How Solar Power Can Help India’s Steel Sector Save Up to 10% on Energy Costs

India’s steel industry is one of the nation’s core sectors, producing over 138 million tonnes of crude steel in FY2024 and ranking as the second-largest producer globally. It supports infrastructure, manufacturing, and exports but also bears the burden of being one of the most energy-intensive industries. Energy costs, particularly electricity, can account for nearly a third of operational expenditure, making efficiency and cost control a constant concern for plant operators.

With electricity tariffs for industrial consumers ranging between INR 7 and INR 9 per unit in states like Maharashtra, Gujarat, and Tamil Nadu, any avenue to bring down the effective per-unit cost has a direct and measurable impact on profitability. Against this backdrop, solar power has moved from being a “green choice” to a solid business decision. Industry studies show that by blending solar with grid supply, steel producers in India can trim energy costs by 8–10 percent, leading to annual savings running into tens of crores for large plants.

The Energy-Intensive Reality of Steelmaking in India

India’s steel sector operates through a mix of blast furnace-basic oxygen furnace (BF-BOF) routes and electric/induction furnace routes. Both rely heavily on electricity for furnaces, rolling mills, and auxiliary systems.

A mid-sized integrated steel plant producing 1 million tonnes per annum typically consumes 450–500 million kWh annually. At INR 8 per kWh (average industrial tariff), that translates to INR 360– INR 400 crore a year in electricity spend. Any meaningful reduction in the weighted average cost of power can free up capital for expansion, technology upgrades, or debt reduction.

Why Solar Makes Sense Now

India’s solar tariffs have fallen sharply over the past decade, with large-scale open access or captive projects delivering power at INR 3– INR 4.5 per kWh, well below most industrial grid rates. Given India’s high solar insolation (4–7 kWh/m²/day), states with steel clusters like Chhattisgarh, Odisha, Karnataka, and Gujarat can generate power reliably for 300+ sunny days a year.

For example, a 50 MW captive solar plant under the group captive model can generate 80–85 million units annually. For a 1 MTPA plant, that can meet about 15–20 percent of daytime demand, cutting the weighted average power cost and delivering up to 10 percent annual savings on electricity expenditure.

Adoption Models of solar in India’s Context

Steel companies in India have multiple models to adopt solar without straining their balance sheets:
 

• Capex Model - Direct investment in a captive solar plant. Higher initial cost but maximum savings over 20–25 years. Payback in 4–5 years.
• Opex/RESCO Model - A renewable energy company invests, owns, and operates the solar asset, selling electricity to the steelmaker at a pre-agreed tariff, typically 20–30 percent lower than grid power.
• Group Captive Model - Multiple steel plants (or allied industries in the same cluster) co-invest in a solar facility, sharing generation proportionally.

The group captive route has been particularly popular in India’s industrial belts as it allows cost savings while meeting Renewable Purchase Obligation (RPO) compliance.

Policy and Market Tailwinds in India

India’s policy landscape is currently favourable for industrial solar adoption -

1.       Waiver of ISTS charges for projects commissioned before June 2025, reducing landed cost of solar power.

2.       Renewable Open Access Rules, 2022 simplifying approvals and reducing banking restrictions in several states.

3.       RPO trajectory set to increase annually till 2030, compelling industries to integrate renewables into their energy mix.

4.       Falling solar module prices, down nearly 25 percent year-on-year in 2024 due to easing of global supply bottlenecks and increasing domestic manufacturing under the PLI scheme.

India’s steel industry faces mounting pressure to decarbonise. While a large share of emissions comes from process heat, electricity consumption also contributes substantially. A shift of even 20 percent of a plant’s electricity needs to solar can cut carbon emissions by 40,000–50,000 tonnes annually for a 1 MTPA facility.

This has strategic implications for exports. The EU’s Carbon Border Adjustment Mechanism (CBAM) will require importers to disclose and pay for embedded carbon emissions. Indian steelmakers who reduce their carbon intensity through renewable energy will be better positioned in these markets.

The Competitive Advantage

Margins in the steel sector fluctuate sharply with global price cycles, often hovering in the 4–8 percent range during downswings. Locking in a portion of electricity supply at INR 3–INR 4.5 per unit for 15–20 years offers insulation from grid tariff escalation, which has historically increased at 3–5 percent annually in many states.

An 8–10 percent cut in power costs can be the difference between operating at a loss and staying in the black during low-demand periods. This isn’t just a cost-saving tool, it’s a risk management strategy.

Future for Indian Steelmakers

While long-term decarbonisation will require green hydrogen, carbon capture, and process innovation, solar offers immediate, scalable, and financially viable benefits. The economics are compelling, the policy environment is supportive, and the market is moving fast.

The question for Indian steelmakers is not whether solar fits into their energy mix but how quickly they can integrate it to stay competitive in a global market that is getting cleaner, cheaper, and more carbon-conscious.

                                                                             -Tanmoy Duari, CEO, AXITEC Energy India Pvt. Ltd.