Energy Storage All Charged Up For A Boom In India, Says SBI Caps

A new report from Investment bank SBI Caps on Energy Storage Systems paints a bright picture for the future. Building on the inevitability of energy storage requirements as the share of renewable energy in the grid rises, the report takes a deep look at the technologies likely to emerge winners, the size of the opportunity, risks and the government initiatives backing those to ensure success. India is poised to significantly augment its energy storage capacity, with a projected 12-fold increase to ~60 GW by FY32, outpacing the already impressive growth pencilled in for RE sources. The evolving landscape of RE tenders reflects this trend, with a substantial uptick in the proportion of projects incorporating storage solutions, from 5% in FY20 to 23% in FY24.

Batteries and PSPs The Clear Winners

The report’s authors have no doubt that the winners in the push to add energy storage in India will be BESS and Pumped Storage Projects (PSPs), with the two playing a complimentary role rather than competing.

While BESS is expected to see a spike of 375x to 42 GW by 2032, PSP too won’t be far behind, growing 4x to 19 GW, by FY32, from FY24 levels. The BESS dominance has been and will be sustained by the drop in prices seen in recent years, with overall costs dropping 82% over the past decade.

Government Backing An Essential Driver for Energy Storage

The report lauds government moves like setting RPO (Renewable Purchase Obligation) and ESO (Energy Storage Obligation) with at least 85% renewable energy and waiver of ISTS transmission charges as huge positives that will ensure support from discoms in India.

Reduction in BESS tariffs requires addressing constraints including the domestication of battery cell manufacturing and building the component ecosystem

• Batteries and associated components make up ~80% of the cost of a BESS. Currently, battery cells and their upstream ecosystem are highly concentrated in China, making India vulnerable to imports in times of geopolitical complexity
• The indigenisation imperative has been recognised by the government, which has come out with a PLI for Advanced Cell Chemistry (ACC), which envisages the set-up of 55 GWh of capacities, with a special carve out of 5 GWh for technologically advanced systems. Winners till now consist of a motley mix of captive and third-party cell manufacturers
• Close to ~120 GWh of cell capacities have been announced by major players, and this will barely be enough to meet projected demand in the next 2-3 years – thus, more could be on the way. A cascading effect is also expected in the cell components ecosystem, with major players in cathodes, anodes, electrolytes, and separators, all having announced copious capex.

Funding of BESS ecosystem a Rs. 3.5 trn opportunity till FY32, with a Rs. 800 bn medium term kicker provided by upcoming cell manufacturing capex

• Clearly, the funding opportunity is vast in this segment, both at project level and for the upstream ecosystem. The critical variables which lenders may consider while funding BESS projects include the presence of a firm PPA/PSA agreement from a credible DISCOM (and its shortfall in ESO/RPO target), project model (co-location/standalone), and cell technology in use
• Obsolescence risk in BESS projects arise owing to expectations of a reduction in battery prices and infiltration of 4h- and 6h- batteries in place of currently ubiquitous 2h- batteries. These stand mitigated in great measure since most DISCOMs are well short of their ESO and RPO targets, current tariffs remain competitive, and project life is comparable to PPA tenure
• Battery manufacturing will be another source of heady capex as both traditional and new players muscle it out to gain scale. Given the technological innovations rife in this sector, M&A opportunities also reign supreme.

PSPs To Stay Relevant, If Challenging To Establish

The report highlights the challenges with PSP projects, even as advantages like an established technology, completely domestic resources for setting it up, and low running costs and e-waste are plus points. It is the permissions for new projects, besides longer project construction and financing that will ensure that eventually these will be taken up by government backed firms only, posits the report. It stresses that despite all issues, PSPs are essential for peak shaving of power demand for the grid, something India will confront soon.

BESS- The Funding Requirements to Ensure Success 

The report expects battery prices to continue dropping increasing the viability of higher capacity 4h- and 6h- batteries vs. 2h batteries which are in vogue today. The broad battery ecosystem is expected to offer a Rs 3.5 trillion opportunity across cells, electrolytes, anode and cathode material etc. The PLI scheme for ACC batteries is also supporting this and results should be visible from 2027 onwards. The battery ecosystem also benefits from complimentarity between EVs and stationary energy storage, with Lithium NMC batteries favoured for EVs and LFP batteries for storage. As per NITI Aayog, India is poised to capture 69-90% of LFP’s and 43% of NMC’s cell value through fostering domestic cell manufacturing ecosystem. Estimating battery cell pack prices to drop to under $70/kWh by 2030, the report expects a similar drop in capex for BESS as well.