Load Management in a Steel Plant

National Steel Plant Ltd. (NSPL) is one the largest and high-performing integrated steel
companies in India. With an annual production capacity of 8 million tons and around twenty
thousand employees, NSPL has a comprehensive line of high-value steel products on offer.
NSPL is a fully integrated iron and steel producer catering to domestic construction,
engineering, power, railway, automotive and defense industries and for sale in export
markets. NSPL manufactures and sells a broad range of steel products, including hot and
cold rolled sheets and coils, galvanized sheets, electrical sheets, railway products, plates,
bars and rods, stainless steel and other alloy steels. NSPL produces iron and steel at four
integrated plants and two special steel plants, located principally in the eastern and central
regions of India and situated close to domestic sources of raw materials, including the
company's iron ore, limestone and dolomite mines. NSPL's wide range of long and flat steel
products is much in demand in the domestic as well as the international market.

Set up in the late 50's with an initial annual capacity of one million tonnes of crude
steel per year, the capacity of NSPL was later expanded to 2 million tons in the 70's. A
massive modernization program was undertaken in the plant in early 90's, which, while
bringing numerous technological developments in the plant, enhanced the capacity of the
plant to 8 million tons of crude and saleable steel. The entire plant is covered under ISO
9001: 2000 quality management system.The modernized NSPL now has state-of –the-art
technology for quality steel making. The modernized units have brought about improved
productivity and better quality products.

One of the concerns for the management at NSPL is the high energy costs which
constitute 40% of the total production costs. In a recently concluded board meeting a
resolution has been made to cut down on energy usage. Electricity is the major contributor to
the energy costs in the steel industry. Electricity comprises about 30% of total production
costs. However, electricity costs can be minimized by taking advantage of incentives and
favorable pricing offered by utilities in order to encourage consumers to use energy in such a
way and at suitable times so as to enable the utility provider to manage load patterns. These
incentive schemes are referred as TOU or Time-of-Use tariff plans. By making use of these
incentives significant savings in production costs can be achieved. These incentives could
be availed through load shifting or process rescheduling. Energy intensive processes could
be transferred to times of the day when the electricity tariff is lower. This kind of process
rescheduling based on electricity usage and tariff structure is referred to as load
management. NSPL has decided to implement a Steel Cost Optimization (SCO) program
that focuses on optimal load management with major emphasis on electricity cost reduction.

Ravi Kapoor is the chief operations manager at the Bhillai unit of NSPL located in the
state of Chhattisgarh, India. With the decision to implement SCO on an enterprise-wide
basis at NSPL, Ravi’s next project is to optimally manage the scheduling of the different
processes at the Bhillai unit in order to minimize electricity usage. The manufacturing facility
at Bhillai consists of four blast furnaces, three steel melt shops, four rolling mills and five
finishing mills. The Bhillai unit of NSPL is a fully integrated iron and steel making plant. It
uses blast furnaces to convert iron ore into molten iron. The molten iron is then run through
the furnaces and then through soaking pits to convert it into ingot rods. The ingot rods are
then pushed under rolling mills and finally put through cold shear to produce mainly four
kinds of steel rods with diameters equal to 8 mm, 12 mm, 20 mm & 25 mm. The furnaces
require a minimum amount of power to keep them running. Failure to provide power for the
water cooling systems of the furnaces may cause extensive damage to the furnaces and
result in huge loses. Hence, Ravi does not have much control over the power usage of the
furnaces. On the other hand, the rolling mills consume huge amount of electricity and the
electricity consumed varies from product to product.

In the Bhillai unit there are four rolling mills: two of them can produce rods of
diameters 8 mm and 12 mm with an energy consumption of 200 kWh whereas the other two
mills produce rods of diameters 20 mm and 25 mm and have energy consumption of 300
kWh. The output capacity of each of the rolling mills is 100 tonnes per hour. The daily
production requirements are as follows: 900 tonnes of 8 mm rods, 1200 tonnes of 12 mm
rods, 800 tonnes of 20 mm rods and 500 tonnes of 25 mm rods. The rolling mills operate
from 8 AM to 8 PM daily. The TOU tariffs charged by the Chhattisgarh State Electricity Board
(CSEB) are given in the following table:

Time of Day Tariff

10 PM – 10 AM (Off-Peak) Rs. 3.00 / kWh
10 AM – 4 PM (Normal) Rs. 4.50 / kWh
4 PM – 10 PM (Peak) Rs. 6.00 / kWh

(a) Under SCO, Ravi’s objective is to schedule the rolling mills daily between 8 AM – 8
PM in such a way that the production constraints are maintained and the total daily
electricity costs are minimized. What is the optimal electricity costs incurred daily?

(b) CSEB has implemented a new directive that limits the hourly energy consumption to
700 kWh. Under this new directive what would be the optimal allocation and the
optimal electricity cost incurred daily?

(c) CSEB has plans of increasing the tariffs for industrial consumers such as NSPL in
the near future. The proposed tariffs are as follows:

Time of Day Tariff

10 PM – 10 AM (Off-Peak) Rs. 4.00 / kWh
10 AM – 4 PM (Normal) Rs. 5.50 / kWh
4 PM – 10 PM (Peak) Rs. 7.00 / kWh

What would be the optimal allocation and the daily electricity cost under the new tariff
plan?

Along with the new tariff plan, CSEB will provide an option to the industrial
consumers through which they can increase their hourly energy consumption to 1000
kWh by paying a monthly charge of Rs. 100000. Help Ravi make the decision
whether to opt for this option or not. (Assume the plant operates 30 days in a month)