- 2GWh storage tender has been announced in the country
- India could have a third of the world’s battery capacity by 2040
- But market’s lack of maturity is deterring some investors
India’s battery storage market has been dubbed “a sleeping giant”.
That’s the view of the Institute for Energy Economics & Financial Analysis (IEEFA), which has highlighted the significant potential for developing a massive amount of storage capacity in the country.
It’s not hard to see why the IEEFA sees India as fertile ground for storage growth. Driven by rising incomes and improving standards of living, India has become the third-largest energy-consuming country in the world, behind China and the US.
India’s energy use has doubled since 2000, with 80% of that demand currently being met by coal, oil and solid biomass.
But times are changing. In the wake of Covid-19, the country is now entering a crucial phase in its its quest to decarbonise its growing economy.
In this vein, it was reported last month that the Solar Energy Corporation of India is launching a tender for 2GWh of standalone energy storage systems. The successful bidders will be awarded 25-year power purchase agreements.
This could be the first step along the road to India becoming a storage powerhouse. Indeed, by 2040, the IEA estimates India could possess 140-200GW of battery storage, which could potentially amount to a third of the world’s total capacity by then.
Given that India is expected to surpass China and become the world’s most populous country before the end of the decade, and the world is in the midst of a climate crisis, the stakes could not be higher as India seeks to utilise storage as a key weapon in the battle against climate change.
Solar future dependent on storage
The role of energy storage in India is becoming extremely important, especially given that solar power is thriving in the country. Though solar is only currently responsible for 4% of the country’s electricity generation, it is anticipated that solar power is on course to match coal’s share in the power generation mix within the next two decades.
This will be partly driven by the equivalent of billions of dollars of government finance to support the domestic development of high-efficiency PV modules, as well as plummeting solar tariffs of below Rs2.00/kWh (US$27/MWh).
But without energy storage to help cope with India’s eminent requirement for electricity flexibility, this solar-powered revolution could not be possible.
India’s current total installed renewable capacity is 93GW – just 10% of the country’s total power generation – of which at least 7GW is understood to be energy storage.
Pumped hydro is the primary form of energy storage used around the world and it constitutes most of India’s storage capacity, totalling around 4.8GW. Yet meeting India’s hugely fluctuating energy demand requires short-term flexibility, and this is an environment to which lithium-ion batteries are better suited. Given that price reductions for lithium-ion technology are currently averaging 6% per year, it is expected that lithium-ion will drive India’s storage growth.
Right now, there is only one utility-scale battery storage project deployed in India: a 10MWh pilot scheme owned by Tata Power Delhi Distributed Limited.
However, in January 2020 ReNew Power won India’s first auction for renewables combined with energy storage peak power – totalling 300MW – and five months later won another 400MW tender to supply ‘round the clock’ power. These battery installations won’t switch on for another year.
That said, the appetite for a significant upscaling of energy storage capacity in the country is significant. In the past couple of months alone, announcements for energy storage tenders in India have totalled 7GWh.
Who’s investing in storage?
Investment in Indian energy storage is largely the preserve of the government. With plans to put the next tranche of 4GWh of storage out to tender soon – as confirmed in an online video by the new Renewable Energy minister RK Singh – the government is attempting to catalyse urgent capacity growth.
However, there has also been significant foreign investment in Indian renewables recently. Earlier this month, it was reported that Copenhagen Infrastructure Partners had signed an investment agreement – via its Copenhagen Infrastructure New Markets Fund I – with Amp Energy India that enables joint equity investments in excess of $200m in renewable energy projects in India. Although initially focussed on solar PV and hybrid wind/solar PV assets, the transaction demonstrates the appetite among foreign investors for opportunities in Indian renewables.
Meanwhile, the government’s strategy for furthering the deployment of energy storage also recognises that manufacturing advance chemistry cells – a type of storage technology – represents one of the country’s biggest economic opportunities, thanks to growing sectors like renewables, electric vehicles and consumer electronics. Consequently, the Department of Heavy Industry has allocated $2.46bn to domestic and international players to set up production facilities in India.
Foreign investment shortfall
But there’s a problem. The Indian energy storage market’s lack of maturity is deterring international investors from entering the space. An uncertain business model is creating an unattractive risk-return profile. This is primarily because battery storage involves high initial capital injections making a double-digit internal rate of return difficult to achieve.
Even so, the trend of battery cost deflation – with project costs projected to fall by 55% between now and 2030 – suggests that a rewarding entry point for investors may not be far off.
Another major issue is that India’s grid infrastructure needs to be strengthened to help rapidly progress the uptake of utility-scale storage, particularly in states with large load centres, such as Gujarat, Rajasthan, and Maharashtra. The IEEFA says that one option for such states could be to offer viability gap funding to help support the growth of battery storage – a similar approach was used with ‘ultra-mega’ solar parks just three years ago.
Why India should not be discouraged
India has made a start on growing an energy storage ecosystem by launching sizeable tenders, but it is just that: a start. Now the country must align its policies and foster a cost-competitive market that incentivises investment in such a capital-intensive technology.
The unresolved question is whether India can follow the lead of countries like Australia, Germany, the UK and the US, which have all successfully leveraged the reduction in battery storage costs to enhance their utility-scale grids and have therefore proved that it can be done.
IEEFA has also suggested the introduction of a time-of-day pricing mechanism – that differentiates between peak and off-peak delivery – to ensure flexible and reliable power supply. This is different from India’s current flat tariff system and would help producers and consumers deal with India’s intense fluctuations in electricity demand.
The country’s auctioning of storage capacity is a positive sign. It reveals the government’s desire to bring its country’s potential to fruition. But that’s just part of the equation. Whether investors react positively remains to be seen.