Power sector faces cost pressure from rising aluminium, copper prices

Rising aluminium and copper prices are driving up costs for India's power equipment and renewable energy sectors, squeezing margins and project economics

Cost pressures are acting on units manufacturing power equipment and those generating renewable energy owing to rising metal prices against the backdrop of the crisis in West Asia and disruption at key smelters.

 

Aluminium and copper, used extensively in power infrastructure, have been witnessing a significant price rise.

 

Aluminium prices rose from $2,300-2,600 per tonne in 2024 to more than $3,800 per tonne on the London Metal Exchange (LME). Prices slightly moderated in the past 10 days.

 

The benchmark prices increased 30-35 per cent between early 2025 and May-June this year while copper crossed a record high of $13,000 per tonne and even $14,000 in May. It is roughly 28 per cent more expensive than the average price in FY24, when most equipment procurement was planned, according to the monthly data of the Ministry of Mines.

 

The sector making electrical-power equipment constitutes about 48 per cent of aluminium’s overall demand. The metal is used in conductors and overhead cables, forming an essential part in the generation, transmission and distribution of electricity. It is also used in switchboards, coil windings, capacitors, etc.

 

A 400 Kilovolt double-circuit line of 500 km needs roughly 8,500 tonnes of aluminium in conductors alone, according to Rohit Vijay, associate fellow, Centre for Social and Economic Progress (CSEP).

 

He said its cost had risen from around ₹164 crore in 2024 to ₹245 crore at the current price levels, he said.

 

“That is ₹81 crore extra on one component of one project,” he noted.

 

Aluminium parts account for over 70 per cent of the raw material cost in overhead power cables, transformers and busbars.

 

Rajib Maitra, partner, Deloitte India, said: “The rise in aluminium prices directly and heavily impacts prices of transmission equipment. Since aluminium is essential for structural components, electrical wiring and cooling fins, a 20-30 per cent surge in prices of raw materials typically translates into a 10-15 per cent increase in overall manufacturing costs.”

 

Sanjay Saboo, president, Cable and Conductor Manufacturers Association of India, said input costs for the cable and conductor industry had risen by up to 35 per cent in the past few months. “This has resulted in squeezed margins for manufacturers and price increase for buyers.”

 

Units producing renewable energy, too, use significantly high quantities of copper and aluminium. Wind turbines need roughly 3.5 tonnes of copper per megawatt and solar mounting needs 1.5-2 tonnes of aluminium per megawatt (Mw), Vijay said.

 

The price rise is translating into thousands of crores of addition to the sector’s annual metal bill, given India’s addition pace of over 30 gigawatt (Gw) of solar and 6 Gw of wind annually.

 

According to Maitra, the cost of a solar frame for a typical 500-watt module has increased significantly recently.

 

Cost pressure is visible across companies. According to Satyen Mamtora, managing director (MD) and chief executive officer (CEO) of transformer manufacturer Transformers and Rectifiers (India), this pressure is being seen across the value chain.

 

A sustained increase in metal prices can affect equipment pricing and project economics, even though manufacturers have the mechanism to manage short-term commodity volatility.

 

The extent of the impact, however, depends on the product category, contract structure, and execution timeline.

 

“In projects with price-variation clauses, some of the increase can be passed through, whereas fixed-price contracts offer limited flexibility to absorb prolonged cost escalations,” Mamtora added.

 

Deepak Thakur, MD and CEO, Hinduja Renewables, said: “The real challenge is not commodity inflation itself but managing uncertainties without compromising execution. Depending on the situation, that may mean absorbing higher costs, optimising engineering, and sourcing strategies, or taking considered procurement decisions.”

 

“Better planning, engineering optimisation, diversified sourcing and long-term supplier partnerships enable projects to remain bankable, competitive and on schedule.”

 

Aluminium on the LME rose 30-35 per cent between early 2025 and May-June 2026, and equipment orders placed today fully reflect that, according to Vijay.

 

In India, the price of aluminium is expected to remain firm in the short term on account of elevated global benchmarks and ongoing supply uncertainties.

 

For distribution transformers (DTs), a standard 100 kVA unit has roughly 60 kg of copper in its windings, and that copper content, which cost around ₹43,000-44,000 per unit in 2024, now costs ₹46,000-47,000, according to Vijay. He added that transformer manufacturers were also being squeezed on cold-rolled grain-oriented (CRGO) steel, the core material, where domestic production was only 50,000 tonnes against an annual demand of 400,000 tonnes.

 

While equipment manufacturers are partially protected through price-variation clauses, distribution utilities cannot pass that higher cost anywhere.

 

“When equipment gets more expensive and cash is short, the response is to delay tenders and defer procurement,” said Vijay.

 

Developers of transmission infrastructure and renewable energy do not enjoy that protection. Tariff-based competitive bidding (TBCB) projects carry a fixed tariff locked for 25 years with no commodity-escalation clause. According to the Central Electricity Authority (CEA) data, 84 projects worth about ₹2.37 trillion are under execution through TBCB as of December 2025. Most of them are bid at pre-2025 metal prices, Vijay noted. Developers on TBCB projects who are already absorbing losses at current metal prices will defer procurement or slow construction, he added.

 

The initial impact is expected to be felt in the transmission sector.

 

The CEA’s plan calls for adding over 114,000 circuit km of lines and 776,000 MVA of substation capacity by 2027 at 2022 prices, with no revised estimate published.

 

In India the prices of aluminium are expected to remain firm in the short term, supported by elevated global benchmarks and ongoing supply uncertainties. However, as additional capacity from China and Indonesia enters the market, price volatility may gradually ease. “Overall, the aluminium market is expected to remain tight through this year, while a more balanced supply-demand scenario is likely to emerge next year,” Maitra said.