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Aluminium · RE Investment DecisionThe RE Investment Case for Indian Aluminium Smelters: When CCTS, CBAM Scope 2, and RCO Together Pay More Per kWh Than Solar Costs to Procure
The landed cost of open access solar for captive industrial consumers in Odisha and Chhattisgarh is approximately Rs 4.50 to Rs 5.50 per kWh (Mercom India, Q4 2025 Solar Open Access Report). The combined regulatory return on each kilowatt-hour of renewable electricity an aluminium smelter switches from grid to RE — measured across CCTS CCC revenue, CBAM Scope 2 embedded emission reduction at EU ETS prices of approximately €65 per tCO₂e, and RCO/REC compliance value — totals approximately Rs 5.21 per kWh for a smelter with meaningful EU export exposure. That figure equals or exceeds the solar procurement cost in smelter locations, before the electricity unit cost saving — the difference between the grid tariff and the RE landed cost — is counted as a separate, additive financial benefit. No capital allocation decision in Indian aluminium generates a better verified return per rupee invested right now than RE procurement. This article builds the calculation from first principles, maps the state-level cost landscape where India’s primary smelters operate, and specifies what a smelter CFO needs to decide — and when — to capture the full regulatory return before the CBAM certificate purchase obligation for 2026 imports falls due in early 2027.
The combined regulatory return on renewable electricity for an aluminium smelter with EU export exposure reaches approximately Rs 5.21 per kWh: CCTS CCC revenue at Rs 0.72/kWh (based on grid emission factor 0.710 tCO₂/MWh and CCC price Rs 800/tCO₂e); CBAM Scope 2 embedded emission reduction at Rs 4.15/kWh (grid EF 0.710 tCO₂/MWh × €65/tCO₂e × Rs 90/€); RCO/REC compliance value at Rs 0.34/kWh (REC market price Rs 340/MWh, March 2026). The landed cost of captive solar in Odisha and Chhattisgarh is approximately Rs 4.50 to Rs 5.50/kWh (Mercom India Q4 2025). This means the regulatory return alone equals or beats the solar cost before electricity savings are counted.
The three regulatory returns do not all require EU export exposure. CCTS and RCO apply to all obligated entities regardless of export markets. CBAM Scope 2 value applies only to actual EU exports — but at current EU ETS prices of approximately €65/tCO₂e, it is the dominant term in the return calculation (Rs 4.15/kWh vs Rs 0.72/kWh for CCTS and Rs 0.34/kWh for RCO). Smelters without EU export exposure still earn CCTS + RCO returns of approximately Rs 1.06/kWh — which, while below the solar landed cost, materially reduces the net cost of RE procurement versus grid supply and should be counted in the capex decision.
Odisha and Chhattisgarh are the optimal states for RE procurement by aluminium smelters — for three reinforcing reasons. First, both states consistently record the lowest open access solar landed costs in India (approximately Rs 4.50–5.50/kWh captive model). Second, both states have supportive RE incentive frameworks: Odisha’s Renewable Energy Policy 2022 offers 50% CSS exemption, 25% wheeling charge exemption, and Rs 0.20/kWh transmission exemption for 15 years. Third, both states are where India’s largest primary smelters are located — Vedanta Jharsuguda and Hindalco Hirakud in Odisha; BALCO Korba and Mahan Aluminium in Madhya Pradesh/Chhattisgarh — meaning no long-distance wheeling is required and developers can offer near-plant solar projects at the lowest possible delivered cost.
A critical regulatory distinction governs the CCTS, CBAM, and RCO interactions: only physical renewable electricity — delivered directly to the smelter under open access or captive arrangement — satisfies all three simultaneously. Renewable Energy Certificates (RECs) satisfy the RCO obligation but do NOT reduce the smelter’s CCTS Scope 2 GEI because no actual emission reduction occurs at the plant. RECs also do NOT reduce CBAM embedded Scope 2 emissions, because CBAM requires actual installation-level emission verification. Smelters that purchase RECs to satisfy RCO while continuing to draw full grid power earn only the RCO value (Rs 0.34/kWh) and miss the CCTS (Rs 0.72/kWh) and CBAM (Rs 4.15/kWh) returns. Physical RE is the only route to all three.
The timing constraint is now live on two fronts. For CCTS, the FY2025-26 compliance year is running and GEI is being measured right now against the gazette-notified targets — every kWh of RE procured from April 2025 onwards reduces the Scope 2 GEI used to calculate the FY2025-26 Form A submission due July 31, 2026. For CBAM, the first annual declaration covering calendar year 2026 is due September 30, 2027 — meaning the emission data that determines the certificate obligation is being accumulated right now, in 2026. A smelter that commissions open access RE in late 2026 instead of Q1 2026 loses the full-year CBAM Scope 2 benefit for the 2026 declaration year. The decision is not “should we do this eventually” — it is “why are we not doing this already.”
The master calculation — Rs per kWh, stream by stream
The investment case for RE at an aluminium smelter is not one calculation — it is three stacked calculations, each representing a distinct regulatory obligation that RE simultaneously satisfies. The methodology below uses the grid emission factor of 0.710 tCO₂/MWh (CEA WAEF FY2024-25, provisional), the CCC price of Rs 800 per tCO₂e (mid-point of expected Phase 1 range), the EU ETS price of approximately €65 per tCO₂e, and the REC market clearing price of Rs 340 per MWh (March 2026, IEX). All three inputs are verifiable from primary public sources.
CCTS Rs 0.72 + CBAM Scope 2 Rs 4.15 + RCO Rs 0.34 Rs 5.21/kWh
Electricity unit cost savings are a separate additive benefit on top.
This makes physical RE the highest-return capital allocation in Indian aluminium right now.
Where each of India’s major smelters stands — and what RE share moves the needle
The four primary smelter entities for which gazette-confirmed GEI targets exist are Vedanta Jharsuguda II, BALCO Korba, Mahan Aluminium, and Hindalco Hirakud. Each faces a distinct RE transition challenge because their current GEI baselines, grid connections, and physical RE availability differ. The table below maps what a 25% RE blend — the level at which financial viability under the combined regulatory stack is clearly established — does to each smelter’s GEI, CCC position, and CBAM embedded emission profile.
| Smelter (entity code) | Baseline GEI tCO₂/t Al (FY2023-24) | FY2025-26 target | Output (kt/year) | Electricity consumption (est.) | GEI after 25% RE (est.) | CCC surplus after RE (approx) | RE opportunity state |
|---|---|---|---|---|---|---|---|
| Vedanta Jharsuguda II (ALMOE001OD) | 13.4927 tCO₂/t | 13.2260 tCO₂/t | 1,238,336 t/year | ~14,000 kWh/t Al → ~17.3 billion kWh/year | ~10.9 tCO₂/t Al (2.3 tCO₂/t Scope 2 reduction) | ~(13.2260 − 10.9) × 1.238 Mt = ~2.9 Mt CCCs → ~Rs 230 crore/year at Rs 800/CCC | Odisha — optimal; RE policy incentives active |
| BALCO Korba (ALMOE003CG) | 15.7129 tCO₂/t | 15.3512 tCO₂/t | 591,844 t/year | ~14,000 kWh/t Al → ~8.3 billion kWh/year | ~13.3 tCO₂/t Al (2.4 tCO₂/t reduction) | ~(15.3512 − 13.3) × 0.592 Mt = ~1.2 Mt CCCs → ~Rs 96 crore/year | Chhattisgarh — lowest open access charges nationally |
| Mahan Aluminium (ALMOE002MP) | 15.6301 tCO₂/t | 15.2722 tCO₂/t | 374,049 t/year | ~14,000 kWh/t Al → ~5.2 billion kWh/year | ~13.2 tCO₂/t Al (2.4 tCO₂/t reduction) | ~(15.2722 − 13.2) × 0.374 Mt = ~0.76 Mt CCCs → ~Rs 61 crore/year | Madhya Pradesh — competitive but charges higher than CG |
| Hindalco Hirakud (Odisha) | 19.2759 tCO₂/t | 18.7315 tCO₂/t | 178,830 t/year | ~15,000 kWh/t Al (older plant) → ~2.7 billion kWh/year | ~15.9 tCO₂/t Al (3.3 tCO₂/t reduction) | ~(18.7315 − 15.9) × 0.179 Mt = ~0.5 Mt CCCs → ~Rs 40 crore/year | Odisha — optimal; highest baseline GEI means largest absolute reduction |
Two observations stand out from this plant-level comparison. First, BALCO Korba and Mahan Aluminium — with baseline GEIs above 15.5 tCO₂/t — have the largest percentage gap to close versus the sector average. This means they face the most significant CCTS compliance pressure but also generate the largest CCC surplus per tonne of GEI outperformance. RE transition is both a compliance necessity and the highest-return investment for these plants. Second, Hindalco Hirakud — the highest GEI plant in the gazette — has the most to gain from RE in absolute tCO₂/t terms (approximately 3.3 tCO₂/t reduction from 25% RE, versus approximately 2.3 tCO₂/t for Jharsuguda) because its electricity consumption per tonne is slightly higher, reflecting its older technology vintage. The Hirakud CCC surplus calculation above (approximately Rs 40 crore/year) is conservative because it uses only 25% RE; at 50% RE blend, the surplus roughly doubles.
State landscape — what open access solar actually costs in smelter states
| State | Landed solar cost captive/group captive model (Q4 2025) | Key charges and incentives | Primary smelters located here | Assessment |
|---|---|---|---|---|
| Odisha | ~Rs 4.50–5.20/kWh | RE Policy 2022: 50% CSS exemption; 25% wheeling charge exemption; Rs 0.20/kWh transmission exemption for 15 years for in-state projects; no additional surcharge beyond CSS for open access | Vedanta Jharsuguda; Hindalco Hirakud; NALCO | Best in India for smelter RE — lowest costs, strongest incentives, in-state solar developers active |
| Chhattisgarh | ~Rs 4.30–5.00/kWh | Lowest open access charges among 15 states (27.4% of landed cost vs 51% in Maharashtra); CSERC permits captive solar consumption without dedicated feeder; captive model exempt from CSS | BALCO Korba | Lowest absolute landed cost nationally — BALCO has the most favourable RE procurement environment of any primary smelter |
| Madhya Pradesh | ~Rs 5.00–6.00/kWh | Renewable Energy Policy 2022 applicable; charges moderate; Harit Urja Vikas Fee Rs 0.10/kWh on RE sold to non-DISCOM entities adds to cost for third-party model (captive exempt) | Mahan Aluminium (Singrauli) | Competitive for captive — Harit Urja fee applies to third-party only; captive route preferred; cost above Chhattisgarh but still viable |
| Maharashtra | ~Rs 6.50–8.40/kWh | Highest additional surcharges in India; open access charges 51% of landed cost; Maharashtra levies the highest CSS | Hindalco Taloja (secondary aluminium/casthouse); some alloying operations | Most expensive — secondary aluminium operations in Maharashtra face the highest RE landed cost; captive rooftop solar more viable than open access |
From June 2026, all solar projects in India must use modules meeting the Domestic Content Requirement — manufactured in India. DCR modules currently command a price premium of approximately Rs 1.50 to Rs 2.50 per watt above imported modules, translating into a PPA tariff increase of approximately Rs 0.25 to Rs 0.40/kWh for new projects commissioned after June 2026. Mercom India’s Q4 2025 report confirmed that PPA tariffs rose approximately Rs 0.25/kWh in Q4 2025 already in anticipation of DCR compliance requirements. Smelters that sign PPAs for open access solar projects before June 2026 — and ensure commissioning within the window before DCR becomes mandatory — lock in pre-DCR tariff economics. This is an additional timing incentive on top of the CCTS and CBAM deadline pressures. Projects with PPAs signed in Q4 2025 targeting commissioning before June 2026 receive the most favourable economics in this solar cycle.
Three RE procurement models — which structure fits each smelter’s situation
Frequently Asked Questions
Why can’t an aluminium smelter use RECs instead of physical RE to get the same CCTS and CBAM benefit?
RECs (Renewable Energy Certificates) prove that one megawatt-hour of electricity was generated from a renewable source somewhere in India, but they do not transfer the physical electrons or reduce the emission intensity of the electricity actually consumed at the plant. Under CCTS, the Scope 2 GEI is calculated from actual electricity consumption multiplied by the grid emission factor — and the grid emission factor applies regardless of whether the smelter holds RECs. Only if the smelter physically receives renewable electricity (through captive, group captive, or open access arrangement with scheduled delivery) does the Scope 2 GEI fall. Similarly, under CBAM, the embedded emission methodology requires installation-level actual electricity emission intensity — a green tariff or REC purchase does not reduce the grid emission factor used in the CBAM calculation. RECs satisfy the RCO obligation (saving approximately Rs 0.34/kWh in REC purchase cost) but miss the CCTS Scope 2 GEI improvement (worth approximately Rs 0.72/kWh) and the CBAM Scope 2 embedded emission reduction (worth approximately Rs 4.15/kWh). Physical RE is the only route that earns all three returns simultaneously.
What is the landed cost of open access solar for an aluminium smelter in Odisha and Chhattisgarh right now?
Mercom India’s Q4 2025 Solar Open Access Market Report (published March 2026) confirmed that Odisha and Chhattisgarh consistently offered the lowest open access solar landed costs in India — in the range of approximately Rs 4.30 to Rs 5.50 per kWh depending on the procurement model (captive and group-captive are cheaper than third-party due to CSS exemptions). In Q4 2025, PPA tariffs rose approximately Rs 0.25/kWh across the country in anticipation of DCR module requirements from June 2026, so the upper end of the range has moved modestly. The Odisha Electricity Regulatory Commission’s FY2025-26 tariff order confirmed renewable energy policy incentives including 50% CSS exemption, 25% wheeling charge exemption, and Rs 0.20/kWh transmission exemption for in-state RE projects commissioned during the RE Policy 2022 period. For a smelter accessing these incentives, the net landed cost in Odisha under the captive model approaches Rs 4.00 to Rs 4.80/kWh — below the Rs 5.21/kWh combined regulatory return even without CBAM, making the investment financially positive for domestic-market smelters too.
How much of an aluminium smelter’s electricity demand can be realistically met by open access solar, and does intermittency matter?
Solar open access or captive solar generates power during daylight hours (typically 6 to 8 peak hours per day), while an aluminium smelter operates the electrolytic reduction process 24 hours a day with minimal variation. A solar plant rated at 100% of the smelter’s contracted load would deliver actual energy covering approximately 20 to 25% of total annual consumption in a state like Odisha (with approximately 300 sunny days and a capacity utilisation factor of around 22 to 26%). This is exactly why the “25% RE blend” figure used in the analysis above is realistic — it corresponds to a solar plant sized at approximately 100% of smelter contracted demand. Banking provisions (where states allow unused solar generation in one period to offset grid consumption in another) extend the effective RE coverage window. For higher RE penetration (40 to 60%), wind-solar hybrid or solar-plus-storage projects are increasingly available from SECI and state agencies, though at marginally higher landed costs. Intermittency is a managed operational reality, not a barrier to procurement — smelters draw the difference between solar generation and actual load from grid supply in real time.