New Delhi: India plans to pool the energy needs of millions of its small and medium factories using gas to generate industrial heat in manufacturing processes to make their shift to electricity cheaper and more secure.
State-run is working on a plan to map and aggregate such demand for energy to enable their move to electric furnaces, and it will come up with tenders for green power supply to these businesses, said officials in the know.
Industrial heat is the energy factories use for processes such as smelting, refining and drying. SECI plans to pool this demand across industries and float tenders to supply them with renewable power secured at lower prices. The plan aims to help smaller businesses who are typically constrained by infrastructure and high capital costs.
The on India’s gas supplies, as disruptions to flows from the region prompted the government to ration natural gas and prioritize households. Industrial consumers consequently had to make do with lower allocations.
Pooling of green power would help industries, such as steel, cement and aluminium and smaller businesses, lower their costs, secure stable supplies and ease their green transition.
“As the energy sector evolves, SECI is now looking at new avenues of demand aggregation, given its established model for renewable energy demand aggregation. It has already entered in demand aggregation of green ammonia,” said an official in the know of the developments. “Aggregation of heat demand from industries is another area SECI is looking at. Heat generation from different sources is different, so the tendering agency would have to take a look at the heat requirement from different industries.”
The talks are currently in the initial stage and the viability and modalities of pooling the demand is being looked at. Queries mailed to SECI remained unanswered until press time.
The move assumes significance as electricity accounts for 16% of India’s overall manufacturing costs. This comes at a time when about 40 gigawatt (GW) of power purchase agreements (PPA) and power sale agreements (PSA) remain unsigned for green power. This capacity, mostly solar, is not integrated with storage capacity and hence not preferred by power distribution companies, given that this electricity is unavailable post sunset hours that typically see more demand. The lag in evacuation and transmission expansion is also a deterrent.
A second official in the know said large manufacturing companies have the required capital to set up captive green power sources and have also signed up C&I (commercial and industrial) power purchase agreements (PPA), but there are several clusters of MSMEs who use gas-based furnaces for heating purposes that can benefit from low prices due to demand aggregation.
A recent report by think tank India Energy and Climate Center noted that along with accelerated capacity installation, open access rules should also be eased to help industries connect directly with solar generation facilities in the absence of widespread long-distance transmission.
“Government entities can facilitate industry’s proximity to solar plants by considering industrial electrification opportunities in broad energy system planning,” the report said, adding that the government can site new solar parks or grid upgrades in areas where those opportunities are clustered and state renewable energy nodal agencies can support setting up of industrial parks that co-locate solar generation and electrified industry.
The second official mentioned above also noted that the precursor for demand aggregation on this front would be the electrification of these smaller industries and the alternative sources of heat also need to be made more attractive.
Anil Bhardwaj, secretary general of the Federation of Indian Micro and Small & Medium Enterprises said: “There should be good RoI (return on investment) for businesses to transition. Also, regulatory requirement also can push them for such transition. Instances such as CBAM (Carbon Border Adjustment Mechanism) in EU are making several manufacturing businesses in India move towards low carbon technologies. There is a need for alternative technologies at competitive prices.”
India’s Bureau of Energy Efficiency (BEE) has been working on an electrification strategy for the past few years under the India-EU Clean Energy and Climate Partnership. The agency looks at electrification efforts across sectors, including residential, industrial and mobility in a bid to ensure energy efficiency amid climate change.
Challenges in transition
Experts noted that along with the capital expenditure for smaller industries to shift to electric process for energy rather than gas, the assurance of uninterrupted power would be key.
Gurudas Nulkar, professor and director of the Centre for Sustainable Development at Gokhale Institute of Politics and Economics, Pune, said: “Firstly, India’s MSMEs are diverse, ubiquitous, and they all require varied energy sources. Shifting from the prevailing gas-based furnaces to electric furnaces brings into consideration a few factors, such as the cost of acquiring gas or electricity, the cost of the furnace itself, and other indirect costs such as the cost of stoppages (as many MSMEs don’t have expertise in dealing with issues related to an electric furnace), and the cost of inefficiency because workers may not work as efficiently with a new machine.”
He noted that for industries to move to electric furnaces, the government needs to promise an uninterrupted power supply because many MSMEs will not be able to procure generators or inverters, while gas supplies are available locally during exigencies.
Vinod Kumar, president of India SME Forum, sees benefits only with riders: “Electrification can be broadly cost-neutral or cheaper only in the case of existing gas furnace is old or inefficient, electricity is available below ₹8 per unit, the business unit can use open-access renewable power, captive solar or favourable time-of-day tariffs.
He said that “a realistic payback period could range from three to four years in a favourable induction heating application to more than seven to ten years”. There may also be no commercial payback where grid tariffs and infrastructure costs are high, Kumar added.
Noting that electrifying furnaces in MSMEs would involve setting up of transformer and enhancement of sanctioned load among other factors, Kumar said: “For a small batch furnace, investments may run into tens of lakhs of rupees and for larger melting, forging, ceramics, glass, foundry or continuous-process installations, it may reach several crores.”
A transition plan should thus provide capital subsidy or interest subvention for furnace replacement, support for transformer and load-enhancement costs, concessional green technology loans with longer repayment periods and cluster-level common renewable power procurement, Kumar added.