Corporate renewable power procurement has gained significant attention in India

Decarbonising the industrial sector is a complex challenge that demands technological advancements, backed by innovative policies and financing mechanisms. Industries rely on both electricity and heat as primary energy sources, with their shares varying across sectors. While long-term solutions like large-scale electrification and green hydrogen are being explored for heat decarbonisation, transitioning from fossil-based to renewable energy (RE) power is an immediate and practical step toward carbon neutrality.

India has committed to reducing the emission intensity of its economy by 45% from 2005 levels and ensuring that 50% of its total electricity capacity comes from non-fossil sources by 2030. Beyond national targets, major corporations in sectors such as steel, cement, and aluminium have carbon neutrality goals or pledged to source 24/7 RE within specific timelines.

India’s industrial sector accounts for approximately 607 million tonnes (MT) of direct annual CO₂ emissions. It is also the largest electricity-consuming economic sector, accounting for 595 Terra Watt-hour (TWh), or 42% of the country’s total electricity demand, primarily met through a combination of grid (through distribution companies) and captive (self-generated) power. Given this, two things are clear: decarbonising industries is essential for meeting national climate targets and switching to RE is a key lever in this transition. The good news is that this transition is already well underway.

A blend of carrots and sticks is driving RE growth in industries

India’s commercial and industrial (C&I) sector has been seeing a significant increase in RE consumption. However, tracking this growth is challenging, as industries rely on both grid electricity—which includes a mix of fossil and non-fossil sources—as well as corporate RE procurement. 

As of 2024, RE capacity for the C&I segment reached 35 GW, with solar contributing 66% and wind making up the rest. In 2024 alone, 6.9 GW of solar open access capacity was added for C&I consumers, representing a 77% increase from the previous year. While multiple factors have driven this surge, the primary catalyst has been the cost advantage of renewable energy and regulatory support from the government. These factors are explored in detail in the following section.

Cost advantage

Industrial electricity tariffs in India are higher than in many other countries in comparison to the cost of generation, with a 10-25% markup over the average cost of electricity supply. This is primarily due to a feature of the Indian electricity sector, where industries cross-subsidise residential and agricultural consumers through an additional levy known as the cross-subsidy surcharge to support social welfare. Despite efforts to regulate these subsidies, they often exceed prescribed limits, making grid electricity a costly option for industries. 

On the other hand, RE costs have declined significantly in recent years. Solar tariffs, for instance, have dropped by over 75%, from ₹10/kWh in 2014 to ₹2.5/kWh in 2024. However, private procurement of RE through open access (OA), either from third-party developers or captive generation, involves various additional charges, such as transmission and wheeling fees, various surcharges, and other levies (explored in detail in the mechanisms of RE procurement section). Despite these added costs, open access RE remains cost-competitive with respect to typical industrial electricity tariffs. This cost advantage has been an important driver of RE adoption among industrial consumers.

Regulatory push

Two key regulatory frameworks have played a significant role in accelerating RE adoption. The first is the Renewable Purchase Obligation (RPO) framework, which mandates a minimum share of RE consumption as a percentage of total electricity use for distribution companies (DISCOMs), captive power producers, and open-access consumers. Heavy industries such as steel, cement, and aluminium often rely on captive fossil-based power generation, making them subject to the RPO targets. Under this mandate, these industries must progressively increase the share of RE in their total captive consumption, with a target of 43% by 2030.

There have been ongoing legal concerns for heavy industries like steel and cement whether co-generation and waste heat recovery (WHR)-based electricity generation can be qualified as RE power within the RPO framework. Courts have consistently ruled against this classification, reaffirming that WHR cannot be accounted for within RPO compliance. Consequently, companies are required to procure solar and wind power to meet their obligations, irrespective of their WHR-based generation.

The second key policy framework is the Green Energy Open Access (GEOA) Rules, 2022, which brought much-needed clarity to the procurement of RE through the non-discriminatory use of the transmission and distribution (T&D) infrastructure. These rules define eligibility criteria, streamline registration and permit processes, and rationalise associated charges and banking norms.

However, electricity is a concurrent subject in India, meaning both the central and state governments have jurisdiction. As a result, any central-level framework, including the RPO and GEOA rules, must be ratified and implemented at the state level to have a real impact. The extent of adoption has varied across states, with some not fully aligning with the spirit of these regulations, leading to inconsistencies in implementation.

Climate commitments

Several corporations have set their own carbon neutrality targets. Many have aligned with global initiatives such as RE100, which commits companies to sourcing 100% renewable electricity, and the Science-Based Targets initiative (SBTi), which provides a structured approach to gradually reducing all forms of emissions. Notably, major industry players like JSW Energy have committed to SBTi, while Dalmia Cement and Shree Cement have joined RE100, demonstrating their commitment to achieve 100% round the clock renewable power before 2050.

Many industrial commodities such as steel, aluminium, etc. are also subject to international carbon regulations, such as the Carbon Border Adjustment Mechanism (CBAM). These tariff barriers create strong incentives for industries to reduce their emission intensity in the near term to avoid financial penalties and maintain global competitiveness.

Multiple routes to green power procurement, each with their own set of challenges

There are multiple mechanisms for procuring RE in India for industrial operations. Some of the most common routes and associated challenges are explained in the following section.

Paying a green tariff to distribution companies

A green tariff refers to a pricing structure or rate plan offered by DISCOMs to supply electricity generated from RE to commercial and industrial consumers. This allows industries to access RE in a plug-and-play arrangement without navigating the complexities of corporate power procurement. For smaller consumers, whose electricity consumption may not be large enough to justify direct PPAs, this provides a more feasible and flexible alternative.

Introduced by the Ministry of Power (MoP), this mechanism was intended to leverage low-cost RE to bring down industrial electricity tariffs while providing industries with a pathway to meet their RPO targets. However, in practice, the determination of green tariffs and their alignment with RPO compliance varies across states. As of the present, 24 states have approved the green tariff mechanism.

Challenges with green tariffs:

• Unfavorable pricing structures: In most cases, green tariffs have effectively become a premium charged over the existing industrial electricity tariffs rather than states following a standard method as prescribed in the Green Energy Open Access (GEOA) Rules. These additional charges typically range from ₹0.2/kWh to ₹1/kWh for the states that we consider. The green tariffs, at instances, have been set significantly higher than the Average Power Purchase Cost (APPC) of RE procured by DISCOMs. Another issue is the uncertainty in green tariff pricing. Green tariffs are revised annually along with other electricity tariffs, making it difficult for consumers to have visibility on future costs. With mandates in place for energy storage in the electricity mix to improve flexibility, DISCOMs may charge higher tariffs in the near-term.

• Clarity on accounting mechanisms: Ensuring 24/7 green power supply is difficult, as many industrial consumers operate continuously with limited flexibility to shift demand. Additionally, green tariffs risk becoming mere accounting mechanisms that do not drive new renewable energy deployment but instead reallocate the renewable energy mix to industries at a premium. Secondly, future revisions to the GHG Protocol may impose stricter requirements for matching renewable generation with consumption, raising concerns about the recognition of green tariffs. If these tariffs lack granular time- and location-based verification, they may face challenges in being accepted as legitimate corporate emission reduction claims, potentially limiting their role to a great extent.

Green energy open access 

This mechanism allows industrial consumers (above 100 kW) to procure RE directly from a RE generator using the transmission and distribution infrastructure under a non-discriminatory open access framework. The rules governing RE procurement through this mechanism are prescribed by the national government, which later must be adopted and implemented at the state level for effective execution.

Multiple open access (OA) charges are levied on top of the RE tariff, including transmission and wheeling charges, cross-subsidy surcharge (CSS), and additional surcharge (AS). Additionally, banking charges apply when industries store excess electricity generated during periods of low demand for later use. These charges are determined by state regulators based on the GEOA rules. The GEOA framework aims to rationalise these costs by imposing limits on arbitrary increases. For instance, the CSS cannot increase by more than 50% of the initial year’s CSS for the first 12 years of a plant’s operation. Furthermore, states can incentivise greater RE uptake by reducing or waiving these OA charges.

Under GEOA, industrial consumers can procure RE through three primary routes:

• Third-party – Buying power from a RE developer, all OA charges applicable.
• Captive – 100% ownership of an RE plant for self-consumption, CSS and AS are waived.
• Group-captive – Partnering with other entities to co-own a minimum 26% of an RE plant and consume at least 51% of the total electricity; CSS and AS are waived.

Despite various charges imposed on RE tariffs for open access power, it still offers significant cost advantage across most states. Based on data from multiple states, industrial consumers can achieve a cost saving of ₹1–4 per unit through open access renewable power, translating to an average tariff reduction of around 44% across states. The extent of this advantage depends on state-specific charges and their periodic revisions, but even with these variations, the business case for open access RE remains strong.

Challenges with open access RE procurement

• Regulatory variability across states: The Green Energy Open Access (GEOA) rules require state-level implementation for effective execution. However, there is significant variability across states in aspects such as applicable open access charges, energy banking norms, open access connectivity (General Network Access) rules, and other administrative processes. This fragmented regulatory landscape creates challenges for both buyers and sellers, requiring them to plan differently based on state-specific policies.

• Financial tradeoffs for small industries: The third-party model incurs additional charges such as CSS and AS, making it less cost-competitive and, at times, prohibitive. On the other hand, opting for a captive structure requires significant capital investment in an RE project, creating potential financial tradeoffs. Companies must weigh this investment against other priorities, such as expansion plans. This challenge is particularly pronounced for small businesses, especially arc furnaces in India, which often operate with high levels of informality and thin margins. For such industries, committing to captive RE can be a challenge. To address this, the government has introduced the group captive structure, allowing companies to invest 26% equity in an RE project while securing captive consumer benefits. This model helps mitigate financial tradeoffs to some extent. However, regulatory inconsistencies remain—certain states, like Gujarat, have yet to ratify the group captive structure, limiting its accessibility.
• Challenges posed by DISCOMs: C&I consumers play a crucial role in cross-subsidising various economically weaker consumer categories through surcharges. As a result, any policy that facilitates private RE procurement for industries is likely to face resistance from DISCOMs, as it poses a potential revenue loss for them. Research estimates that if 50% of C&I consumers shift to RE procurement through these mechanisms, the estimated increase in the average loss gap would be 53% per unit of electricity for third-party open access and 100% for captive projects. This highlights the financial pressure on DISCOMs due to RE procurement and political challenges that can lead to potential resistance by state governments.

Other mechanisms

There are several other mechanisms for procuring RE, though they are not yet widely adopted in India. These include sourcing RE from green segments of the wholesale electricity market, such as the Green Day-Ahead Market (GDAM) and Green Term-Ahead Market (GTAM) or obtaining the Renewable Energy Certificates (REC). Additionally, concepts like the RE Virtual Power Purchase Agreement (VPPA)—which has been tested in advanced economies—have yet to gain traction in India due to regulatory challenges.

This discussion excludes rooftop and behind the meter solar, as industrial facilities often face challenges in co-locating RE generation within their premises due to space constraints.

Steel, Cement and Aluminium: The big three

This report examines RE procurement opportunities for India’s heavy industries sector, with a focus on steel, cement, and aluminium. Together, these industries account for nearly 90% of electricity consumption within the heavy industries sector. Also, India is the world’s second-largest producer of steel, cement, and aluminium by volume, behind China. They contribute approximately 580 million tonnes of CO₂, including both direct emissions and those from electricity consumption. Many of these industries are also part of large conglomerates with carbon neutrality commitments, making them likely candidates for near-term RE adoption.

Chapter 2 explores the cost dynamics of electricity consumption in steel, cement, and aluminium across different states, identifying potential market opportunities for RE deployment. Chapter 3 delves into the future of corporate power procurement, examining the mechanisms of ensuring 24/7 RE for industrial operations.