This is an extract from the report “RE-powering India’s heavy industries: 20 GW today, 24/7 tomorrow” by EMBER.
Renewable energy’s role in the steel sector
Steel presents the largest single-sector market for open-access solar at 9.4 GW. India produced 144 million tonnes per annum (MTPA) of steel in FY 2023-24. Despite the significant production, India’s per-capita consumption lags at 97.7 kg equivalent only one-third of the global average. With emission intensity at 2.54 tonnes of carbon per tonne of crude steel, well above the global average of 1.91, India faces significant challenges. Solar power can reduce operational costs by up to 10 per cent for standalone electric arc furnaces and by 2–5 per cent for direct reduced iron–electric arc furnace (DRI-EAF) routes; these cost savings translate into margin improvements of Rs 0.5–1.7 per kWh, which can be reinvested in productivity enhancements. Top steel-producing states like Chhattisgarh and Odisha have introduced attractive incentives by fully or partially waiving transmission, wheeling, and cross-subsidy surcharges under their respective green energy open access policies.
Renewable energy procurement offers substantial cost savings for steel plants. The largest annual cost savings for a median sized DRI-EAF plant (1000 tonnes per day (TPD)) can be achieved in states like Karnataka, Chhattisgarh, and West Bengal, amounting to approximately Rs. 200 million, Rs. 185 million, and Rs. 150 million, respectively. These savings could represent 2–5 per cent of the total annual revenue. The savings for standalone furnaces (around 200 TPD) can range between Rs. 50–100 million, ranging between 5–10 per cent of their total revenue. Beyond cost savings, renewable energy profitably reduces emissions in steel. Simply integrating solar power during daylight hours, without additional wind or battery storage, can reportedly lower the emission intensity of standalone furnaces from 0.61 tonne carbon or tonne of finished steel (tfs) to 0.38 tonne carbon or tfs, a 40 per cent reduction. If all DRI-EAF and standalone furnaces in the top steel-producing states transition to solar for their operations, this could result in an annual offset of 15 million tonnes of carbon emissions.
Renewable energy’s role in the cement sector
India’s cement sector sources its electricity from both captive power plants and the grid, with larger plants generally having a higher share of captive consumption. India is the second-largest producer of cement, with an installed capacity of 632 MTPA and an annual production volume of 433 MTPA, growing at an average rate of nearly 4 per cent. The country’s per capita cement consumption stands at around 195 kg annually, significantly lower than the global average of 500 kg. The cement sector, like steel (DRI-EAF), is significantly exposed to the grid with high electricity tariffs. However, unlike steel, where RE procurement offers substantial cost advantages, the cost benefits for cement remain marginal compared to the BAU scenario. Third-party renewable energy sourcing alone does not present a strong business case in most states. Instead, captive renewable energy emerges as the more viable option, with potential savings of up to Rs 0.5 per kWh, as observed for Karnataka. The key factor driving this price dynamic is the high cross-subsidy surcharge in most top cement-producing states. This contrasts with steel-producing states, which have lower cross-subsidy surcharges and, in some cases, waivers on these charges — such as in Odisha and Chhattisgarh — designed to promote open access renewable energy.
Despite the small margins available for captive renewable energy, the sheer scale of cement production translates these savings into substantial gains.Cement manufacturers in the top-producing states can save around ₹80–120 million per year. This comparative cost advantage can drive RE demand across the cement sector. One of the key issues is that electricity costs account for only a fraction of total input costs, with potential savings reaching up to 1 per cent of annual revenue. However, given the thin margins in general in the cement sector, even these savings can offer a competitive advantage if coupled with green brand equity. By positioning low-carbon cement as a premium product, companies could differentiate themselves in a highly commoditised market.
Renewable energy’s role in the aluminium sector
India is the world’s second-largest aluminium producer, with a smelting capacity of 4.1 MTPA and production of 3.5 MTPA in FY 2022-23, contributing around 6 per cent to global output. Despite this, per capita consumption in India is just 2.2 kg, far below the global average of 8 kg and 22-25 kg in developed nations. India lacks a strong regulatory framework for low-carbon aluminium, unlike steel, which has significant national policy support. India’s aluminium sector has historically relied on captive coal-based captive power plants (CPP) to meet its electricity needs. All aluminium producers in India operate their own CPPs and often supply excess electricity to the state grid.
Each tonne of aluminium consumes around 14,361 kWh on average in India, requiring an estimated 8 GW of coal power capacity, assuming a plant load. factor of 85 per cent. The sector’s total captive coal capacity is currently estimated at 9.6 GW, with only a small share of renewable energy. There is already excess coal CPP capacity available to meet any increased demand for aluminium.
Aluminium plants are typically located near coal mines, benefiting from low-cost captive coal power and limiting the case for renewables. However, Uttar Pradesh, with high coal freight costs due to its distance from coal mines, and Chhattisgarh, with supportive open access policies, stand out as exceptions—together offering potential for 1.8 GW and 2.5 GW of solar deployment, respectively. However, stringent regulations, such as the enforcement of RPO obligations, will be necessary to drive the transition from coal CPPs to renewables in the aluminium sector. Additionally, the government could promote green aluminium standards, similar to green steel, to establish a regulatory framework for low-carbon aluminium. Given the entrenched presence of CPPs, it is unlikely that RE will replace them solely based on cost economics. The decarbonisation of India’s aluminium sector presents a significant techno-economic opportunity, primarily due to two key factors:
- Renewable energyas the most influential abatement lever for aluminium: Approximately 80 per cent of emissions in aluminium production come from captive coal-based CPPs. Unlike other heavy industries like steel and cement that rely on high-temperature heat, aluminium production can be largely decarbonised through RE alone.
- India has witnessed record-low tariffs for solar and solar-wind hybrid projects. This makes renewable energyprocurement for aluminium smelters in India more cost-competitive than in many other regions.
A shift to renewable energy-powered aluminium can help companies navigate the EU Carbon Border Adjustment Mechanism (CBAM). With CBAM set for full implementation in 2026, India’s aluminium exports — about 0.7 MTPA to Europe — could face significant cost increases. This impact would be particularly significant for India’s aluminium sector, given its heavy reliance on captive coal CPPs, which are classified as direct emissions under CBAM. As a result, aluminium prices could increase by up to 30 per cent for European buyers.
The challenge of 24/7 renewable energy
By 2030, various entities, including discoms, open-access consumers, and captive power producers will be required to source approximately 43 per cent of their total electricity consumption from renewables, including wind, solar, and hydro, as per the Renewable Purchase Obligation norms.
In India, electricity banking is a mechanism that allows consumers sourcing electricity from renewable energy generators to inject surplus power into the grid when their generation exceeds demand and withdraw an equivalent amount when their generation falls short. State Electricity Regulatory Commissions impose three key restrictions on electricity banking to ensure grid stability and financial viability for discoms. Green energy open access rules mandates at least 30 per cent of monthly consumption to be eligible. Fees for withdrawing banked energy, often around 8 per cent, to cover discom’s grid balancing costs.
As the renewable energy share rises beyond 65 per cent, storage requirements begin to grow rapidly. Up to this point, minimal or no battery capacity is needed, with zero storage required below 65 per cent renewable energy share. However, beyond 75 per cent, battery capacity expands significantly — from 252 MW (4 hour) at 75 per cent renewable energy to 899 MW at 90 per cent, and then surges to 1,256 MW at 97 per cent. To achieve 24/7 renewable energy, storage requirements reach 2,753 MW, nearly matching the solar capacity, which also increases to 2,443 MW, while wind drops to just 37 MW. Increasing renewable energy penetration from 50 per cent to 80 per cent leads to a moderate cost increase to up to 1.4 times the cost of plain vanilla renewable energy generation. This increase is primarily driven by the cost of storage and the challenge of managing surplus electricity.
Green tariffs as a potential solution
Green tariffs can complement open-access renewable energy procurement, particularly in achieving 24/7 renewable energy. While industries can source up to 70 per cent of their renewable energy needs through open access at competitive rates, the remaining 30 per cent often comes at a higher cost due to storage expenses and losses associated with selling excess power. Using green tariffs to meet this last portion of demand offers a cost-effective solution, eliminating the complexities of balancing demand with variable renewable energy supply.
Access the full report here.
