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Financial Aspect: Manufacturing Advanced Chemistry Cell Battery in India

Financial Aspect: Manufacturing Advanced Chemistry Cell Battery in India

Advance Chemistry Cells (ACCs) are the new generation advance energy storage technologies that can store electric energy either as electrochemical or as chemical energy and convert it back to electric energy as and when required.

Integrated battery value can be broadly divided (at the sales end) into the battery pack and the ACCs. While several companies in India have already started investing in battery packs assembly, the capacities of these facilities are too small when compared to global averages. Investments in manufacturing and overall value addition for ACCs are still negligible in India. Hence almost entire domestic demand of ACCs is still being met through imports.

Government initiatives, technology improvements, and falling costs are fostering the rapid growth of the worldwide electric mobility and renewable energy markets. By 2030, India’s yearly market for stationary and mobile batteries might reach over $15 billion USD, with over $12 billion USD coming from cells and $3 billion USD from pack assembly and integration. Even in a more modest scenario, that equates to a market worth US$ 6 billion annually. The execution of the PLI Scheme demonstrates India’s dedication to modernising its energy and transportation networks. By 2030, India intends to sell 30% of new electric vehicles, which is in line with the country’s larger goals of reducing the carbon intensity of its economy by 45%.

With a budgetary outlay of 18,100 crores, the government approved the Production Linked Incentive (PLI) Scheme “National Programme on Advanced Chemistry Cell (ACC) Battery Storage” to increase India’s manufacturing capabilities by achieving a manufacturing capacity of Fifty (50) Giga Watt Hour (GWh) of ACC. The government is focusing on increasing domestic value addition under the aforementioned plan while also making sure that India’s levelized cost of battery production is competitive on a global scale.

Domestic Investment

  • Establish ACC battery manufacturing capacity of 50 GWh with investments totalling INR 450 billion (US$6.20 billion).
  • Each chosen ACC battery storage company must establish an ACC manufacturing plant with a minimum 5 GWh capacity, achieve a minimum 25% domestic value addition, and make the required investment of INR 2.25 billion (US$31.02 million) per GWh within two years.
  • The ACC battery manufacturer must guarantee a minimum domestic value addition of 60% at the Project level within five years.
  • The incentive will be paid out over five years. It will be distributed in accordance with levels of localisation, sales, battery life cycle, and energy efficiency.
  • According to the plan, the state government will support the private sector by giving land for the facility’s construction, acquiring permits and licences, supplying trunk infrastructure, etc. The central government and manufacturer would also join into a tripartite agreement.

Funding & Other Challenges

For large investors, financing may not seem to be a big hurdle, but for smaller players, availability of low-cost financing can be an issue. Banks and financial institutions may be reluctant to provide loans for a new technology because of lack of technical expertise, standard evaluation templates, and standardised financial models according to the report By NITI Aayog & RMI.

Other risks aggravating the issue of financing battery manufacturing would likely be uncertainty or security-related concerns when it comes to the resale value of the asset or technology in case it gets obsolete and the lack of assured offtake or a guaranteed market once the battery production.

To compensate for this, banks may charge a higher interest rate for a comparatively newer technology to minimise their risk. Lastly, financial institutions will not be aware of the actual pricing dynamics of batteries (up-front cost in the Indian market) and how to measure the output of production.

Apart from financial risks, it is also noted raw material supply risks; policy, regulatory, and taxation risks; and technology and material science risks. Identifying the kind of battery technology that is ideally suited for the Indian market and establishing the entire supply chain in the country are key investment decisions. Further, the lack of appropriate technology transfer and exchange of information due to technology patents is also a key concern, limiting technical expertise gained at local levels.

Production Linked Incentive (PLI) Scheme

The Government has approved the Production Linked Incentive (PLI) Scheme ‘National Programme on Advanced Chemistry Cell (ACC) Battery Storage’ for achieving manufacturing capacity of Fifty (50) Giga Watt Hour (GWh) of ACC for Enhancing India’s Manufacturing Capabilities with a budgetary outlay of ₹ 18,100 crore.Under the said initiative the emphasis of the Government is to achieve greater domestic value addition, while at the same time ensure that the levelized cost of battery manufacturing in India is globally competitive.

The program is designed in such a manner that it is technology agnostic in nature and hence only focus on the desired output of the batteries. Thereby the beneficiary firm shall be free to choose suitable advanced technology and the corresponding plant & machinery, raw material, and other intermediate goods for setting up cell manufacturing facility to cater to any application.

The Program expects an investment that will boost domestic manufacturing & also facilitate battery storage demand creation for both electric vehicles and stationary storage along with the development of a complete domestic supply chain & Foreign direct investment in the country. ACC PLI scheme is expected to directly impact the saving to the nation on account of reduction in import of crude-oil to a significant extent and increase the share of renewable at the national grid level.

PLI scheme for Advanced Chemistry Cell (ACC) (Rs. 18,100 crore) along with the already launched PLI Scheme for automotive sector (Rs. 25,938 crore) and Faster Adoption of Manufacturing of Electric Vehicles (FAME) (Rs. 10,000 crore) will enable India to leapfrog from traditional fossil fuel-based automobile transportation system to environmentally cleaner, sustainable, advanced and more efficient Electric Vehicles (EV) based system.

A total of 10 bids were received from companies with manufacturing capacity of 128 GWh under the PLI Scheme of ACC Battery Storage. Under the ACC PLI program, the manufacturing facility would have to be set up within a period of two years. The incentive will be disbursed thereafter over a period of five years on sale of batteries manufactured in India.

Three selected bidders signed the Program Agreement under Production Linked Incentive (PLI) Scheme for Advanced Chemistry Cell (ACC) Battery Storage here on 28th July, 2022.

The companies are Reliance New Energy Limited, Ola Electric Mobility Private Limited and Rajesh Exports Limited. These companies will receive incentives under India’s ₹ 18,100 crore program. In addition to the capacities allocated by the Ministry of Heavy Industries under the PLI Program, private players are expected to create battery manufacturing capacity to the tune of~95 GWh.

Amey Khare

Amey Khare is a Research Scholar at Symbiosis International University and works as an Research Assistant at Symbiosis School of Banking and Finance.

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