Green electrification can unlock clean energy gains for Indian industries

Electrifying thermal processes with renewables is a natural choice for Indian industries to slash their carbon footprint while simultaneously boosting the country’s clean energy ecosystem.

Industries are the largest energy end-use sector in India, emitting 920 million tonnes of CO2 annually. The steel and cement industries alone contribute 18% of India’s total emissions. With the EU’s Carbon Border Adjustment Mechanism (CBAM) legislation, there is increasing focus on decarbonising industrial energy use. Understanding the ‘hard-to-abate’ nature of industries and exploring available options is crucial for initiating decarbonisation.

In the near term (to 2030), transitioning from fossil fuel-based electricity to renewable energy sources (RES) is crucial to meet current power needs sustainably. In the long term (to 2050), industries must adopt advanced electrification and power-to-fuel technologies to rapidly decarbonise their emission-intensive operations. Green electrification will significantly change energy consumption patterns in these industries, requiring strategic planning to ensure future energy demands are met efficiently.

11% of total energy consumption in India’s emissions intensive heavy industries is met by electricity today, which could be sourced from RES.

A primer on heavy industries

While policymakers generally agree on technologies for electricity supply and transportation – like renewables, batteries and electric vehicles – there is less consensus on the technologies needed for industrial decarbonisation.This debate has gained traction in recent years, particularly with the introduction of the EU’s Carbon Border Adjustment Mechanism (CBAM) legislation. However, the actual transformation at the enterprise level has been gradually taking shape.

This analysis specifically focuses on five emission-intensive heavy industries that are significant contributors to India’s CO2 emissions. The sectors of steel, cement, petrochemicals, aluminium and ammonia, together referred to as the ‘heavy industries’ in this report (distinct from India’s heavy engineering industries), are not only considered as the materials that form the pillars of modern civilisation but are also top industrial emitters. India’s dependence on these sectors will only increase with growing income levels and infrastructure development in the next few decades. Decarbonising these industries will require the adoption of multiple cross-cutting technologies and sector-specific radical innovations. 

The mentioned industries are considered hard-to-abate due to certain specific techno-economic characteristics.To develop effective strategies for their low-carbon transformation, it’s essential to understand these characteristics in the context of decarbonisation.

Mapping the emission inventory

The fuel mix of an industrial sector significantly impacts the emissions it produces. Direct emissions from the industrial sector in India, known as scope 1 emissions, were estimated to be 560 Mt CO2 in 2021. Industries also consume the most electricity (41%) as compared to other economic sectors like domestic, commercial and agriculture.

The indirect emissions, known as scope 2 emissions, from purchased electricity are estimated to be 360 Mt CO2. This brings the total emissions from the industrial sector to about 920 Mt CO2. The steel industry (300 Mt, 33%) and cement industry (230 Mt, 25%) are the largest contributors to these emissions, primarily due to their substantial production scales. Besides CO2, these processes emit other greenhouse gases like NOx, SOx, and particulate matter, which are harmful to health and the environment.

Electricity use in heavy industries

Industries have traditionally relied on fossil fuels and electricity for their heat and power needs. The energy required to produce one unit of a product is referred to as the specific energy consumption (SEC). SEC can be split into specific thermal energy and specific electrical energy. Thermal energy, primarily derived from fossil fuels like coal in India, is used for direct heating processes. Electrical energy, sourced from captive power plants or the grid, powers machinery and equipment.

Some industries consume more electricity per tonne of product than others, making them “low-hanging fruits” for decarbonisation. A significant portion of their energy consumption can be decarbonised immediately using renewables if appropriate incentives and regulations are in place.

In 2022, 11% of the energy consumption in India’s heavy industries was met through electricity, with the remaining 89% reliant on fossil fuel-based thermal energy, making these sectors difficult to decarbonise. Electricity usage varies widely across industries. For instance, electricity accounted for 80% of the total energy consumption in the aluminium sector, significantly higher compared to cement (10%), petrochemical (10%), steel (8.5%) and ammonia (4.8%). Notably, the cement and steel sectors have higher total energy consumption due to their large production volumes. 

Meeting electricity demand with renewable energy sources

By meeting the entire 2030 electricity demand from India’s heavy industries by 2030 with RES, a substantial reduction in emissions is achievable in each sector. This is imperative not only for voluntary climate initiatives but also to align with increasingly stringent emission standards at regional, national and global tiers for Indian industries.

Meeting India’s heavy industries’ electricity demand with RES requires approximately 120 GW of RES capacity by 2030.This means adding an average of 20 GW annually specifically to meet industrial energy needs. Most of this demand will come from the steel (48 GW), aluminium (35 GW) and cement (26 GW) sectors considering the expected electricity demand growth.

Switching to RES for electricity can help meet the rising demand in heavy industries and reduce the burden of high electricity prices driven by cross-subsidies. This is particularly advantageous with new schemes promoting open access to green energy and the temporary waiver of interstate transmission charges.

Transitioning to RES for electricity in India’s heavy industries could avoid approximately 180 million tonnes (Mt) of CO2 emissions by 2030, resulting in a 17% reduction in the projected 2030 CO2 emissions from these industries.

The aluminium and petrochemical sectors could see significant reductions, with RES-based electricity potentially cutting 65% (53Mt) and 50% (9Mt) of their respective 2030 CO2 emissions. In absolute terms, steel emissions have the most emissions reduction potential, as arc furnace facilities powered by renewables have the potential to help avoid around 15% (73 Mt) of 2030 steel emissions. While this may seem modest relative to the total steel sector emissions, it constitutes a substantial absolute reduction compared to other heavy industries.

Types of electrification for industries

Similar to the ongoing electrification efforts in the transportation and residential heating sectors, there is currently a significant push to shift some of the thermal processes to electricity and power them with RES. The rationale is to utilise renewables and reduce reliance on fossil fuels. However, the diversity of the industrial sector requires a comprehensive suite of technologies for effective transition. Consequently, the electrification strategy for the industrial sector needs to be phased, targeting specific sectors in a timely manner as the necessary technologies mature and become viable. Broadly, there are two key strategies to electrify the dominant industrial processes: direct electrification and indirect electrification.

Direct electrification

Direct electrification involves replacing fossil fuel based thermal processes with electricity based heating processes. The primary goal of large-scale electrification is to source all this electricity from RES, making it one of the most promising ways to decarbonise industrial heating needs. Some of the direct electrification methods include resistance heating, arc heating, induction heating, dielectric heating and electrolysis.

Direct electrification technologies can be highly efficient, offering a more controlled heating process compared to traditional fuel-based methods. Unlike conventional convection heating, electro-thermal technologies can precisely target specific areas without heating the surrounding material. However, their widespread commercial viability has been limited by the affordability of cheap fossil fuels.

Direct electrification methods

• Resistance heating: Heat is generated by passing current through a resistance.
• Arc heating: Achieved by initiating an arc between current-carrying electrodes.
• Induction heating: Utilises electromagnetic induction principles.
• Dielectric heating: Uses high-frequency electromagnetic fields.
• Electrolysis: Uses electricity to purify and extract metals

Indirect electrification

Indirect electrification, often referred to as power-to-fuel (P2X), involves the electrolysis of water to produce hydrogen and its derivatives. This approach can complement direct electrification in all end-use sectors, particularly where direct electrification is challenging. Certain industrial sectors, such as refining and ammonia, currently use grey hydrogen derived from the reformation of natural gas. Decarbonising these sectors by replacing fossil-based hydrogen with electrolysis-based green hydrogen is a strategic target. 

Hydrogen and its derivatives such as ammonia can be used as energy carriers and for energy storage. Additionally, hydrogen can provide flexibility to the grid by balancing the penetration of renewables. As hydrogen production increases and prices decline, its application can expand to other sectors, such as steel. The hydrogen ladder, a work-in-progress for developing a priority order for hydrogen use, helps allocate hydrogen to various sectors based on the suitability of the use case.

However, the use of electrolysis-based hydrogen is presently limited by the high costs associated with its production and the necessary infrastructure for storage and distribution. A major portion of the levelized cost of hydrogen, about 30-60%, is due to the cost of electricity, with the remaining cost primarily due to electrolysers. Therefore, future cost declines in both renewable energy and electrolysers will be crucial for reducing the overall cost of hydrogen.

Industrial electrification to 2050

It’s clear that RES technologies alone are insufficient for industries to achieve decarbonisation. They must be complemented by a range of electrification technologies that are still becoming viable as of 2024. Different industrial sectors are exploring various direct and indirect electrification technologies to electrify their thermal processes. However, these technologies are at different technology readiness levels (TRL, on a scale of 1-11) based on their maturity. The figure below presents an overview of key electrification technologies for various sectors along with their current TRL. More details on piloting studies and corporate commitments in India related to these new technologies can be found in the data sheet.

Methodology

The methodology section is organised into three subsections, each detailing the data analysis and modelling strategy employed for the chapters of the report. These chapters are constructed sequentially to build upon each other, ensuring a comprehensive approach of understanding industrial electrification. The primary industrial sectors examined in this report include major emitters such as steel, cement, aluminium, ammonia and petrochemicals.

• Chapter 1: The state of play

The specific energy consumption (SEC) is defined as the energy consumed in manufacturing a unit of product, typically represented in gigajoules per tonne (GJ/t). SEC is calculated and reported as a gate-to-gate metric by industries, encompassing all forms of energy entering the industrial facility. The Bureau of Energy Efficiency (BEE), which implements energy conservation regulations for industries, publishes energy audit reports for various sectors. There are a number of reports for different sectors based on energy audits carried out by BEE, can be found for steel, cement and aluminium here for example. Further, based on the use of fossil fuel use for thermal heating and electricity use for electrically powered processes within different sectors, the SEC is further divided into specific thermal consumption and specific electrical consumption. This bifurcation provides insights into the energy consumption patterns in different sectors and the proportion of electricity within the overall energy mix.

The average emission intensity of an industrial sector is defined as the carbon dioxide emitted during the manufacturing of a unit of product. Beyond emissions from fossil fuel combustion or coal-based electricity generation, many industries have significant process emissions, for example cement, due to the basic chemistry of the reactions. Additionally, sectors like steel have varying emission intensities depending on their route of production. The average grid emission intensity factor is assumed as 0.716 tCO2/MWh when emissions from electricity consumption are explicitly considered. The emission intensity data for different sectors are compiled from reports and academic literature due to the lack of standardised estimates reported by a governmental agency. This is then used to calculate the emissions for various industrial sectors.

• Chapter 2: Near-term outlook (2030)

The near-term outlook, extending up to 2030, examines the projected growth in electricity demand from heavy industries. The growth for each sector is harmonised with the government’s latest GDP growth forecasts up to 2030. For instance, the steel sector’s growth is guided by the National Steel Policy, 2017, which outlines the share of different production routes by 2030. Similarly, the government mandates the cement industry to promote the use of fly ash and slag to ensure circularity. These considerations are meticulously integrated when determining the share of different production routes within these sectors. Consequently, the energy consumption of fuel and electricity increases in alignment with the sectoral growth. This approach provides a comprehensive projection of the electricity demand for each sector by 2030. Additionally, the emissions from different sectors by 2030 are computed using the average emission intensity values estimated in Chapter 1.

The near-term decarbonisation scenario focuses on powering current industrial electricity consumption using renewable-based electricity. This modelling exercise yields two important findings. First, it estimates the necessary growth in renewable energy capacity to fully meet the industry’s electricity demand, calculated using the capacity utilisation factor based on the 14th National Electricity Plan projections. Second, it computes the emission reductions achievable by replacing fossil fuel-based electricity with renewables for each sector. The emission intensity assumed for the grid is 0.716 tonnes CO2/MWh, based on the Central Electricity Authority’s latest estimates. In this scenario, emissions from grid-purchased electricity would be eliminated if the electricity is sourced from RES.

• Chapter 3: Long-term outlook (2050)

The long-term outlook explores the potential for electrification in each sector considered in this report. We examine two primary types of electrification to build a scenario for potential electrification across the industrial sectors. The first is direct electrification, which includes technologies such as electrified furnaces and kilns. These sector-specific direct electrification technologies are at varying levels of readiness and are anticipated to be integrated into industrial processes before 2050. The assumptions regarding the expected year of commercialisation and the projected share of total production from these direct electrification technologies are thoroughly detailed in the accompanying table of technologies.

The other type of electrification, known as indirect electrification, involves using power to generate fuel, primarily through electrolysis to produce hydrogen. The production of hydrogen in the long-term outlook aligns with the government’s green hydrogen policy targets and extends linearly beyond that until 2050. In the model, electrolysis-based hydrogen production is treated as a limiting technology due to uncertainties surrounding its scalability. The produced hydrogen is allocated to different sectors based on a logical strategy that prioritises the most feasible use cases, following the hydrogen ladder concept. This allocation strategy ensures that, in accordance with government targets and the linear extension, the ammonia sector begins using hydrogen by 2025, and the steel sector starts incorporating hydrogen by 2040. Given the projected volume of hydrogen production, these are the only two sectors expected to utilise hydrogen by 2050, according to the analysis.

Under the scenario for potential electrification, the share of electricity is expected to increase due to both direct and indirect electrification. This shift is estimated by analysing the changing energy mix for industries as they transition towards electrification, compared to a business-as-usual approach. The rationale behind electrification is its role as a precursor to decarbonisation. By increasing the share of electricity in the energy mix over time, it becomes easier to supply this electricity with renewables, which are already established and viable technologies. Consequently, as a sequential next step, the amount of renewable energy required by 2050 is calculated to meet the electricity demands of industries under this scenario.

More details about assumptions, methods and technologies can be found in the data sheet.