Cheaper power bills for cement, metal firms with renewable energy shift

Mumbai: Energy bills of several large core-sector companies have been shrinking, as the benefits of adopting renewable energy begin to trickle in. Latest earnings reports of companies such as Ambuja Cement, ACC, L&T, JSW Steel, and Hindustan Zinc, among others, also show that their share of renewable power is rising in their overall energy mix.

Experts said the bills are shrinking as companies sign long-term power purchase agreements (PPAs) for green power with independent power producers at a far lower per unit cost compared to conventional coal-powered electricity from the grid.

Besides, renewable energy is also becoming more affordable than companies’ captive thermal power, given the volatility in coal prices and the burden of renewable purchase obligations (RPO) set by the Centre and states on thermal power users. RPOs are green power sourcing targets set by the Union and state governments for power distribution companies, captive power producers and open-access consumers, failing which they may face penalties.

“Cement, metals and mining sectors are the largest off-takers of C&I renewable energy in India,” said Kartikeya Sharma, co-founder & chief business officer of Sunsure, a solar energy firm, adding that many companies are going as far as shifting 75% of their power use to renewable through open access solar, wind and energy storage. C&I stands for commercial and industrial users of energy.

So, whose bills are shrinking?

For instance, Ambuja Cement said in an analyst presentation following its Q2 results that its power and fuel cost per tonne of cement production has fallen 27% year-on-year (y-o-y) to ₹925 during the July-September quarter.

The savings were largely “driven by higher focus on green power”, the company noted in the presentation. Green power’s share for the company went up to almost 25% from 18% a year earlier, including power from waste-heat recovery systems (WHRS), solar and wind. WHRS capture the heat in waste gases released as a by-product of high-temperature manufacturing processes and repurpose it for productive uses like generating electricity.

Similarly, subsidiary ACC cut its power bill by 23% in a year to ₹837 per tonne through similar measures, according to its analyst presentation.

To be sure, these savings also include gains from lower fuel costs, which fell due to higher use of captive coal and alternative fuels for the two companies.

Larger cement peer UltraTech Cement said that its power cost declined 7% y-o-y during the September quarter to ₹400 per tonne. The company now has 32% of its power requirements being met through WHRS and renewable energy, and it aims to increase this share to 85% by FY30.

The benefits of renewable energy are similarly apparent at Hindustan Zinc, India’s largest producer of zinc, lead and silver. “Renewable energy has helped to reduce the cost by $9 per tonne y-o-y,” Sandeep Modi, the company’s chief financial officer said during a post-earnings analyst call, adding that its share of renewable power has risen to 14% in Q2 from 8% in Q1.

“So, it’s very clear that renewable energy is adding into the cost benefit,” he said. Hindustan Zinc is sourcing renewable energy from fellow Vedanta Group firm Serentica Renewables.

What’s shrinking the bills?

Sunsure’s Sharma pointed out that renewable energy PPAs allow companies to fix power prices for up to 25 years and are significantly less expensive when compared to grid power.

For example, power from a solar-wind hybrid project for a 100MW steel plant in Maharashtra would have a landed cost of ₹5.50-5.75 per unit, compared to the grid power cost of ₹8.90-9.50 per unit, he said.

“That’s almost 40% cheaper for 75% of the annual power use. It’s an extremely compelling business case for power intensive businesses,” he said.

To be sure, many metals and mining companies rely on captive thermal power plants for most of their power use, which tends to be cheaper than power from the grid. However, given factors such as volatility in coal prices and the increasing cost of compliance with RPO obligations, the landed cost of conventional power is already higher than the landed price of renewable energy, Sharma said.

For instance, JSW Steel has started securing 375MW of captive renewable energy and is looking to get up to 2.5GW by FY27, which will represent a quarter of the company’s power requirements, according to Jayant Acharya, the company’s joint managing director.

“This is an advantage from cost point of view. In the last quarter also, we’ve reduced our power cost once this 375-megawatt power came in,” he said, adding that the cost savings from renewable energy are “significant”.

Moving away from the grid

The cost savings and better cost predictability of renewable power is moving more and more companies towards sourcing renewable energy directly from independent power producers, who are private companies that sell power to distribution companies or third parties such as C&I users.

“One noticeable trend has been the growth of the C&I sector, which shows an increased appetite for Indian corporates to directly source power from generators and not rely on the grid,” said Deepto Roy, partner at law firm Shardul Amarchand Mangaldas & Co. Roy focuses on infrastructure, energy, project finance and banking sectors.

A large majority of power suppliers to C&I users are exclusively generating renewable energy, Roy said. Even traditional independent power producers generating renewable energy are increasingly concentrating on their C&I portfolios given the boom in demand, he said.