How can renewable energy be leveraged to drive steel sector decarbonisation? BigMint explores

• RE share in steel industry captive generation only 0.39%
  
  
• Intermittency, high charges and costs hinder RE adoption
  
  
• Steel sector's gross power requirement to rise by 95% in 2030-31
  
  

Morning Brief: Of the many steel industry transition levers modelled by the Ministry of Steel, Government of India, renewable energy (RE) has been identified as a 'low hanging fruit' which can be leveraged more easily compared with the other decarbonisation strategies in reducing the carbon emissions from steel production.

Steel is an energy-intensive industry and, according to the Ministry, the specific electricity consumption of finished steel in FY'22 was around 786 KWh/tonne. Of this, the most power-intensive stage is the conversion of iron to steel, which accounts for 62% of total electricity consumption.

In the steel production routes, the IFs and EAFs use more electricity than BOFs. Based on current values of steel production and specific consumption for each process, the total electricity requirement for steel manufacturing stands at around 94 TWh.

RE in steel sector

According to the Central Electricity Authority's (CEA) General Review, over 58 TWh of electricity was generated from captive power plants of capacities greater than 500 KW in the iron and steel sector in 2021-22. Only 0.23 TWh (0.39%) was produced from solar, wind and hydropower plants.

The industry generates off-gas from processes such as coke dry quenching, blast furnace gas, and coke oven gas, which has heat content and is used to generate power. The waste heat is recovered from the DRI process to generate power. That apart, steel players have captive power plants for self-consumption.

Over and above captive consumption, waste heat recovery and off-gas, steel factories source their additional electricity requirements via DISCOMS and open access. As per the CEA's 2023 review based on Renewable Purchase Obligation (RPO) compliance and the penetration of RE in captive consumption in the steel sector, the current RE penetration in the iron and steel sector is 7.2%. The share of RE power in the case of the primary mills is only 3.1% as compared to 11.3% in the case of smaller steel units.

The share of RE in grid electricity is 18.56%, as per CEA, and the Ministry of Power has set an RPO target of 43.33% by 2030.

Challenges in RE adoption

*Cost: The variable cost of thermal-based captive units is in the range of INR 2.5 - 3/KWh, whereas the landed cost of RE power is in the range of INR 6-8/KWh depending upon the charges levied by the state DISCOMs and mode of procurement. So, replacing the current thermal captive projects with captive RE will increase the cost.

*Land availability: Steel players or RE developers willing to set up RE projects face land availability and its acquisition as a major challenge, especially in the states where barren land is not available easily and land prices are high.

*Intermittency: The steel industries' operations require round-the-clock power for the production process, but renewable power is generally intermittent. It needs to be complemented with a supportive banking facility, storage facility or a secondary source of power.

*High charges: Most of the steel industries are located in RE-deficient (where solar/wind potential is poor) states like Odisha, Chhattisgarh, Jharkhand, West Bengal. High RE wheeling charges and State Transmission Utility (STU) charges raise the cost of RE for the industry.

Steel sector energy outlook

As per the Ministry of Steel's projections, electricity requirement in the steel sector is expected to rise by 95% from 94,288 million units (MU) in FY'22 to 183,769 MU by FY'31. Net power requirement after deduction of electricity generation from waste heat recovery is projected to be 145,619 MU.

Out of this, the share of captive power should be around 63% at close to 92,000 MU. As per the Ministry's forecast, assuming RE penetration of 30% in captive generation, around 28 TWh of electricity needs to be generated from RE sources to achieve 30% penetration of RE in captive generation by 2030-31.

The RPO targets, as set by the Ministry of Power, have to reach 43.33% by 2030. If this target is met by DISCOMs, then even at the current level of RE penetration in the captive sources (0.39%), the steel sector will achieve 16.3% of RE penetration in the business-as-usual scenario.

The increase in RE penetration in the steel sector will lead to total CO2 emissions of 113.3 mnt by 2030-31, thus reducing the overall CO2 factor from 0.85 tCO2/MWh in 2021-22 to 0.78 tCO2/MWh in 2030-31 in the business-as-usual scenario.

Interestingly, if the RE penetration in captive power plants operated by steel players reaches 30% by 2030-31, total CO2 emissions are projected to decline from 113 mnt in the business-as-usual scenario to around 87 mnt, thereby reducing the overall CO2 factor to 0.6 tCO2/MWh.

As per the Ministry's projection, in the business-as-usual scenario, the steel industry's emissions intensity will reduce to 2.46 tCO2 /tcs by 2030-31 from 2.54 tCO2 /tcs currently. But if RE penetration in captive generation is raised to 30%, the CO2 factor of the industry will fall to 2.38 tCO2 /tcs.