02 Mar, 2020
Financing energy storage
4 mins read | CEF Analysis

India has set an ambitious target of achieving 40 per cent of its installed electricity capacity from non-fossil fuel sources by 2030. [1] Given the variability of solar and wind energy – the main growing contributors to India's non-fossil energy mix – their integration into the grid, as well as their viability as complete off-grid solutions, would require the use of storage solutions. Storage solutions can help meet electricity demand at times of no or low generation in addition to providing balancing and demand-response services to the grid. Further, storage solutions for localised demand management (peak shaving and other support) at the distribution transformer level can provide an alternative to conventional capital-intensive network enhancements.

In addition to the above-mentioned stationary uses of storage solutions, mobile uses such as in electric vehicles (EV) will also generate unprecedented levels of demand. The estimated need for storage capacity addition based on potential applications is likely to be over 150 GWh, 500 GWh, and 1,800 GWh in the periods up to 2022, 2023–27, and 2028–32, respectively. [2]

Figure 1: Trajectory of global record-low solar PV tariffs

Source: CEEW-CEF analysis; using ISGF and Bloomberg trends on storage capacity requirements and battery cost trends, respectively. [3] 

As per our analysis, to meet this demand potential (only for the battery component of storage), the capital required is likely to be above USD 24 billion, USD 52 billion, and USD 136 billion in the period up to 2032. The scale of this storage addition will be enormous even if capacity addition remains limited to 20 per cent of the above potential (owing to a combination of factors like delayed installation/adoption rates or depressed demand for underlying storage applications); even in such conditions, it will cost upwards of USD 42 billion over the 12 years. For comparison, the total finance flows towards clean energy investment in the country that stood at only USD 8 to 10 billion yearly over the last three to four years. [4] This deployment of storage capacity is likely to have positive multiplier effects not just on the power, auto, and telecom sectors, but also on the economy as a whole, through high investment flows, job creation, etc.

Barriers

There are two significant barriers to the adoption of storage at scale.

  • Access to finance: Raising the capital required to fund the deployment of battery storage at scale is a significant impediment for this sector. Funding is particularly a barrier in India, as the banking sector is reeling under the stress of a non-performing asset (NPA) crisis (though NPAs are declining), and has limited bandwidth for additional lending in short to medium term. The domestic bond market, a possible avenue for long-term borrowing, will open up once project performance track records are established, and the projects credit ratings move to high rating bands, as the bond market features only top-rated entities and is primarily employed to refinance existing portfolios. Other possible streams, such as non-banking finance companies, are not keen to extend credit given the current liquidity constraints being faced by them. [5]
  • Technology risk: Lack of familiarity with storage solutions and their performance with no specific well-functioning marker acts as a deterrent to adoption at scale. This raises the question of which technologies (Li-ion, flow batteries, or mechanical storage, etc.) are fit-for-purpose and are likely to provide the desired results. Also, given the rapid pace of technological advancements and their limited track record under ambient conditions, there is limited authoritative commentary or guidelines on what should be the way forward. All these issues and the absence of exhaustive standards hamper the bankability of storage solutions at present.

Way forward

Storage solutions have the potential to accelerate India’s energy transition. To leverage this opportunity and meet the estimated demand, we require a mix of solutions across the value chain. To give impetus to India's energy storage market, CEEW-CEF recommends:

  • Public sector units (PSUs) to be flagbearers of storage solutions: Given the enormous financial strength and the complementary nature of business of some of the large and highly rated public-sector companies (like NTPC and GAIL), they could be the flagbearers of this impeding storage transition , similar to their international counterparts, Shell, BP and others –. These PSUs can look at the business opportunities available within the value chain of storage solutions for both mobile and stationary purposes. Such services can create new business avenues and diversify. Once these companies establish a track record, deleveraging of their balance sheets could be done using instruments like Invits. [6] Thus, execution and operation of projects by PSUs can facilitate quantification of the business risk through the establishment of a track record, and will eventually allow private sector participation in this upcoming revolution in a big way.
  • Financial intermediation: Highly impactful and well-designed intermediations like credit guarantees could both de-risk and open up bank lending to entities venturing into the energy storage business, which are likely to currently not have bankable credit ratings. Also, multilateral/concessional lines of credit (like World Bank–SBI line of credit for rooftop solar) could help demonstrate the viability and business case of such solutions and in turn scale up the flow of private finance into such solutions. 
  • Policy support and budgetary allocation to schemes: Given the rapid pace of technological advancements, additional policy support for research and development, manufacturing of storage solutions, and development of domestic value chains could help the country achieve the required growth. Policy incentives like tax breaks and subsidies (as under the FAME scheme), along with a budgetary allocation, could provide the scaling up of storage solutions for different uses.
  • New business models: Given the high initial cost of storage solutions, new business models are a necessity for mass adoption. A business model like leasing or one that focusses on second-life batteries could provide the way forward for the storage industry.

Do you agree with the above solutions? In your view, what should be the way forward to scale up energy storage in India? Share your views and comments on the above CEF analysis at cef@ceew.in

References

Disclaimer

"CEF Analysis” is a product of the CEEW Centre for Energy Finance, which explains real-time market developments based on publicly available data and engagements with market participants. By their very nature, these pieces are not peer-reviewed. CEEW-CEF and CEEW assume no legal responsibility or financial liability for the omissions, errors, and inaccuracies in the analysis.

Filled under: Energy Storage , Clean Energy Finance , Technology
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