Energy storage systems are critical for integrating solar and wind power into the grid and supporting the power system. In view of this, there has been a push towards releasing storage tenders, a significant milestone being the Solar Energy Corporation of India’s (SECI) renewable energy-plus-storage tender concluded earlier this year. However, the ongoing Covid-19 pandemic has led to supply chain disruptions, impacting the energy storage market and bringing to the fore the importance of domestic manufacturing to reduce the dependence on imports. Smart Utilities invited industry experts to share their views on the impact of Covid-19 on the energy storage market, promising developments, and the outlook for the future…
What has been the impact of Covid-19 on India’s energy storage market?
Covid-19 is one of the worst pandemics the world has witnessed in the past few decades. Everyone, including economies and industries, is directly or indirectly being impacted by this pandemic. It has impacted the Indian battery storage market as well. In the pre-Covid era, we were very optimistic about the growth of the storage market with the closure of a few successful tenders by SECI, NLC India Limited, Central Electronics Limited (CEL), etc. in the utility segment, and opening up of markets in the commercial and industrial (C&I) segment via value stacking of the solution.
Covid-19 has impacted the Indian storage market from both a short-term and a long-term perspective. In the short term, the focus of utility tenders and C&I customers has been diverted, with most of the companies now focusing on their core businesses. Customers are less interested in spending their liquidated money on the adoption of battery energy storage systems (BESS). Thus, independent power producers (IPPs) will have to come out with innovative business models.
In the long term, India would like to minimise its dependency on China for faster evolution of BESS technology through its Atmanirbhar Bharat and Make in India initiatives. Recently, the Indian government announced a production-linked incentive (PLI) for cell manufacturing of advanced chemical cells (ACCs). Around 10 companies have expressed a keen interest in establishing gigawatt-scale factories in India. Such initiatives and the huge participation show the resilience of the Indian economic structure, which seems to be self-sustaining even during a pandemic.
Debi Prasad Dash
The initial outbreak of Covid-19 was reported in China, and it quickly spread to South Korea. Together, they account for much of the world’s lithium-ion (Li-ion) battery manufacturing capacity. China is dominant in the battery supply chain, as it accounts for three-quarters of the global battery manufacturing capacity. The pandemic then spread to Europe and North America, which together comprise the bulk of the non-Chinese demand for those batteries. This progression created a series of disruptions in the supply chain for Li-ion batteries, which will in turn affect the Indian electric vehicle (EV) and stationary energy storage market. Apart from this, due to the continuous lockdown by the Government of India, the lead acid battery manufacturing industry was also affected by the supply and demand gap. This will affect energy storage for renewable integration, applications in residential backup, C&I energy backup, telecom, data centres and others. While most of the market participants expected some delays, the extent of disruption may not be fully revealed for several months.
An understanding of the supply chain, related supply markets (such as Li-ion EV batteries) and their interaction with the broader economy will be critical to analyse the impact, and suggest strategies that market participants, regulators and policymakers can employ to mitigate some of the adverse effects. Even though India is encouraging indigenous manufacturing and has succeeded to an extent, the most important parts of any battery – the cells – are still being imported mostly from China and other East Asian countries. As the coronavirus spreads, our focus should shift from foreign manufacturing capabilities to indigenous ecosystem development.
After the first three to four months of the Covid-19 lockdown, India has seen a steady return of power demand and the worst seems to be behind us. India has built significant capacity domestically with multiple suppliers of energy storage equipment. There are, however, some constraints in the growth and proliferation of battery storage, which are at different stages of being addressed. These include clarity on the regulatory status, which was clarified as being at par with power generation by the Ministry of Power (MoP) on August 31, 2020; evolution of the ancillary market mechanism, which has been pending for over two years with the Central Electricity Regulatory Commission; and constrained finances due to rising non-performing assets and outstanding dues of the state distribution entities, which remain to be fully addressed.
With a steady increase in the share of intermittent renewable generation in the grid over the past few years, India has a significant need to build flexible, stand-by generation and battery storage capacity, which can ramp up on short notice when generation from intermittent renewable sources falls due to its natural variability. Battery storage can play a significant role in mitigating this challenge and enhance the adoption and utilisation of India’s vast installed and potential renewable energy capacity. The adoption of this technology can also reduce consumers’ reliance on the grid, thereby reducing peak load demand and promoting grid stability across the nation. However, Covid-19 can impede the growth of the battery storage market due to cash flow constraints and decrease in investments, with storage systems being considered non-essential.
Reji Kumar Pillai
The present energy storage system (ESS) market in India is dominated by lead acid batteries. Their production and distribution have been disrupted due to lockdowns. For Li-ion batteries, there are many battery pack assembly plants in India. Most of them import cells from China and make the battery packs. Their supply chains have also been impacted, initially due to the lockdown and now due to poor trade relations between India and China. Post Covid-19, there has been increasing demand for electric two-wheelers, which require Li-ion batteries, and this demand is set to increase in the coming days.
What have been some of the promising developments in the energy storage market in the past 10-12 months?
In the past 10-12 months, we have seen major changes in the upstream and downstream of the energy storage market. In upstream, a few utility-grade tenders were successfully awarded by SECI and NLC, both in IPP and EPC modes, which will go into execution in the next few months. Also, a few projects by CEL and MES on behind-the-meter applications are under execution. Key discoms and regulatory bodies have started evaluating storage as a vital solution for grid resilience and peak shift application. One of the most ambitious projects of round-the-clock (RTC) and peak power was successfully awarded by SECI a few months back. Further, we have witnessed faster adoption of direct current coupled design when storage is integrated with solar.
The downstream segment has witnessed faster price erosion of batteries, power conversion systems and balance of system in battery storage, which has helped in the creation of new market opportunities in the C&I segment through value stacking of different applications. In order to restrict the dependency on China, the government is making efforts through initiatives such as Make in India and Atmanirbhar Bharat, under which PLIs are provided to players that want to manufacture cells in India. This has created a positive sentiment across industries and key players such as LG, Samsung and CATL are evaluating prospective investments to create a manufacturing base in India. Further, the Indian government has also allowed the usage of storage in hybrid projects for optimal utilisation of assets by IPPs.
On the financing side, the World Bank has dedicated funds to SECI for projects specific to BESS. Many other investors such as the the International Finance Corporation and the Asian Development Bank, too, have dedicated funds for BESS projects. Further, many IPPs have dedicated teams for implementing BESS and this shows the growing interest in the technology.
To summarise, there are important activities transpiring both in the upstream and downstream segments of BESS, for minimising the levellised cost of energy of stand-alone BESS and BESS integrated with renewable energy. These developments will drag the inflection point closer and we expect grid parity could be achieved in the next two to three years.
Debi Prasad Dash
The government aims to support the renewable energy sector for two reasons – to reduce the country’s dependence on carbon-emitting fossil fuels and to reduce the import of fuels. The energy storage industry is a very important part of this mission. Recently, the government approved the setting up of the National Mission on Transformative Mobility and the Battery Storage and Phased Manufacturing Programme to propel localisation in the energy sector. NITI Aayog is working towards Make in India by starting work on the ambitious India giga-factories plan, with a projection that the country will need around 50 GWh of domestic manufacturing capability by 2025. An MoU was signed between KABIL from India and JEMSE from Argentina for sourcing of lithium and cobalt.
With respect to large-scale energy storage installation of renewable energy for grid stability, India is at a nascent stage. However, central agencies like SECI and others have been working even amidst Covid to come up with multiple energy storage integrated tenders and appropriate policy discussion on RTC and peak management.
Another significant development is the launch of the national programme on the ACC battery storage scheme. It lays emphasis on creating a self-reliant India, which can be achieved only if the chain of imports is broken. Although Indian EV players are getting prepared to develop these components locally, there is still need for definite government support and impetus in the form of incentives. The battery manufacturing capabilities of India if not developed in time might put the country at risk of losing to other countries.
- In February 2020, the draft Battery Waste Management Rules, 2020, were notified by the Ministry of Environment, Forest and Climate Change.
- In March 2020, Energy Efficiency Services Limited invited bids for power conversion systems and fast-combo EV chargers.
- In April 2020, Uttar Pradesh Small Industries Corporation Limited invited bids for the supply and installation of 400 lithium ferro phosphate battery solar street lights for the District Rural Development Agency, Varanasi and Sultanpur.
- Further, in April 2020, NTPC Vidyut Vyapar Nigam Limited, a wholly owned subsidiary of NTPC, issued a global expression of interest for 10 fuel cell EVs for public transportation in Leh and New Delhi.
- In June 2020, the MoP amended the 2018 guidelines for developing the charging infrastructure for EVs to cap the tariff at the average cost of supply plus 15 per cent, while providing conceptual clarity on various components of this segment.
- Further, in June 2020, the Indian Energy Storage Alliance (IESA) submitted comments to the MoP on the Electricity (Amendment) Bill, 2020, including:
- The definition of energy storage
- The National Energy Storage Mission in the Act
- Proposal for a storage purchase obligation
- State road map for smart grids pursuant to the National Smart Grid Roadmap released by the MoP.
- In August 2020, Bharat Heavy Electricals Limited floated a tender for 410 kWh/415 kW of BESS at three sites in New Delhi.
- Further, in August 2020, under Atmanirbhar Bharat, there was a push for increasing the domestic manufacturing capability of the country. This is likely to facilitate the development of the energy storage market as Covid-19 has led to the disruption of the foreign supply chain for batteries and other components, something that India has been largely dependent on.
- Further, in August 2020, the MoP noted that in view of the large-scale grid integration of renewable energy, battery storage systems are gaining significant importance as a source of providing balancing power to the grid. To facilitate the growth of this segment, it was clarified that an ESS, when it stores and supplies electricity, acts as a generating station (and not trader) and it does not require a licence.
Reji Kumar Pillai
It started with SECI projects for the RTC supply of renewable energy, which triggered the demand for ESS. The government order allowing EVs to be sold without batteries is a landmark decision, which will transform the market for batteries as batteries will now be treated like fuel, which can be leased or rented every day. This was first advocated by the India Smart Grid Forum (ISGF) in its 2017 report. An electric two- or three-wheeler without battery will be cheaper than a comparable petrol or diesel vehicle. The operational cost of EVs is also much lower than that of petrol and diesel vehicles. Battery leasing agencies will soon come up in all cities/towns, driving the growth of both EVs and demand for batteries exponentially. The ACC chemistry Li-ion batteries in India will attract giga-scale cell manufacturing plants in India on the fast track.
What is the outlook for the energy storage market in India in the medium to long term?
Storage is one of the fastest emerging technologies in the clean energy space, identified by McKinsey as one of the top 12 disruptive technologies that are changing the world. Energy storage provides a huge economic opportunity for India to become a manufacturing hub of batteries. Focused strategy, aspirational goals and a collective approach can make India a key sourcing country for batteries and help meet its emission targets. This should also create new jobs and foster economic growth of the country.
India is committed towards its clean energy targets, with an ambitious renewable energy goal of 175 GW by 2022, which could increase to 350-500 GW by 2030. The integration of such a huge quantum of renewable energy, which is infirm and intermittent in nature, deteriorates the resilience of the grid. In order to manage renewable energy resources efficiently, we need solutions like battery storage and associated investment funding across the electric streams of the network.
We predict steady growth of the BESS market across the utility and C&I segments, largely driven by regulatory changes, acceptance by C&I customers and falling prices of lithium. In the medium term, we should be witnessing more hybrid tenders, which need to be integrated with BESS. Many projects with behind-the-meter applications should become techno-commercially feasible due to value stacking and decrease in battery prices.
Debi Prasad Dash
According to a projection by the IESA, the market for energy storage in India is likely to grow at a CAGR of 6.1 per cent up to 2026. Global electrical energy storage is estimated to multiply six times between 2016 and 2030. India along with the US and Japan is anticipated to install 50 per cent of ESSs by 2030. The country’s strategy to have 100 per cent EVs by 2030 alone can make a $300 billion market for EV batteries in India. Of 70 GW, over 35 GW of the demand is expected to come from newer applications such as solar integration and EVs, creating a sizeable opportunity for advanced storage technologies. The project also suggests that the energy storage market in India was worth $2.8 billion in 2018 and will continue to grow at a rapid pace in the coming years.
While some aspects have been clarified, there is an immediate need for a comprehensive national framework governing battery storage and its utilisation for revenue generating ancillary services in India to facilitate the development of the market/sector.
India has a comprehensive road map up to 2032 in place. However, measures to reform implementation and provisions for proper financial support/investment in the sector are needed. A greater push under Atmanirbhar Bharat and Make in India to expand the domestic manufacturing capability and reduce dependence on imports is also required to facilitate the growth of the energy storage market. Once these issues get addressed, the Indian energy storage market is expected to witness exponential growth, emerging as one of the largest in the world.
Reji Kumar Pillai
In our opinion, Li-ion batteries will assume the lion’s share in the ESS market in India over the next 10-15 years, primarily owing to their cost competitiveness and multiple applications and portability. Electric mobility will be the primary driver for battery demand in the next five years. Thereafter, demand for grid applications will be significant. The Energy Storage Systems Roadmap for India: 2019-2032, prepared by the the ISGF and the IESA in consultation with NITI Aayog and the MoP, estimates 2,416 GWh of battery capacity by 2032. We are confident that the demand will be much higher than these estimates in the present policy framework. New policies will perhaps increase the demand.