Rooftop solar plus storage helps in reduction of transmission and distribution losses for state distribution companies (discoms) and defers investments in transmission infrastructure.
As the cost of solar power and lithium-ion battery prices are declining at a much faster than anticipated pace to new lows, battery energy storage systems (BESS) are likely to disrupt the power sector. Solar power with lithium-ion battery storage can harness a variable solar energy and provide firm solar energy. Hence, ESS is a key technological disruptor of the new eco system and is poised for rapid growth stimulated by tougher environmental policies and regulatory reforms. Simultaneously, declining prices of lithium-ion batteries make it economical for commercial and industrial buildings and high-end residential consumers. Rooftop solar plus storage helps in reduction of transmission and distribution losses for state distribution companies (discoms) and defers investments in transmission infrastructure. CARE Ratings expects addition of 10 GW of rooftop photovoltaic installations by fiscal 2023 driven by commercial and industrial buildings and phase II of grid-connected RTS programme.
Due to cost barriers, tenders announced in co-located storage segment so far are facing delays. However, with declining cost of Solar Photovoltaic (SPV) Systems and battery storage, electricity generation from rooftop solar (RTS) installation is already economically viable for some consumers in the commercial and industrial segment. Furthermore, Central Finance assistance (CFA) of 40 per cent for residential rooftop solar (RTS) projects (1-3 Kw) under phase II of grid-connected RTS programme will improve project economics of RTS for low-end residential consumers. Out of total solar installation of 28.20 GW as on March 31 2019, rooftop solar installation stood at a mere 1.80 GW. Artificial caps in net metering, huge upfront costs are key impediments to the rooftop segment. Battery energy storage systems (BESS) will provide a much needed fillip to rooftop segment. Growth in RTP can be achieved by incentivising utilities, providing viability gap funding/subsidies to storage solutions, policy enforcement, providing flexible financing and creating awareness among consumers.
Prices In the past seven years, lithium-ion battery prices have plummeted by 80 per cent from $800 per Kwh in 2010 to $176 per Kwh in 2018. For the past two years, decline in battery pack prices was driven by technology improvement in terms of energy density and economies of scale. As per the BNEF, learning rate for lithium-ion battery is 18 per cent i.e. for every doubling of cumulative volume, 18 per cent reduction in price. Meanwhile, solar tariff has fallen from Rs 7.49/Kwh in 2011 to Rs 2.44/Kwh in 2018. Solar tariffs discovered in auction during 2017 and 2018 were lower than NTPC's average tariff of Rs 3.23 during FY18. In India, electricity for the residential sector is highly subsidised and price of grid power is lower than solar power for residential buildings with low consumption. As per the tariff orders of states, grid tariff is in the range of Rs1.35-14.1/kwh per unit depending on monthly consumption and state and average tariff of NTPC was Rs 3.23 /KWh. The difference between grid and levelised cost of energy of RTS with storage back up is impeding the large scale adoption of RTS.
However, these two are converging very fast and will provide a fillip to energy storage systems. Business models, which can provide value proposition to customers by taking the advantage of falling prices of modules, battery packs and subsidies may disrupt the market.
Current status Government of India's target of 40 GW of solar-power through roof-top installations by the year 2022 would provide fillip to growth of energy storage sector. The 40 GW target is to be achieved through solar installations on rooftop space of residential, commercial, industrial, government, academic institute buildings. As per the MNRE, grid connected roof-top solar installations stands at around 1.85 GW as on 30th April 2019. Gujarat has the highest installed rooftop solar capacity in India of 346 MW followed by Maharashtra at 186 MW, Maharashtra at 184 MW, Rajasthan at 154 MW and Tamil Nadu at 143 MW. Out of total installed capacity, industrial and commercial consumers account for 70 per cent whereas residential customers account for less than 10 per cent largely on account of upfront costs and lack of awareness. Speedy sanction of subsidies and availability of financing to residential consumers will provide much needed impetus to growth of rooftop solar in the untapped residential segment. Recently, government has approved CFA of Rs 118.14 billion in the form of subsidies to residential customers and incentives to state power distribution companies (implementing agency) for development of 38 GW under phase II of rooftop solar programme by 2022. CARE believes that these measures will kick start growth in RTS. CARE expects that RTS will add approximately 9-10 GW by 2022 and out of it, at least 5 to 10 per cent will have back up with batteries. Business models of energy storage sector can be broadly classified as front-of-the-meter (utility side) and behind-the-meter (consumer side).
Consumer side business models a) Residential: In most of the states, grid tariff for residential customers is much lower than rooftop solar PV levelised costs. Thus, further innovation and cost reductions will tap this segment. RTS market is currently dominated by capex model but strong growth is expected from renewable energy service company (RESCO) model wherein RESCO funds, installs and operates and enters into long term power purchase agreement with customers.
b) Industrial and commercial: Industrial consumers could more readily find economic benefit from investment in solar as grid tariffs are higher than levelised cost of energy for industrial consumers and tax incentive in the form of accelerated depreciation of forty per cent is available for them. Commercial entities who are highly dependent on diesel generators or in remote areas without grid access are potential consumers for the energy storage sector. Telecom towers, petrol pumps, academic institutes, medical centres and rural banks are predominantly using solar systems with battery storage facilities. Rooftop solar power with energy storage provides relief from outages and control over generation and usage.
c) Solar micro/mini-grids: Micro/mini grids are a promising alternative to grid to supply reliable and uninterrupted electricity. Ministry of New and Renewable Energy (MNRE) targets to deploy at least 10,000 renewable energy based micro and mini grids across the country with a minimum installed renewable energy capacity of 500 MW by 2022 (taking average size as 50 kW). Since the electricity to rural households needs to be supplied during evening hours primarily, micro/minigrids require a large battery bank to store the entire energy generated from solar PV system during day hours. This will go a long way in accelerating the energy storage market. Recently, NTPC floated two tenders for 8MW at Chidiyatapu and 17 MW at Manglutan (South Andaman) with energy storage in both the projects.
Utility side business model Utility side business models depend on ownership i.e. whether energy storage system (ESS) is owned by generator or transmission licensees. In India, first grid-scale lithium-ion battery energy storage system was commissioned in February, 2019. It is located at a substation owned by Tata Power Delhi Distribution Ltd. The facility is owned and operated by AES Corporation and Mitsubishi Corporation, who have jointly constructed the project. This project will pave the path for wider adoption of grid-scale energy storage technology across India. Storage would address key issues like peak load management, frequency regulation, system flexibility and reliability of the network. Battery storage can help reduce the ramping capacity needed to start thermal plants, integrate variable renewables by smoothing their output to the grid and in general provide critical flexibility to the grid as storage can be located anywhere in the network and it would provide flexibility to set up battery storage at outskirts of cities. Recently, the Madhya Pradesh Power Management Company (MPPMCL) has issued Expression of Interest (EoI) for executing energy storage projects (500 MW) in the state of MP. The EoI also allows participants to install micro-grid projects with batteries for grid stabilisation.
Aggregator business model In this model, third party owns solar and storage system and sells power to home owners. Homeowner pays as per the power purchase agreement (PPA) terms and conditions. Aggregator takes up the role of aggregating thousands of energy storage systems and provides service. Recently, Andhra Pradesh Eastern Distribution Company Ltd (APEDCL) has launched a scheme which involves installation of customer owned grid connected solar rooftop systems with EMI partly shared by state discom on NPV neutral basis. Utility will act as a demand aggregator and furthermore finance these projects. Consumer will have to pay EMI equivalent to their present utility bills during the tenor of loan and discom will pay remaining amount of EMI. In case, discom pays some amount during loan tenor, it will continue to collect EMI from consumer post loan tenor till the time it collects equivalent amount on NPV neutral basis. This model addresses risks such as upfront capital cost, higher perceived default risk of loan etc. Successful implementation of this scheme will reduce subsidy burden as target customers are subsidized low-end residential customers.
Project Economics of Solar PV Decline in battery prices were driven largely by smartphones and followed by the automotive sector. Further reduction in costs would be driven by improvements in storage technologies like increase in energy density, economies of scale and cost innovations. Cost of the battery depends on power output and energy capacity ratio. Battery capacity is measured in terms of Kw of power and Kwh of energy capacity. Power rating specifies the instantaneous demand requirement that it is able to supply whereas energy capacity specifies total amount of energy that the battery is able to store. The battery cost per Kw will increase as duration of battery increases. Inverter cost remains constant per constant power size irrespective of battery duration. Similarly, transmission line costs are constant per constant power size. Balance of systems, EPC costs and margins are directly proportional to cost of lithium-ion power capacity.
Electricity Storage in other countries Germany had pushed solar storage by providing subsidies during the period 2013 to 2018. One out of every two orders for rooftop solar panels in Germany is sold with a battery storage system. Battery prices have plummeted so dramatically that Germany has now removed subsidies. In the U.S, California has been among the fastest adopters of energy storage in the world. California became the first U.S. state to mandate solar rooftop panels on new homes. California will add about 1.3 GW of energy storage to the grid by 2020 to help renewable integration.
Utility scale storage projects in India Recently, AES Corporation and Mitsubishi Corporation commissioned first grid large scale lithium-ion battery storage facility of 10MW in Delhi. Furthermore, Solar Energy Corporation of India (SECI) announced a tender for 1.2 GW of Inter State Transmission System (ISTS)-connected solar to be combined with 3,600 MWh of energy storage. In another tender for 1.2GW of ISTS-connected wind-solar hybrid projects, the government has included energy storage capacities in hybrid projects. Central government subsidies to residential customers coupled with recent fall in module prices has made renewable energy competitive compared to grid power for commercial and industrial customers and high-end residential customers. Central government plans to set up around 50 GW of battery manufacturing capacity with fiscal incentives which would further reduce cost of storage. CARE expects traction in utility scale storage projects in the current financial year.
Energy Storage is reaching an inflection point and is poised to give a big boost to India's ambitious solar energy target of 100 GW by 2022. Due to cost barriers, tenders announced so far are facing delays. However, with declining cost of Solar PV systems and battery storage, electricity generation from rooftop solar installation/utility scale projects is already economically viable for some consumers. Going forward, policy makers should devise business models which will benefit all stake holders. Initial growth in RTP can be achieved by incentivising utilities, providing viability gap funding/subsidies to storage solutions, policy enforcement, providing flexible financing and creating awareness among consumers. In this new solar ecosystem, consumers will have more direct control over power generation, leading to a big difference in our perception about renewable energy. Energy storage technologies like solar batteries provide utilities and energy users more flexibility in the way that they generate and use electricity. This new solar ecosystem assures self-sufficiency in addition to ecological benefits.
By Ratnam Raju N, Associate Director, CARE Ratings
