Reverse Engineering Chlor-Alkali Unit Economics | Chapter 1: The Stasis

As much as one may be interested in the $50bn chlor-alkali industry, which produces caustic soda, a chemical critical for alumina refining, soap & paper industry, wastewater treatment, desalination, pharmaceuticals and more, one will find it an expensive challenge to find data and understand the inner economic workings of this industry.

No chlor-alkali plant operator is open to discussing the market price or the unit economics. I’ve talked to several. And I’m not paying $6000 to a consulting firm.

The market price of caustic soda (NaOH) is $450-700/ton. What is the production cost? There’s no clear answer to this, and even LLMs are not useful. So, I had to reverse engineer the chlor-alkali unit economics. This is part one.

A quick ChatGPT query to pull up the reported cost of a chlor-alkali plant and its production capacity is a good starting point. Here’s what it says:

How far can we go with this data? Surprise, surprise, it gives us a lot. (TPA is tons per annum.)

Let’s assume a few things.

1. Cost of electricity = $60/MWh (the cheapest industrial grid price in the US)
2. Yield of NaOH = 2.5 MWh/ton-NaOH
3. Lifetime of plant = 10 years (I got this from a chlor-alkali plant operator)

Now, digging in…

What is the plant’s CAPEX per ton-NaOH per year? The $/TPA?

This is straightforward.

$/TPA = reported cost / production capacity

Most of the plants look within a decent range, except for the Indonesian study. Indonesians, if you are reading this, you are either messing up or being robbed!

$/TPA doesn’t seem to be inversely proportional to production capacity and goes against the economies of scale. Something interesting is going on here. If $/TPA is truly independent of production capacity, consumers with small-scale NaOH consumption can entertain a new, smaller chlor-alkali plant closer to them to avoid paying for transportation from far-away plants or storage. That is good news and is probably an indication of the stasis in chlor-alkali plant costs.

Moving on.

What is the plant’s load CAPEX/kW? The $/kW-load?

$/kW-load = ($/TPA) [$-year/ton] * (365 * 24) [h/year] * (1 / yield) [ton/MWh]

What is the production cost of NaOH/ton? The $/ton-NaOH?

$/ton-NaOH = CAPEX + OPEX
= ($/TPA) [$-year/ton] * (1 / lifetime) [1/year] + (yield * electricity-cost-per-ton) [MWh * $/MWh-ton]

In the OPEX, we are ignoring other expenses like labor costs or membrane replacements. Assuming them to be zero should still give us a decent sense of unit economics.

These are the key unit economics numbers. The $/kW-load tells us the cost of the plant based on the power input. The $/ton-NaOH tells us how expensive the caustic soda is to make and how much margin you can make at a certain market price.

The load CAPEX / kW for overall plants, not expansions, is in the range of $1200-$2400. This CAPEX range has some interesting implications for whether you need batteries if you want to use a solar/batteries play—more on this in part two.