This is an extract from a recent report “Green electrification of Indian industries for clean energy gains” by EMBER.
India’s heavy industries have an opportunity to begin decarbonisation through renwable energy sources (RES). 11% of total energy consumption in India’s emissions intensive heavy industries is met by electricity today, which could be sourced from RES. 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. 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.
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.
Since 11% of energy in India’s heavy industries comes from electricity, switching this to renewable sources offers an easy decarbonisation opportunity. Industries must source an increasing portion of their electricity from renewables each year through the renewable purchase obligations (RPOs) for industrial consumers. If implemented well, this policy can have a significant impact on industrial decarbonisation. Sectors like aluminium already use a high amount of electricity per unit of output. With legislation like CBAM expected to kick off soon, it would be important for producers to make their products compatible with international norms. Decarbonising aluminium production holds significant potential and should be an immediate strategic priority.
Near-term outlook (2030)
The capacity addition for new heavy industries is expected to increase rapidly considering India’s push towards manufacturing, infrastructure and housing development. The push for a clean economy will drive manufacturing of solar panels, wind turbines and electrolysers, which in turn is expected to add to the demand for commodities like steel and aluminium. Currently, India’s per-capita consumption of basic commodities such as steel and cement is roughly one-third of the global average, but it is expected to rise rapidly as living standards improve. The rise in consumption of the above commodities during periods of high growth of large developing economies can be seen in countries like China. Considering the growing importance of heavy industries, India’s growth story needs to be environmentally sustainable. This requires understanding of the energy demand growth from the industrial sector in the coming decades and exploring options to decarbonise industrial operations with existing technologies.
Since cross-cutting technologies such as electrolysers and carbon capture remain in prototype or demonstration stages, they are not yet ready for widespread deployment till 2030. Therefore, most of the achievable decarbonisation in Indian industries during the 2020s will come from greening their electricity supply. This will not only bring the potential emission reductions but also provide broader benefits to the industries and the RES ecosystem. Power to fuel technologies like green hydrogen in industries will be crucial for industrial decarbonisation in the long-run, but may not be ready for commercial deployment in the near term.
With existing technologies, the total electricity demand in India’s heavy industrial sectors is projected to increase significantly from 175 TWh in 2022 to 253 TWh by 2030, marking a 45% rise with a compounded annual growth rate of 4.7%. The steel sector is expected to be a major driver of this increase, with electricity consumption forecast to surge to 101 TWh by 2030. This growth is propelled by a policy shift towards adopting electric arc and induction furnaces, alongside increasing the use of scrap in operations, prompting steel corporations to transition towards scrap-based arc furnace operations. The aluminium sector has opportunities to advance electrification by switching to electric boilers for processes such as digestion, potentially increasing their electricity consumption to 73 TWh by 2030. Overall in the near-term, electricity demand in other sectors is anticipated to grow mainly due to production expansion rather than electrification.
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.
Long-term outlook (2050)
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: It 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.
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. 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.
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. Various piloting initiatives are planned for heavy industries such as steel and cement in India. Alongside these technological advancements, there has been an enormous interest among industries in sourcing power from RES, capitalising on declining prices. Despite decades of successful demonstration, electrolysis-based hydrogen production has not yet achieved commercial scale.
However, with the increasing urgency for carbon reduction, electrolysis-based hydrogen production is making significant strides in technology improvements. Although not yet commercialised, several large-scale pilot projects are taking shape and are expected to deploy more than 100 million tonnes annually if they come online. The success of industrial electrification and decarbonisation heavily depends on the commercialisation of hydrogen production. In 2023, the Indian government launched the Green Hydrogen Mission, aiming to produce 5 million tonnes of green hydrogen powered by 125 GW of renewable energy by 2030. By 2024, the first tranche of subsidies for electrolyser manufacturing and green hydrogen production was completed, attracting significant interest from both public and private corporations.
What green electrification entails
The push to decarbonise will alter the current energy mix. Beyond 2030, direct electrification and power-to-fuel technologies are expected to raise the share of electrical energy consumption, more in certain sectors than others. This analysis estimates that the share of electrical energy can nearly triple from 11% to 34.5% of total energy consumed for all of India’s heavy industries combined. A greater share of electrical energy in the energy mix makes the decarbonisation of industry more achievable.
The ammonia sector is set to lead with 94% electrification, driven by the shift to green ammonia production. In steel, electrification will reach 26%, due to growth of scrap-based electric arc furnaces and adoption of hydrogen-based direct reduced iron. Advanced technologies like electrified kilns in the cement sector and electrified crackers in the petrochemical sector could increase electricity’s share by 15% and 14.5%, respectively. The aluminium industry, already predominantly electrified, aims for 96% electrification through the electrification of alumina refining processes. The projected electricity demand is expected to triple to 1,468 TWh by 2050, driven by progressive electrification efforts in industries. A significant portion of this electricity, approximately 770 TWh, will be required for power-to-fuel technologies, particularly in the ammonia and steel sectors. To meet the industrial demands in this decarbonisation scenario, the RES capacity needed is estimated at 699 GW by 2050.
The major demand for RES capacity will be in the steel (276 GW) and ammonia (252 GW) sectors. This shift towards green electrification has the potential to offset 737 million tonnes of CO2 emissions by 2050, equivalent to a 37% reduction compared to a business-as-usual approach. The need for additional renewables will become particularly steep after 2040, driven by increasing hydrogen production and the maturation of various breakthrough electrification technologies. The benefits of electrification depend on a significant portion of the electricity coming from renewable sources. The shift in the energy mix towards more electrification and away from coal will require a recalibration of power demand. Industrial transformation will require close monitoring of the evolving electrical demand in the industrial sector.
Benefits of industrial electrification
The main technological levers for the deep decarbonisation of heavy industries are renewable-based electrification (both direct and indirect), CCUS and biomass. Renewable electricity is the most crucial decarbonisation lever because CCUS and other carbon removal technologies remain uncertain despite decades of piloting. Biomass is also limited by resource availability. As a result, the need for renewable capacity is expected to increase significantly compared to a business-as-usual approach for a decarbonised industrial sector. Powering industrial operations with renewables is becoming financially advantageous due to the long-term trend of declining prices of renewable electricity. In India, tariffs for industrial consumers remain high due to cross-subsidisation within the sector, which prioritises subsidising agriculture and commercial sectors.
However, tariffs obtained by captive solar and open access solar projects for industrial users are notably lower than those charged by distribution companies. Investments in solar captive projects can yield a payback period of 3-4 years. Given that electricity costs constitute a significant portion of industrial expenses, transitioning to renewables results in substantial savings and represents a sound business decision. With sufficient capacity built, industries can profitably decarbonise their electricity supply. Alongside the techno-economic benefits of accelerated renewable uptake, there’s a notable improvement in air quality within large industries and industrial towns. This improvement stems from the replacement of multiple coal-based captive capacities with cleaner RES.
Electrification of industries offers several non-decarbonisation benefits to both the industries and the broader economy. It allows for better control over process temperatures, faster startup rates and higher product quality. With heavy industries increasingly becoming owners of renewables, often termed as ‘prosumer’ market actors, the dynamics between industries and the power sector evolve, particularly in terms of supply and demand side flexibility. These companies, recognising their round-the-clock power requirements, are inclined to invest in storage solutions and implement demand-side management strategies, thereby emerging as potential ‘swing consumers’ in the energy system. Renewable-based electrification would also drive significant demand for renewable equipment and associated manufacturing, thereby supporting the government’s manufacturing ambitions.
Access the complete report here
