India's cement industry will witness consolidation over the medium term as producers are forced to spend on capital-intensive assets to reduce carbon footprint, according to a report by Kotak Institutional Equities.
Carbon capture, utilisation and storage systems to electrified kilns—nascent and costly technologies—will be critical to decarbonise a sector where over half of the emissions are manufacturing process-related, the report said.
"The sector will need to consider additional disruptive and innovative measures for delivering CO2 emission reductions in line with the 1.5°C target of the Paris Agreement," the report said.
One of the biggest costs to incur will be with capturing, storing and utilising the carbon dioxide that is released when a mix of limestone and minerals are blasted at high heat in kilns. The process is even more expensive ($60-120 per tonne) for the cement sector than other industrials as the concentration of CO2 in the exhaust air is low. Transport of that captured CO2 makes economics further challenging.
That said, ramping up certain existing conventional measures to decarbonise will improve profitability, the report. Kotak estimates that the capacity for waste heat recovery units, that reuse the heat released from manufacturing process, for top five cement will double to 739 megawatt by FY24. That will save almost Rs 950 crore.
Adoption of more green and alternative energy sources will also drive savings. "India currently remains about 96% dependent on fossil fuels for meeting its thermal energy requirements for cement manufacturing and trails the global averages where the use of alternate fuel (waste and biomass) has improved significantly to 19% over the past two decades," the report said.
Kotak pointed out that large Indian cement makers like ACC Ltd., Ambuja Cements Ltd., Dalmia Cement Ltd., Shree Cement Ltd. and UltraTech Cement Ltd. have already set short-term emission reduction targets. It called for increased disclosures from companies about their capital allocation strategies for achieving climate goals.
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