The momentum driving India’s transition to clean energy is accelerating. From Prime Minister Narendra Modi’s commitment at COP26 to achieve 500 GW of non-fossil fuel installed electricity capacity by 2030 to the green push in the Budget and the launch of the first phase of Green Hydrogen policy, the policy shift is visibly transformative.
Indeed, the energy future appears exciting but it will require a persistent and strenuous multi-stakeholder endeavour, including by renewable energy companies, policymakers, investors, the public sector, and financial institutions to make it a reality.
The Centre has rightly identified energy storage as a crucial link in the energy value chain. This is critical as India hopes to increase renewable energy (RE) generation from the current 12-13 per cent to over a third of its total generation to meet its climate goals. This is an unprecedented — 300 GW addition of renewables in less than nine years. The work is already in progress as is apparent from India’s remarkable journey in the solar sector alone, from a mere 35 MW in 2011 to 35,000 MW in 2021!
Renewable energy being subject to nature’s vagaries, to integrate this colossal amount of RE in a cost-effective, rapid and stable manner, we need unique flexible storage systems to absorb, store and then reinject electricity as per the grid’s requirements.
There are challenges in grid-balancing as India’s synchronised grid faces increasing variable generation and ever-changing demand patterns. Imbalances in demand and supply come at both seasonal and daily level. While seasonal demands are best catered to by the market forces, daily variations have to be addressed by battery storage.
Across the globe, battery is becoming integral to grid management as also planning by system operators/distribution utilities at distribution, transmission as well as generation node. In Australia, for instance, the 100MW Hornsdale Power Reserve is realising revenue from multiple applications like frequency support, market arbitrage, energy shifting, renewable smoothening. In the US and UK battery storage is providing an economically viable source of flexibility and reliability for grid networks because battery storage cost has declined sharply in the past decade.
Overall, battery storage is primarily being used to address three basic applications. These are frequency response management; energy shifting or arbitrage; and mid/long duration energy storage.
In India too, battery storage demand will see significant opportunities in electrified mobility as also from stationary storage requirements. As per NITI Aayog, India’s battery storage market is expected to reach more than 1000 GWh by 2030, translating to a cumulative market size of $250 billion from extremely negligible today.
Investment needs
Out of the 1000 GWh, power sector demand alone is expected to be close to 150GWh, translating into $60 billion of capital investment in projects. For the total 1000 GWh capacity deployment, we will need a manufacturing investment of around $16.5 billion over the next five-to-six years. This will translate into a capacity of around 150 GWh per annum, creating jobs in manufacturing and construction.
The global manufacturing capacity of battery storage grew sevenfold in the past decade to 1,500 GWh of which China holds 78 per cent. Europe too is emerging as a key investment destination for battery manufacturing. While the supply chain for manufacturing in Europe is not as robust as China’s, it is stepping up rapidly with the surge in demand driven by transition towards electrified mobility and grid-scale storage. The UK, France, and Germany have well-established markets for ancillary services which require deployment of battery storage on a mass scale.
Battery challenges
Given the global backdrop, India clearly has challenges ahead as it ramps up its unprecedented RE expansion in a race to net zero in which battery storage is a critical catalyst. The supply chain for battery manufacturing can be divided into four distinct steps: mining, refining of raw material, cell manufacturing and module pack assembly. While cell manufacturing and refining of raw materials for use in batteries have been largely addressed through the PLI scheme, the key challenge will be to have a grip on the raw material availability such as lithium, nickel, and cobalt.
The effective use of storage lies not just with generation projects but at all levels of the power ecosystem, including transmission and distribution. Wherever battery storage is deployed, the key lies in using the full value stack of applications for maximum asset utilisation. It is, therefore, critical that the right policies are formulated towards developing multiple application cases for energy storage and creating participatory markets for them.
Moreover, since storage systems costs have been on a steep decline, and this is set to continue, it is critical that while planning is done for the long term, tie-ups for storage services be for shorter durations.
The government may consider putting energy storage systems in a lower GST bracket (5 per cent) and doing away with import duties in the initial few years. Transmission waivers and an interest rate subsidy will further help reduce the per unit cost of energy to consumers. For the initial few projects, it will be worth considering Viability Gap Funding to attract investors and interest from grid operators. To incentivise and provide a stable revenue stream to storage operators, additional RE certificates can be awarded for each unit of energy dispatched from the storage system for the next three-to-five years.
Sourcing strategy for critical minerals with strategic partnerships with countries like Australia would also help in expanding manufacturing capacity. An important aspect to consider is creating an ecosystem that enables the development of alternative storage technologies such as flow batteries, sodium ion, sodium sulphur, and compressed air energy systems. This is key as all these technologies use minerals like sodium, sulphur, vanadium, steel, and iron that are abundantly available in India. Moreover, this also negates the necessity of emission-intensive sourcing.
Storage technologies like sodium ion is used for short-to-mid duration storage while costing less than lithium in technology. For its part, sodium sulphur battery typically addresses the longer four-to-six hours energy peak shifting. And, compressed energy storage tackles the longer duration storage needs — longer than six hours — that is required for critical industries and can replace polluting large diesel backups.
It is clear that battery storage is critical in India’s shift to renewables. As India restructures its entire power architecture, it will require the full bouquet of storage solutions to address different needs across different regions for different sectors and consumers, in order to effectively move towards net zero.
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