Developing a localized advanced cell supply-chain ecosystem will help India create a competitive advantage in mobility, grid energy storage, and consumer electronics, according to a report.

NITI Aayog and Rocky Mountain Institute (RMI), in the report, ‘Need for Advanced Chemistry Cell Energy Storage in India,’ said a domestic supply chain would insulate itself from any supply constraints that could risk the entire battery ecosystem.

The report referred to the successful bids under the ₹181 billion (~$2.5 billion)-Production Linked Incentive (PLI) program, which aims to kickstart domestic manufacturing of advanced chemistry cell (ACC) batteries. Developing a domestic battery manufacturing ecosystem is crucial to achieving India’s goal of 500 GW of installed non-fossil fuel energy by 2030.

Reliance New Energy, Ola Electric Mobility, and Rajesh Exports signed the program agreement under the PLI Program for ACC battery storage. The total capacity declared for the shortlisted bidders was 50 GWh, out of which Ola received incentives for setting up ACC capacities of 20 GWh.

The report said numerous risks are associated with setting up battery manufacturing plants in India. Establishing the entire value chain presents a challenge, given rapidly evolving battery chemistries and the steep learning curve and investment risks in adapting to new technology and manufacturing processes.

Availability of raw materials, raw material processing and technologies, risk of technology transfer, development of alternative chemistries, and lack of expertise in the sector may be major impediments.

Technical expertise

The report pointed out that it was essential for the government to support technical capacity-building at the local level because of the relative newness of battery manufacturing technology. Indian companies must form joint ventures with international players to access patented technology and gain technical expertise.

Securing Finance

The global battery storage sector has witnessed phenomenal growth over the past few years. According to Mercom’s 1H and Q2 2022 Funding and M&A Report for Storage, Grid & Efficiency, In Q2 2022, VC funding for Energy Storage, Smart Grid, and Efficiency companies increased to $2.4 billion in 34 deals compared to $1.6 billion in 37 deals in Q1 2022.

Though financing activity in India has improved in the past few years, it remains limited compared to deep capital markets such as the United States and Western Europe because of higher risk perception. Debt financing can allow equity partners in a project to hedge some risk while potentially improving relative gains over the project’s lifetime. However, the size of debt relative to the capital expense can significantly influence how competitive the product’s pricing can be.

Demand Creation

The government has deployed several central-level initiatives encouraging demand creation in sectors like electric vehicles and grid-level storage to stimulate growth in domestic ACC manufacturing and encourage the development of domestic manufacturing capacities.

The report said beyond the central and state incentives, complementing steps can be taken to build investor confidence within the sector. The principles of public-private partnership can ensure an optimal sharing of risk between the beneficiary firm and the government, bolstering investors’ confidence. Demand creation initiatives can also be a vital component where state governments will play a key role. A strong circular economic policy framework can reduce demand for scarce, imported materials. Co-locating battery plants with renewable energy resources can ensure a low-cost power supply for energy-intensive industries.

In an earlier report, Niti Aayog and RMI had projected India’s annual demand for ACC batteries to rise up to 104 GWh in a ‘conservative scenario’ and up to 260 GWh in an ‘accelerated scenario’ by 2030 across multiple sectors.