A 20 GW renewable opportunity lies in India’s steel, cement and aluminium sectors

This chapter explores market opportunities for renewables in heavy industry sectors like steel, cement, and aluminium in India. It examines potential cost benefits of RE procurement for industries and how they can leverage RE to navigate carbon taxes and access green premium markets.

Steel: The most promising heavy industry market for renewables today

India stands as the second-largest producer of steel in the world, with an output of 144 million tonnes per annum (MTPA) in the Financial Year (FY) 2023-24, trailing China. Despite significant production volumes, India’s per capita steel consumption lags at 97.7 kg per annum equivalent to one-third of the global average. The National Steel Policy (2017) projects India’s steel production to rise to 255 MT by 2031, representing an estimated year-on-year (YoY) growth of 8.5%. This growth is expected to be primarily driven by the building and infrastructure sectors.

The steel sector in India accounts for 10-12% of the country’s total emissions, making its decarbonisation a national priority. With an emission intensity of 2.54 tonnes of CO₂ per tonne of crude steel—well above the global average of 1.91 tonnes—India faces significant challenges. This higher emission intensity in India is driven by three primary factors: greater energy consumption due to the use of lower-grade coal and iron, a heavy reliance on coal for steel making and captive power production, and limited scrap availability. In contrast, countries like the United States, with abundant natural gas and higher scrap availability, achieve much lower emission intensities in steel production.

The decarbonisation of India’s steel sector has gained significant momentum in recent times, marked by the government’s introduction of the Green Steel Roadmap and Action Plan in 2024. Several key initiatives have laid the foundation for a low-carbon steel sector.

Electric furnaces for steel production are majorly powered by the grid

Steel production in India predominantly utilises three key routes: the Blast Furnace-Basic Oxygen Furnace (BF-BOF), the Direct Reduced Iron-Electric Arc Furnace/Induction Furnace (DRI-EAF/IF) and standalone scrap-based EAF/IF. Energy consumption varies significantly across these production pathways due to differing shares of thermal and electrical energy. A deeper understanding of these variations helps focus and streamline RE switching opportunities.

A survey of multiple steel manufacturing plants, based on project documents, provided valuable insights into electricity consumption patterns. While energy usage varies by production route and region, this analysis identifies average consumption trends across different steel production routes.

The opportunity for RE adoption lies primarily with electric furnaces, which are the focus of this analysis. DRI-EAF and scrap-based standalone furnaces, with electricity consumption levels of approximately 664-825 kWh/ton of steel (roughly three to four times that of the BF-BOF route), rely significantly on grid-based electricity supplied by distribution companies. This dependence presents a significant opportunity to transition from grid power to cleaner and more cost-effective RE alternatives. 

In contrast, the BF-BOF route, which involves primary steel production, is excluded from the analysis as its operations are predominantly powered by inexpensive captive power plants (CPPs) that utilise waste heat recovery (WHR) gases from blast furnaces and coke ovens, along with coal-based captive generation. 

Some steelmakers are poised to unlock substantial cost savings     

For understanding the cost benefits of open access solar in steel making, the focus is on the top steel-producing states with significant DRI-EAF/IF and standalone EAF/IF potential. The rationale is to prioritise steel manufacturing routes that are more reliant on grids. The top five states identified are Odisha (24%), Chhattisgarh (20%), Gujarat (15.4%), West Bengal (13%), and Karnataka (8.5%) accounting for more than 80% of arc furnace based steel production in India. This analysis excludes standalone EAF/IF clusters in Punjab and Haryana due to insufficient data, largely attributed to the high level of informality of arc furnaces in this region.

India has recorded some of the lowest RE tariffs globally, around ₹2.5/kWh (~USD 28.73/MWh) for solar and ₹3.2/kWh (~ USD 36.77/MWh) for solar-wind hybrid projects. While hybrids are more expensive than plain solar tenders, they generally tend to offer higher capacity utilisation factors (CUF). This modeling study assumes vanilla solar projects, aiming to replace grid-sourced electricity wherever it is economically viable.

To evaluate the cost implications, three scenarios are constructed: 

• Business-as-usual (BAU): Electricity sourced from a mix of captive generation (waste heat recovery and fossil fuel–based) and grid supply, reflecting state-specific coal-based captive costs and industrial tariffs. 
• RE third-party: Grid electricity partially replaced with third-party solar during solar hours, accounting for open access charges under the latest tariff orders and states’ Green Energy Open Access (GEOA) rules.
• RE captive: Grid electricity partially replaced with captive solar during solar hours, leveraging ownership benefits and tariff savings as per the GEOA rules.

Grid electricity is replaced first with open access solar because industries would prioritise substituting the most expensive electricity source—which, in this case, is grid electricity. This cost-optimisation approach —replacing the most expensive source first—is consistently applied across all sectoral analyses. The green tariff route, while also offering a cleaner alternative, is expected to increase costs above BAU and therefore is excluded.

States with high electricity prices can achieve significant savings through open access solar. For example, Chhattisgarh, West Bengal, and Karnataka, where electricity prices are high, achieve cost savings of ₹0.5 – 1.7/kWh through open access solar procurement. In contrast, states like Odisha and Gujarat, which have more competitive grid prices, offer limited cost advantages. Specifically, Gujarat offers no cost benefits under the RE third-party route. As a result, steel manufacturers in these states need to turn to captive RE to avoid cross-subsidy surcharge and improve cost-effectiveness.

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. Chhattisgarh, for instance, offers various incentives for the first 500 MW of open access consumption, including a waiver of transmission and wheeling charges and a 50% reduction in the cross-subsidy surcharge. Similarly, Odisha provides comparable discounts on these charges, with the condition that the RE projects are located within the state. Karnataka, on the other hand, introduced an open access policy offering a 50% waiver on the cross-subsidy surcharge. However, this policy has stalled after being struck down by the courts in early 2025 due to disputes over wheeling and banking regulations and issues related to the retrospective application of charges to projects.

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% of the total annual revenue. The savings for standalone furnaces (~ 200 TPD) can range between Rs. 50–100 million, ranging between 5–10% of their total revenue. The prospects of switching to RE by these steel companies would create a market for about 9.5 GW of open access solar, the largest ones being 2.9 GW and 2.4 GW in Odisha and Chhattisgarh, respectively. 

This becomes particularly relevant in light of the challenges faced by the steel industry, such as high input raw material costs, elevated logistics expenses, including freight charges and the ongoing concerns of dumping. Indian manufacturers have lost domestic market share in certain steel categories due to cheap imports from China, Vietnam, and other trading partners, significantly suppressing domestic steel prices. The situation is expected to worsen with the looming threat of US tariffs, which could further divert a substantial volume of global steel supplies to India. By leveraging cost savings from RE procurement, Indian steel manufacturers can mitigate some cost pressures and improve their competitive positioning in national and foreign markets.

Benefits beyond cost savings

While RE procurement presents a compelling opportunity to reduce operational costs and enhance competitiveness, it also brings numerous co-benefits. 

RE can reduce emissions in steel, profitably

India’s steel sector emits approximately 300 million tonnes (MT) of CO₂ annually. Of this, the top five states, which contribute 80% of steel production from DRI-EAF and standalone furnaces, account for around 110 MT of CO₂ emissions and form a part of this analysis. RE holds significant potential to reduce emissions in standalone arc furnaces. Simply integrating solar power during daylight hours, without additional wind or battery storage, can lower the emission intensity of standalone furnaces from 0.61 tonne CO2 (t-CO2)/tonne of finished steel (tfs) to 0.38 t-CO2/tfs —a 40% reduction. If all DRI-EAF and standalone furnaces in the top steel-producing states transition to solar for their operations, this could result in annual emission savings of 15 million tonnes of CO₂.

Navigating the newly introduced Indian green steel standards with renewables

The Indian government introduced a Green Steel Taxonomy on 12th December 2024, a framework that categorises steel based on its emission intensity, measured as the tonnes of CO2 equivalent (t-CO2e) emitted per tonne of finished steel (tfs): 

• 3-star green steel (2.0 – 2.2 t-CO2e/tfs) 
• 4-star green steel (1.6-2.0 t-CO2e/tfs)
• 5-star green steel (below 1.6  t-CO2e/tfs)

The taxonomy acts as a soft mandate for steel companies, urging them to reduce their emission intensity to at least 2.2 t-CO2e/tfs as a minimum requirement to qualify for a green steel tag.

The Green Steel Taxonomy aims to create new markets for green steel, encouraging procurement by governments and climate-prioritising corporations. Additionally, this framework can help address international carbon taxes, such as the Carbon Border Adjustment Mechanism (CBAM), by providing standardised and transparent emissions data for finished steel products.

Ember’s modelling suggests that by sourcing the entirety (~100%) of the steel sector’s power consumption from RE, the star rating for various steel-making routes can be significantly improved. In the scenario where the steel sector consumes 100% of RE power, the blast furnace-basic oxygen furnace (BF-BOF) route could achieve a 4-star rating, while the coal-based Direct Reduced Iron-Electric Arc Furnace (DRI-EAF) route could advance to a 3-star rating. RE thus can serve as an immediate lever to navigate the green steel taxonomy. Given the current cost challenges of achieving 100% renewable energy—primarily due to the high cost of storage—this pathway may come at a premium today (discussed further in Chapter 3).

Addressing domestic and international carbon compliance through renewables

The implementation of the EU’s Carbon Border Adjustment Mechanism (CBAM) will significantly impact Indian steel exporters by increasing the cost of their shipments to the European market. Indian steel exporters will have to pay between €60 and €80 per tonne of carbon emissions over and above the standards mandated under CBAM. Currently, India exports around 30% (~ 3-4 MTPA annually) of its total steel exports to Europe. Imposition of CBAM could lead to an erosion of corporate profitability in steel exports by 20-35% on a case-by-case basis. 

India has also introduced a domestic Carbon Credit Trading Scheme (CCTS) to incentivise industries to reduce carbon emissions and align with global climate commitments. Launched under the Energy Conservation Act, 2022, the scheme establishes a domestic carbon market where industries can earn and trade carbon credits based on emission reduction. Some of the initial challenges can be addressed by aggressively procuring renewable energy. 

Cement: A promising yet challenging market for renewables

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%. The country’s per capita cement consumption stands at around 195 kg annually, significantly lower than the global average of 500 kg. To meet rising demand, India’s cement capacity is expected to reach 800 MTPA by 2030. 

Despite the lack of strong regulatory push compared to the steel sector, the cement industry has seen significant voluntary climate commitments. Three of the largest companies—UltraTech, Shree, and Dalmia Cement—have pledged to the RE100 initiative, committing to 100% renewable electricity by 2050, with some setting more aggressive near-term targets. Additionally, many cement companies have joined various global initiatives focused on carbon supply chains and trade sustainability, such as the Global Cement and Concrete Association.

Electricity comes from a mix of captive and grid for cement production

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. On average, an integrated cement unit in India—comprising clinkerisation, grinding, and other pre- and post-processing stages—consumes around 80 kWh of electricity. India has one of the most electricity-efficient cement industries, with one of the lowest electricity consumption per unit of cement produced. 

Due to the lack of exhaustive plant-level data, an average estimate has been derived based on multiple samples from environmental clearance reports from various plants. Our analysis indicates that, on average, the electricity mix across cement plants is supplied by: 

• captive power plants (40%) 
• waste heat recovery (WHR) systems (10%),
• the grid (50%).

While coal-based captive power plants (CPPs) dominate, cement manufacturers have also signed significant open access renewable energy deals. Currently, the sector is reported to be using roughly 6 GW of coal CPPs, which as per our estimates is significantly more than the total demand. Additionally, many cement manufacturers have committed to expand their WHR capacity and also their RE consumption by 4-5 GW 2030. 

Cement plants must walk a tightrope to maximise gains from renewable energy

India’s cement sector is geographically dispersed across multiple regions. The top five cement-producing states—Rajasthan (12.82%), Andhra Pradesh (12.03%), Karnataka (8.07%), Gujarat (7.28%), and Madhya Pradesh (6.80%)—account for approximately 50% of total production, while the remaining 50% is distributed across various other states.

Geography of cement production is highly dependent on raw material availability. On average, producing one tonne of cement requires approximately 1.5 tonnes of limestone and 0.2 tonnes of coal. As a result, cement plants are primarily concentrated in states with abundant limestone reserves, such as Rajasthan, Andhra Pradesh, and Karnataka.

This section follows the same scenario-building approach, beginning with a business-as-usual (BAU) case where electricity is sourced from CPP, WHR systems, and the grid. In the RE scenarios, a portion of costlier grid consumption is replaced by solar power during solar hours. Accordingly, we analyse three scenarios—BAU, RE Captive, and RE Third-Party—to assess the cost competitiveness of solar open access procurement for the cement sector across different states.

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 RE sourcing alone does not present a strong business case in most states. Instead, captive RE emerges as the more viable option, with potential savings of up to ₹0.5/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 RE.

Given this background, where margins are thin, we analyse the potential annual savings from captive RE sourcing. Based on a sample of cement plants, we find that assuming an average plant size of 2 MMTPA provides a reasonable benchmark for estimating savings.

Despite the small margins available for captive RE, 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, with estimated requirements of 1.9 GW in Rajasthan and Andhra Pradesh and around 1.2 GW in Karnataka. 

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% 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.

India’s cement sector has recently seen a wave of acquisitions and consolidations, driven by a strong push for cost reduction. Leading players such as UltraTech Cement, Shree Cement, and Dalmia Bharat have also significantly increased per-tonne discounts in the last two years to reinforce distributor and dealer loyalty. In an industry where margins are razor-thin, scaling up production and leveraging shared infrastructure have become key competitive strategies. RE has already started playing a significant role in the cement sector in alleviating some cost pressures. If states relax surcharges to encourage RE procurement, it could lead to further improvement of competitiveness for cement manufacturers.

Aluminium: A steep climb for renewables

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% 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. Aluminium demand is expected to rise in the coming years, driven by its growing use in power and electronics, especially in renewable energy (solar frames and mounts), as well as in consumer durables, aerospace, and infrastructure.

India lacks a strong regulatory framework for low-carbon aluminium, unlike steel, which has significant national policy support. However, aluminium production in India is concentrated among three major players—Vedanta Ltd., Aditya Birla Group (HINDALCO), and National Aluminium Company (NALCO)—unlike the steel sector, which has diverse ownership, including many smaller companies. Among them, Vedanta Aluminium and Hindalco have set 2050 carbon neutrality targets. Despite these commitments, a large-scale policy-driven push for decarbonisation in the aluminium sector is necessary for the near term action. 

Entire electricity consumption is from captive coal power plants

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. While some RE integration has begun, its share remains limited due to the dominance of CPPs across industrial facilities.

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%. The sector’s total captive coal capacity is currently estimated at 9.6 GW, with only a small share of RE. There is already excess coal CPP capacity available to meet any increased demand for aluminium.

With the RPO mandate, companies are required to follow a transition trajectory and replace 43% of their captive generation with renewables by 2030. However, weak enforcement has significantly slowed this process, with many companies still relying entirely on coal CPPs to meet their total demand.

Transitioning to low-carbon aluminium would require sticks, not carrots

The aluminium sector in India is concentrated in the eastern region, primarily due to the proximity of key raw materials like bauxite and coal. Production is heavily clustered in a few states, with Odisha accounting for 67%, followed by Chhattisgarh at 15%, while the remaining 18% is split equally between Uttar Pradesh and Madhya Pradesh (9% each). The sector is dominated by a few major players, with Vedanta Aluminium leading at 2.34 MTPA—close to 60% of India’s total aluminium production capacity.

This section follows the same scenario-building approach used previously, starting with a business-as-usual (BAU) case, where nearly 100% of electricity comes from coal-based CPPs. In the RE scenarios, a portion of CPP consumption is replaced by solar power during solar hours. Accordingly, we analyze three scenarios—BAU, RE Captive, and RE Third-Party—to assess the cost competitiveness of solar open access procurement for the aluminium sector, across states. 

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.

Case study for HINDALCO’s aluminium plant in Uttar Pradesh

Aditya Birla Group-owned Hindustan Aluminium Corporation Ltd. (HINDALCO) operates a 0.41 MTPA aluminium smelting plant in Renukoot, Uttar Pradesh. The plant is powered by an 840 MW coal-based CPP with some co-generation, which primarily runs on imported coal, making it vulnerable to high prices and market fluctuations. 

With domestic coal based CPP costs in Uttar Pradesh estimated at ~Rs. 5/kWh (actual cost can be higher given the dependence on imported coal) and solar available at ~Rs. 4.2/kWh, switching to solar can yield savings of at least ₹0.8/kWh. For HINDALCO’s Renukoot plant, this translates to annual savings of ₹5 billion—about 4–6% of annual revenue from the plant. Meeting this shift would require 1.8 GW of solar capacity.

Uttar Pradesh’s solar policy offers waivers on surcharges, wheeling, and transmission charges—making it attractive for third-party solar without requiring capital investment from industries. However, current policy limits these benefits to projects sited within Uttar Pradesh. Given the state’s modest solar potential, this can result in low CUFs and inefficient use of solar assets. Instead of tying subsidies to in-state siting, the government should focus on enabling open access RE sourcing from optimal locations to strengthen its position as a cost-efficient green industrial hub.

Leveraging renewables to access climate conscious markets

The decarbonisation of India’s aluminium sector presents a significant techno-economic opportunity, primarily due to two key factors:

• RE as the most influential abatement lever for aluminium: Approximately 80% 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.
  
• Cost competitiveness: India has witnessed record-low tariffs for solar and solar-wind hybrid projects. This makes RE procurement for aluminium smelters in India more cost-competitive than in many other regions.

A shift to RE-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 MMTPA 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% for European buyers. Transitioning to RE can ensure that Indian aluminium remains competitive in Europe while also expanding its footprint in climate conscious markets.

Summing up: A business case for 20 GW solar—today

While the industrial decarbonisation landscape is often dominated by high-tech solutions planned for 2030 or beyond, this analysis highlights what can be done today—profitably and at scale. Our study assesses the solar capacity that can be viably deployed under the open access model to decarbonise industrial operations in heavy industries like steel, cement, and aluminium, spanning various states of India. 

• A 20 GW market opportunity: The total demand for open access renewables in the top-producing states of these commodities is 9.4 GW for steel, 6.9 GW for cement, and 4.1 GW for aluminium. The study focuses on DRI-EAF and standalone furnaces in steel, which present the biggest opportunity within the steel sector as they can replace a significant portion of grid power. The adoption of renewables in cement offers substantial savings, though not as high as in steel on average. Unfortunately, aluminium remains heavily reliant exclusively on captive coal, making it difficult for open access renewables to compete. For aluminium to transition, a regulatory-heavy approach will be necessary. Switching current production to 20 GW solar can reduce up to 29 MT CO2.

• Thin margins, big payouts: One of the distinguishing features of these sectors, which produce commodities, is that they operate with limited margins and a high degree of cyclicality in revenue generation. Long-term resilience is key, requiring these businesses to navigate market highs and lows strategically. Even marginal savings on electricity costs—ranging from ₹1–2 per unit—can have substantial financial gains that can be repurposed for other productive investments. Competitive pressures in India’s steel and cement sectors have been well discussed in recent equity research, and renewable energy can provide some degree of respite.
• States in focus: States like Odisha and Chhattisgarh, located within India’s mineral-rich regions, host a significant share of heavy industries. Their progressive green energy procurement policies, which offer discounts on cross-subsidy and various other charges, strengthen the business case for both third-party and captive renewable procurement by industries. Such policies are forward-looking and can position these regions as potential hubs for green steel and aluminium, developing a certain brand perception that can attract international finance and corporate action.

On the other hand, states like Karnataka, Rajasthan and West Bengal present a more challenging environment for open access due to fewer incentives for green energy procurement and various regulatory hurdles. A rationalisation of green energy open access charges could provide much-needed relief for industries serious about transitioning. Also, a key concern is the potential elimination of transmission charge waivers, which could further stress the growth trajectory of renewable open access markets.   

• Playing the global game: Reducing the carbon intensity of steel, cement, and aluminium can unlock access to new international markets. It can create new partnerships with climate clubs such as Responsible Steel and the Aluminium Stewardship Initiative, as well as corporate buyer groups like big tech companies, automotive, and aviation sectors committed to green commodity markets. Besides opening up new revenue channels, this facilitates technology transfer, access to financing, and enhanced brand equity. Early movers like Kalyani FeRRESTA steel and Shree cement are case in point within Indian commodity markets. Additionally, decarbonisation efforts can help industries maintain competitiveness in regions implementing carbon tariff mechanisms, such as Europe’s CBAM.

This chapter focuses on what is already feasible using standalone solar, without factoring in storage. The emerging opportunity of combining renewables with storage for 24/7 industrial supply—already under consideration in states like Gujarat—is explored in the next chapter.