India’s secondary steel sector, responsible for 40% of crude output, could slash power costs by 34% by switching to renewable energy. With only 11% currently using green power, a government-backed ₹5,000 crore scheme is expected to support this transition. This move aims to improve margins and help firms meet global emission standards.
India’s secondary steelmakers, which produce nearly 40% of the country’s crude steel, are looking at a potential transformation in their operating costs. New data indicates that shifting from traditional grid power to renewable energy could reduce electricity bills by as much as 34% for these smaller units. For many in this sector, electricity is a massive expense, sometimes accounting for up to 40% of total operational costs. Reducing this burden is essential for maintaining profitability in a business often defined by thin margins and price volatility.
The Shift to Renewable Power
Currently, only about 11% of India’s smaller steel producers have adopted renewable power. The primary hurdle for these companies is the high upfront cost required to build or install clean energy infrastructure. To overcome this, industry experts are suggesting a cluster-based approach. By grouping together to invest in and own renewable projects, smaller steelmakers can share the financial load, increase the size of projects to make them more commercially viable, and aggregate demand to improve their attractiveness to banks and lenders.
Government Support and Policy Outlook
The financial pressure on secondary steel producers is significant, but relief may be on the horizon. The Indian government is preparing a ₹5,000 crore support scheme, expected to be introduced within the next three months, specifically designed to help the sector adopt green technologies. This initiative is aimed at easing the transition for these smaller units, which currently struggle with limited balance sheets compared to larger, integrated steel players.
Risks and Sector Challenges
While the potential for savings is clear, the transition faces several risks. First, the Indian steel industry has an emission intensity of approximately 2.55 tonnes of CO2 per tonne of crude steel, which is higher than the global average of about 1.9 tonnes. This creates a regulatory risk, as international trade measures, such as the European Union’s Carbon Border Adjustment Mechanism (CBAM), could make it harder for high-emission producers to export their goods.
Infrastructure also remains a major constraint. In industrial regions, limited access to stable power grids and gas pipelines often forces producers to curtail their energy use or rely on more expensive, traditional power sources. Furthermore, the reliance on raw material inputs, such as scrap metal, remains a constraint, as limited domestic availability can hinder the use of cleaner, scrap-based furnace technologies. Investors may watch how the government’s upcoming scheme addresses these infrastructure gaps and whether the proposed financial support provides enough of a cushion for smaller companies to manage their capital spending effectively.