22 June 2021 | BRIDGE TO INDIA
The Indian government has issued a new production-linked incentive (PLI) scheme to develop 50 GWh and 5 GWh domestic manufacturing capacity for advanced battery storage technologies and niche storage technologies respectively by March 2024. The government proposes to grant cash incentives aggregating INR 181 billion (USD 2.5 billion) over five years to selected bidders, who would commit to set up manufacturing facility for minimum 5 GWh of advanced battery storage capacity and/ or 0.5 GWh for niche storage capacity. They would need to invest a minimum INR 2.25 billion (USD 30 million)/ GWh in capital expenditure and commence commercial operations within two years. Total capacity per bidder is capped at 20 GWh.
- The scheme design is overly ambitious in terms of minimum required size, time scale and performance conditions;
- Many crucial details relating to technology specifications, selection process, backward integration, localisation and penalties are not yet available;
- Lack of demand visibility is likely to be a strong deterrent for potential bidders;
The scheme comes with two tough riders: i) minimum specific density and number of cycles over battery life (see table below); ii) minimum domestic value addition of 25% going up to 60% within five years.
Figure: Minimum performance specifications for ACC technologies
Source: Notification issued by Department of Heavy Industry
Companies would be selected through a two-stage bid process. Subsidy payments, to be made every quarter over first five years of operations, are proposed to be linked to actual domestic value addition and sales in each quarter. Actual payment would be capped at 20% of total turnover. The payments would also be differentiated based on extent of backward integration into cell manufacturing.
The scheme seems to have been rushed out in a hurry as many crucial details on technology specifications, bidding process, backward integration, localisation and penalties etc. are not available yet. The proposed scheme size and implementation timetable are also highly unrealistic. The government’s battery storage demand projections are wildly optimistic as growth in both EV and power storage businesses continues to stall mainly due to high cost of storage and policy uncertainty. The PLI scheme by itself would make little material difference on either account in the short run.
Battery storage is obviously going to be a critical pillar of energy transformation. The government has been wooing international battery majors to come to India. So far, only TATA Chemicals and a TOSHIBA, DENSO and Suzuki Motors joint-venture have announced intentions to set up manufacturing facilities. Many interested players are pushing for relaxation in scheme design but we believe that the industry needs strong demand visibility first.