SECI wants to make India’s industries electric

Akshara (0:04)

In today's episode, we'll do one deep dive and cover another story for the day. First, we'll talk about SECI wanting to make India's industries electric, and then we'll talk about why auto ancillaries are looking beyond the car.

Welcome back to The Daily Brief by Zerodha, where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara, and today is Thursday, 10th September. Coming to the first story.

So when we talk about de-carbonizing the economy, we usually focus on electricity, building more solar and wind projects or adding batteries. But the economy doesn't run on electricity alone. Factories also burn coal, gas and oil directly to produce heat. They need steam to process textiles and chemicals, furnaces to melt metals, and kilns that reach well above 1,000 degrees Celsius to make cement. This is a huge part of global energy use. And according to the International Energy Agency, heating across industries and buildings consumes nearly half of the world's final energy and produces 37% of energy-related carbon emissions.

Yet electricity met just 4% of global industrial heat demand in 2024

The IEA expects that to rise to 12% by 2030 Now, India has an especially large gap to close. Industry consumes nearly half of the country's final energy, but electricity supplied only around 19% of it in 2021-22. The rest largely comes from fuels burned at factories. So this is why industrial heat matters. India cannot decarbonize its economy merely by cleaning up the electricity factories already consume. It must also replace at least some of the coal, oil and gas that factories burn directly.

So, the Solar Energy Corporation of India or SECI now thinks it can help. Now, industrial production in India is not limited to giant factories run by Tata Steel or Ultra Tech Cement. Thousands of smaller foundries, forging units, textile processors, chemical plants and food processing units operate in industrial clusters spread across Punjab, Gujarat, Rajasthan, Tamil Nadu and Maharashtra. Many of these businesses need heat. But switching from a gas boiler or coal-fired furnace to an electric alternative creates several problems. One of them is simple. Where do they get large quantities of cheap, preferably renewable electricity? Now, a big company has options. It can build its own solar or wind project or invest in a captive power plant. Ultra Tech Cement has done this by commissioning more than 1 gigawatt of renewable energy capacity for captive use by March 2025

Large companies can also use group captive arrangements where they partly own a renewable project and buy power from it under a long-term contract. Tata Steel, for instance, agreed to source 397 megawatt from a solar-wind hybrid project being developed by Tata Power Renewable Energy. And Tata Steel will own 26% of the project company. Now, smaller companies usually cannot pull this off so easily. Legally, they can buy green power through open access, and this allows them to negotiate with a power producer instead of buying all their electricity from the local DISCOM, where industrial consumers often pay higher tariffs to cross-subsidize agriculture and households. So in 2022, the government lowered the eligibility threshold for green open access from 1 megawatt to 100 kilowatt. And this meant that even an industry with a sanctioned load of 100 kilowatt could buy renewable power from a developer and use the grid to carry that electricity to its factory.

The rules also created a national application system and a 15-day approval timeline. We previously unpacked the open access system with Gold Seal founder Mudit Mehrein. But being legally allowed to do something doesn't make it commercially easy. A renewable energy developer may not want to negotiate separate long-term contracts with 100 small factories, each requiring perhaps 1 megawatt. Every customer must be assessed, contracted, billed and chased for payment. From the developer's perspective, that's a lot of paperwork and credit risk for a series of tiny orders.

So SECI's proposed answer is demand aggregation, or in plain English, bulk buying. So imagine 100 factories separately asking for 1 megawatt each. SECI could pool their requirements and offer developers 100 megawatt opportunity, and it could assess their combined demand, structure the contract and run a competitive auction. A large developer would now see one meaningful order, rather than a pile of tiny ones. Now, the exact structure has not been announced yet. But according to the Financial Express, SECI is still assessing industrial heating demand and working on the mechanism. But there's no final scheme, tender or tariff yet. But we know roughly how SECI usually operates. So SECI doesn't necessarily build the power plant itself, it first brings together demand from electricity buyers and then floats a large tender inviting renewable energy developers to compete. The developers bid the tariffs at which they're willing to supply power and the lowest suitable bids are selected. SECI then sits between the two sites. It signs a power purchase agreement with the developer to buy the electricity and a separate power sale agreement with the DISCOM or other buyer that will consume it. Once the project starts operating, the developer supplies the power, SECI pays the developer and recovers the money from the buyer. Now, this middle layer matters. A developer may hesitate to build a larger solar or wind project if it has to depend on several uncertain buyers. So SECI's size, credit rating and payment security arrangements make the contract more bankable, helping the developer raise financing at a lower cost. At the same time, combining demand into one large auction creates competition and can bring down the electricity tariff. And it's already taken demand aggregation beyond ordinary electricity. Under the National Green Hydrogen Mission, SECI combined green ammonia demand from 13 fertilizer plants and ran auctions covering 724,000 tons of annual supply.