India gears up for multibillion-dollar battery subsidies

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India’s government is preparing a new multibillion-dollar subsidy scheme for companies making electricity grid batteries, according to a proposal seen by the Financial Times, as authorities try to accelerate the large coal consumer’s transition to clean energy.

Prime Minister Narendra Modi has set out an ambitious target to build 500 gigawatts of renewable capacity by the end of the decade as India — among the world’s fastest-growing energy consumers — tries to transition away from coal. The fossil fuel accounts for about three-quarters of the country’s power generation at present.

Batteries are essential for storing renewable energy because, unlike the regular power supply generated by coal plants, the availability of solar and wind fluctuates throughout the day.

The draft proposal for a production-linked incentive subsidy scheme would offer Rs216bn ($2.6bn) from this year through to 2030 for companies to set up manufacturing capacity for 50 gigawatt hours’ worth of battery cells in India. The plan, submitted by India’s power ministry, is under discussion and subject to change. The ministry did not respond to a request for comment.

For Indian authorities, more domestic battery cell manufacturing is essential, not just for the energy transition but for reducing dependence on battery imports from its rival China. At least 90 per cent of the value has to be generated domestically under the plan, such as by sourcing components locally rather than through imports.

“If India does not take urgent steps to set up local manufacturing capacity of BESS [battery energy storage systems], imperatives of our energy transition would lead to huge imports from China,” the document said.

India has resisted pressure to phase out coal but officials say bringing down the costs of battery storage is an essential alternative to building new coal-power plants.

The draft plan acknowledged there was a limit to how much more coal power India could build. Issues including “international opinion” and “environmental concerns . . . make expansion of coal-based thermal generation beyond a limit, an infeasible option”, it said.

India has rolled out a series of subsidy schemes to boost domestic manufacturing in strategic industries such as solar modules and semiconductors. Most are still in the early stages.

Planned production under an existing subsidy scheme for advanced chemistry cell battery storage will primarily supply electric vehicles rather than the grid.

Raj Kumar Singh, India’s power and renewable energy minister, told the FT this month that more subsidies were, therefore, necessary to encourage the manufacturing of batteries for the electricity grid.

“Our requirement for storage is going to be humongous,” he said, adding that for investors, “we’ll continue to be the most attractive market for renewable energy in the world, including storage”.

The government is also planning about $500mn in financing to cover the “viability gap” for companies investing in the sector, given that it remains high-risk, according to another official.

Jagabanta Ningthoujam, a principal at think-tank RMI’s India practice, said that while the cost of batteries for the grid was at present “prohibitive”, the market had enormous growth potential.

“There’s a universal consensus that you need growth of battery demand,” he said. “To make that happen, you need to have a lot of regulations in place which are not there yet [and] a lot of market creation effort needs to be there.”