Promising developments in utility-scale batteries and green hydrogen 

The overarching ambition to commercialise a green hydrogen economy in India will soon need to be shaped by concrete policy and funding support.

Introduction

In August 2021, India crossed a milestone of 100 gigawatts (GW) of installed renewable energy capacity. Solar (45GW) and wind power (40GW) comprise the majority of the installed renewables capacity. A transition in India’s electricity sector is underway with growth of low cost renewable energy capacity, targeted to be 450GW by the end of this decade.

The challenge of installing 450GW of variable renewable by 2030 will be accompanied by another big challenge of integrating them into the grid.

In our report from February 2021, we highlighted three key technology solutions that should be looked at to support integration of large-scale variable renewable, flexible operation of coal-fired power plants, battery storage and green hydrogen.

The flexible operation of the coal power fleet is a solution that would make optimal use of the country’s existing coal-fired generation resources of 210GW, whilst implementing batteries and green hydrogen would entail the setting up of entirely new industry value chains.

But IEEFA observes a very positive trend of the declining cost of battery storage globally. The cost curve in battery storage globally has come down dramatically, from US$1,100/kWh in 2011 to US$137/kWh in 2020 for a stand-alone lithium-ion battery system. It is further projected to drop by another 55 percent to US$58/kWh by 2030.

Although for India the cost of utility-scale battery storage has remained prohibitive in the absence of a domestic manufacturing value chain and the right price signals in the electricity market, there are strong indications that the market is shaping up for utility-scale batteries.

Momentum in Battery Development

Tata Power’s 10MW/10MWh (1-hour storage) battery in its Delhi distribution network is currently the only grid-scale battery operating in India. During a recent visit to Tata’s battery storage facility, Delhi’s Power Minister, Satyendra Jain, talked about a plan to create storage capacity of 600MW in Delhi in the form of ‘power banks’. This would be a huge step up from the city’s existing 10MW/10MWhbattery storage capacity.

Tata Power bagged another big battery storage project in the city of Leh (in the newly formed Union Territory of Ladakh) comprising 50MWh of storage capacity co-located with 50MW of solar capacity. Planned to be commissioned by March 2023, this will be India’s largest grid-scale battery. Tata’s 50MWh battery will be part of the planned mega 13GWh grid-scale battery storage system in Ladakh.

India’s state-owned entities have now also come into the fold for facilitating grid-scale battery storage development.

In the last couple of months, the Solar Energy Corporation of India (SECI) and NTPC has rolled out tenders for developing 2,000MWh and 1,000MWh of battery storage capacity, respectively. SECI and NTPC have built strong track records as credible counter parties by enabling renewable energy capacity development of more than 40GW. IEEFA deems the involvement of credible government-owned counter parties vital to enabling capital deployment in the development of battery storage.

R.K. Singh, the Indian Power Minister, talked about doing a mega 4,000MWh tender for battery storage in Leh and scaling the capacity to 12,000MWh in future. The Minister previously also indicated that 4,000 MWh of storage will be used for ancillary services at four Regional Load Dispatch Centres (RLDCs)–1,000 MWh each for grid balancing and frequency regulation requirements.

The first few utility-scale battery storage projects will incur material teething costs. These include the costs of learning from the testing, deployment and commissioning aspects of the projects. Also, there will be important lessons to be learnt from the contracting side of battery storage systems. Contracts will need to be designed to incorporate equipment degradation, temperature concerns and associated liquidated damages (LDs). On the testing side, the system will need to be tested for Automatic Generation Controls (AGC), up frequency support, down frequency support and voltage protocols.

Working through these things will potentially lead to some delays and additional costs for the developers or solution providers. Accelerating the first few projects in our grid would enable a more robust set-up for the Indian market. However, the initial projects might require flexibility on foreign content in terms of equipment for the first few projects and localization of the industry could then follow.

The government of India is progressing towards creating a localised value chain for the battery industry. Battery manufacturing is critical to the battery value chain, is now aided by the government’s production-linked incentive (PLI) scheme. In May this year, the government approved an outlay of ₹18,100 crore (US$2.5bn) to facilitate battery manufacturing capacity of 50 GWh.

In another policy development, the Central Electricity Regulatory Authority (CERC) aims to reform the frequency control and ancillary services (FCAS) market by bringing battery storage and pumped hydro storage (PHS) into the ambit of FCAS regulations. This will value the speed and accuracy of grid balancing services that batteries and PHS could provide at competitive market prices, allowing a clear revenue stream for the asset owners of these storage systems.

Also, interstate transmission charges have now been waived for battery storage and PHS systems commissioned until June 2025, in addition to solar and wind assets. This will allow storage systems to operate viably to support inter-state grid networks.

India’s market potential, aided by the government’s ambition and policy support to decarbonise India’s power sector, is driving momentum in battery manufacturing in India.

Energy Storage tenders need regulatory framework

In countries that have successfully developed Battery Energy Storage Systems (BESS), like the U.S., the UK, Europe, Australia and Japan, policy and regulatory interventions by governments have played a pivotal role in developing the battery storage industry. Specifically, the interventions of the Federal Energy Regulatory Commission in the U.S. and the Australian Energy Market Commission (AEMC) helped create demand for BESS services and a level playing field for BESS alongside the conventional resources available in the sector.

The lack of proper regulatory framework in India for BESS prevents development to battery storage. To remedy this, the Ministry of Power and regulatory bodies of India need to establish regulatory measures that clarify the commercial contract framework, the medium- to long-term roadmap for BESS requirement, inclusion of BESS in power and network planning, proper bid/tender frameworks, etc. Such an intervention from the Indian government and regulators would enable sustained development of the battery energy storage sector.

Financing remains a key challenge

On 15 August 2021, Prime Minister Modi of India launched the National Hydrogen Mission with an ambition to make the country a hub for green hydrogen. The overarching ambition to commercialise a green hydrogen economy in India will soon need to be shaped by concrete policy and funding support.

FTI Consulting’s policy brief recommends creating a national hydrogen transition fund for national projects using carbon transition taxes that could provide subsidy or incentive funding. A leading example of state funding for green hydrogen is the Australian Renewable Energy Agency (ARENA). In May 2021, ARENA topped up its ongoing funding for commercialising green hydrogen projects by AU$100m (US$72.3m) for three projects with 10MW electrolysers. This is in addition to 16 R&D projects, as well as feasibility studies into large-scale projects and smaller-scale demonstrations looking at renewable hydrogen production, power-to-gas (PtG), and hydrogen mobility.

The Indian Renewable Energy Development Agency (IREDA) could look to play a similar role in the proliferation of green hydrogen projects by supporting pilot projects and eventually to commercial scale-up.

Indian renewable energy developers have successfully raised debt funding through the international green bonds market. As numerous developers look to derive value from the synergy of renewables and green hydrogen, the international green bonds market will remain a key avenue for funding.

Sustainability-linked bonds, which force issuers to pay higher coupon rates if they fail to achieve pre-set company-wide targets, are emerging as an alternative instrument to green bonds. Enel of Italy and Total of France are two leading European developers that have accessed green debt funding using sustainability-linked bonds. Both these prominent global energy companies along with numerous others are actively playing a part in India’s energy transition – a promising sign for the clean energy sector.

There is substantial activity in the Indian battery storage and green hydrogen markets – both of which are critical for India’s clean energy future and energy security. And they could scale up rapidly as has happened in other global markets in the last couple of years.

Authored by: Kashish Shah 

Energy Finance Analyst, IEEFA

Website: www.ieefa.org