The report, “Powering India’s Secondary Steel Transition,” found renewable electricity could reduce annual power costs by about 22 million to 24 million rupees ($250,000 to $275,000) per unit, or up to 34%.
The report was jointly produced by a consortium of environmental groups and industry bodies including the Confederation of Indian Industry, WWF-India, the nonprofit group Climate Catalyst and the think tank JMK Research.
Electricity accounts for up to 40% of operating costs for many small steel producers, making it one of the industry’s largest expenses. Profit margins at many of India’s smaller steel companies have been affected by rising fuel costs resulting from the Iran war.
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India, the world’s most populous nation, is among the largest emitters of carbon dioxide and other greenhouse gases contributing to global warming.
The steel sector accounts for as much as 12% of India’s annual emissions. Decarbonizing the sector is essential to meet the country’s goal of achieving net-zero emissions by 2070.Shifting to clean power also could help shield Indian steel companies from European carbon taxes that took effect at the start of this year.
“With rising pressure on all industries to reduce their carbon emissions, a high-emitting sector like steel has to look at ways to reduce emissions at the least cost possible,” said Prabhakar of JMK Research, one of the report’s authors, who uses only one name. “With the huge growth in renewables in India, shifting to renewable electricity is low-hanging fruit for reducing carbon pollution.”
Steel firms can save with joint clean power investments
The report found the most practical option for small steel producers is to jointly invest in and own a renewable energy project from which they can draw electricity based on their investment and electricity needs.
This approach lowers the upfront financial burden for individual companies and creates projects large enough to be commercially viable, the report said.
“A cluster-based approach can fundamentally change how small steelmakers access renewable energy,” Prabhakar said. “Aggregating demand through industrial associations makes projects more bankable, enables optimal plant sizing and reduces the investment risk borne by any single unit.”
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Renewable energy adoption remains limited among India’s smaller and medium-sized steel companies despite the country’s clean power capacity tripling over the past decade. The report estimated only about 11% of smaller steelmakers use renewable power, compared with roughly 22% of India’s overall electricity mix.
Helping small and medium steelmakers access clean energy is essential to India’s ambitious climate goals, said Vinoth Balakumar of the Confederation of Indian Industry.
“The companies are ready to change and have realized that, to maintain profits, they could try to shift to renewable electricity,” he said.
Low awareness, red tape and high costs slow clean power shift
Owners of small steel companies said they are willing to shift to clean power because many of their domestic and international customers prefer steel with a lower carbon footprint. But high costs, government regulations and, in some regions, a lack of awareness about the benefits of renewable electricity are slowing the transition.
“When capital costs are really high, it makes it less viable for smaller companies,” said Sanjay Tripathi, a steel company owner in the central Indian state of Chhattisgarh.
In the western state of Gujarat, the country’s second-largest generator of renewable energy, steelmakers said inadequate transmission and grid infrastructure prevent them from using all the solar power they have invested in.
“We are being asked to reduce our solar power production by up to 80% at times by state government authorities,” said Dhirubai Patel, who owns a steel company in Rajkot, home to one of India’s largest steelmaking clusters in Gujarat.
Patel and several other steel manufacturers in the city invested in a solar power plant that began operating in 2021.
“Our request is for the government to invest in infrastructure and make it easier for us to do business. We have a lot of good policies, but there is a lack of cooperation from officials in many government departments,” Patel said. “They are still living in the old era and need a change in their mindset.”