Cement companies push the pedal on green energy

Cement manufacturers are increasingly adopting green energy by investing in wind and solar energy, and waste heat recovery systems (WHRS) to shrink their carbon footprint and reduce their energy costs. Power and fuel cost contribute an estimated 35 40% to the sector's total production cost. The use of green energy and alternative fuels is expected to reduce its dependence on expensive thermal power plants or state grids for electricity.

Biomass, municipal waste and pharma waste are among the alternatives that the industry is exploring to heat cement kilns. Cement manufacturing requires extensive usage of coal during clinker production, which releases harmful greenhouse gases. According to Ratings, green power (including WHRS) accounted for 30 35% of the sector's total power mix in FY23, and this number is expected to rise to 40 45% by FY27.

Ambuja Cement Ltd recently announced an investment of 6,000 crore in install solar and wind power. Close competitor UltraTech Cement Ltd aims to raise its green energy portion from 22% to 60% by FY26. But meaningful decarbonisation will be a slow process as the results of these changes will take time to manifest.

Other challenges include long gestation periods, time consuming regulatory approvals, and high costs. "While alternative fuels are increasingly used to replace coal/petcoke, full substitution is technically challenging as these organic materials have 20 25% lower calorific value than fossil fuels," said Miren Lodha, director, research, Crisil Market Intelligence & Analytics.

For an energy intensive industry such as cement, which uses coal and petroleum coke as primary fuels, reducing carbon footprint is a step in the right direction. But this alone is not enough to drive earnings upgrades for cement makers. In a competitive landscape, stock prices will continue to hinge on demand and prices.

Kotak Institutional Equities estimates 10% year on year growth in cement demand in FY24 on pre election tailwinds. Its channel checks show that all India prices increased 3% sequentially in Q3FY24 to 401 a bag, led by sharp front end price hikes in the southern and eastern regions. But the question is whether higher prices can be sustained going forward..