of the energy generated in India gets lost during transmission or is stolen. Peak supply falls short of 9%, and frequent power outages last for an average of 10 hours in many regions of the country.