ReNew figured out how to produce clean energy. Now it must store it
January 2020 marked a significant milestone. Both for India’s renewable power ambitions and for two of the country’s largest clean energy producers, Gurugram-based ReNew Power and Hyderabad-based Greenko Energies.
The two companies won wind-and-solar energy projects floated by the Solar Energy Corporation of India (SECI)—ReNew was given 300 megawatt of projects; Greenko, 900 MW. The tenders were awarded on the condition that they supply power for at least six hours every day to meet peak demand in the mornings and evenings. SECI is in the process of selling the power to distribution companies.
The novelty here? The tender called not just for supply of electricity, but also storage—a key requirement for solar and wind power plants if they are to supply power during periods of high demand.
Now, there are several ways to store renewable power. The most prominent is pumped-storage hydropower (PSH), a decades-old technology that accounts for 95% of all global electricity storage, according to the Institute for Energy Economics and Financial Analysis (IEEFA).
There are other storage technologies aside from PSH: flywheel energy storage, compressed-air energy storage, flow batteries, etc. However, it is the lithium-ion (Li-ion) battery that has emerged as the most popular and most promising for new projects. These batteries—also used in electric vehicles—are promising primarily because their average price has plunged 87% between 2010 and 2019 to $156 per kilowatt-hour (kWh), according to Bloomberg New Energy Finance (BNEF).
ReNew’s project, with its minimum storage of 150 megawatt-hours (MWh), will use this tech. It will be the first large-scale effort in India to use batteries to make clean power more reliable. Rival Greenko uses PSH, which faces issues with terrain and the availability of water.
A project such as this will be important to ReNew’s next phase of growth. “It gives us a level of expertise that others don’t have,” founder and managing director Sumant Sinha tells The Ken over the telephone.
A level of expertise that could potentially cement ReNew’s position as an industry giant. ReNew is unique in the sector for being able to raise large amounts of money since its inception in 2011. It has so far mopped up $1.4 billion in equity funding. Besides Goldman Sachs, which owns around 48% of ReNew, its investors include the Canadian Pension Plan Investment Board (CPPIB) and the Abu Dhabi Investment Authority (ADIA), among others. In 2018, ReNew dropped its plans to go public due to a tepid response from potential investors.
“If I’m the market leader, I would want to be in all kinds of projects. If the government comes up with offshore wind tenders tomorrow, ReNew would want that too,” says the chief executive of a rival clean energy company, not wanting to be quoted.
However, ReNew’s battery-related edge over Greenko comes with its own set of problems—ReNew will likely rely on imported Li-ion batteries. Indian companies assemble battery packs with imported Li-ion cells. “But the value add is minimal,” says Sinha.
The Indian government wants to promote local manufacturing of Li-ion cells. But it may have woken up a bit too late. The country has little to no access to the raw material and technology needed. Instead, its Li-ion imports rose 6X between 2015 and 2018. And nearly 90% of them came from China.
A “Make in India” push could make imports of Li-ion cells and batteries pricier. For early adopters such as ReNew, that could be an impediment. Not to mention the funding issues developers will run into in the current environment.
With banks and several non-banking financial companies saying no to lending, companies like ReNew have to turn to external commercial borrowings or the global bond market or multilateral agencies like the Asian Infrastructure Investment Bank. In January, ReNew raised $450 million through dollar bonds.
The ongoing Covid-19 pandemic has also put a damper on the supply chain from China—which also includes solar cells and modules in addition to Li-ion cells and batteries—with a clean power developer terminating a solar project citing force majeure. This is in addition to the tariff-related problems solar and wind energy projects generally see. Some states may find tariffs for projects with storage requirements too high, even though prices are set to fall in the coming years. Renewable energy companies, for their part, might struggle with tariffs for projects without storage being too low to be viable.
Save now, use later
India currently has around 50 MWh of grid-connected battery storage, according to the India Energy Storage Alliance (IESA). The Central Electricity Authority (CEA) estimates that this number could grow to 136 gigawatt-hours (GWh) by 2030—a massive 2,700-fold rise. By that time, solar and wind energy will also account for 53% of India’s installed power capacity, compared with 20% now, according to the CEA.
Utilities will increasingly resist grid-scale renewable-energy projects without storage, says Kameswara Rao, partner at PricewaterhouseCoopers. “Storage provides standby capability and hence will become ubiquitous with future renewable energy.”
Given that it’s still early days of storage-linked solar and wind projects, India is exploring both battery storage and PSH.
By the time Greenko bid for the project in January, it already had two PSH plants in the works—in Andhra Pradesh and Karnataka—giving it a headstart over its competitors in this technology. To fund the PSH projects, Greenko’s holding company raised $495 million in 2019 from the sovereign wealth funds GIC and ADIA, which belong to Singapore and Abu Dhabi, respectively. Greenko did not respond to The Ken’s emailed questions.
“Some researchers have suggested that in tropical countries like India, PSH efficiency is lower because of the need to cover higher evaporation losses, compared to PSH plants in colder climates,” says Rahul Walawalkar, president of IESA. India has around 2.6 GW of operational PSH and 3.1 GW under construction, according to IEEFA.
However, it’s unlikely that too many clean power developers will opt for this storage method, given the difficulties involved.
ReNew figured out how to produce clean energy. Now it must store it
A PSH project can last 40-50 years, but putting it up entails huge challenges. It is very terrain-specific; needs a water source, increasingly a bone of contention between states; and finishing it could take anywhere between five to 15 years from conception to commissioning. And during the monsoon season, if both reservoirs are full, pumping water might be a problem.
Batteries, unlike PSH, can be deployed almost anywhere and in a matter of months. That could help add storage-linked capacity at a much faster rate than PSH. Given India’s ambitious targets, it only stands to reason that the government will lean toward batteries.
ReNew’s second SECI tender, which it won in May, is a 400 MW project that would supply power to New Delhi in the north, and Daman & Diu and Dadra & Nagar Haveli in western India. Storage is optional. To fulfil its commitment to supply at least 80% of that capacity on an annual basis and 70% on a monthly basis, ReNew will have to install a larger capacity than 400 MW; the average utilisation of solar and wind plants is only 25-35%.
ReNew has not revealed the capacity it intends to put up. But, it will have to install anywhere between 800 MW and 1,350 MW to meet SECI’s requirement, according to the chief executive officers of two competing renewable-energy companies, including the one quoted earlier.
This does not necessarily mean ReNew will not add batteries to the project. According to Sinha, the project could generate more than 100% of the tendered capacity during the high-wind monsoon months. So one way of using the excess capacity is through storage, so that the power can be sold later, he says.
Storing electricity will also mean renewable energy will become cheaper and be available for a longer period of time. Especially as the decline of coal-fired power—responsible for a third of global carbon emissions—has been hastened by the coronavirus, with plants shutting down globally.
Clean is cheap
India is not immune to that trend either.
Falling demand for electricity due to the pandemic will drive down thermal power plants’ capacity utilisation to 54.5% in 2020-21 from 56.1% in 2019-20, according to ratings agency Icra. These plants were built on the assumption that their utilisation would be 70-80%.
Building a new coal-fired plant to meet peak demand will hardly make sense now. According to IESA’s Walawalkar, the lifetime cost of a new thermal plant meant to meet peak demand, relative to the power it produces, is currently around Rs 5-8/kWh ($0.07-0.1).
In comparison, Greenko and ReNew won their January bids at a peak-power tariff of Rs 6.12/kWh ($0.08) and Rs 6.85/kWh ($0.09), respectively. Shantanu Jaiswal, head of India research at BNEF, says storage-linked renewables will be able to compete with coal-based power on a lifetime-cost basis after 2023.
“There will be no new investment in thermal power. All the growth will come from renewables,” says Sunil Jain, chief executive of Hero Future Energies, a clean power producer.
Indeed, India’s installed renewable energy capacity has nearly tripled over the five past years to over 87 GW. It is targeting a capacity of 275 GW by 2027. India’s green energy push may be part of its commitment under the Paris Agreement on climate change, but it is also because it is good economics, says Walawalkar. “The only issue with renewable energy is matching generation with the demand, and now that challenge is addressed with the addition of storage.”
The current average cost of a lithium-ion battery system, including the power-conversion and energy-management systems among others, is around $300/kWh, according to industry estimates. At that price, the 150 MWh of storage that ReNew needs to put up for the January project could roughly cost around $45 million. But ReNew will benefit from a further drop in prices as it will install the batteries in the last leg of the project, which is to be completed in two years.
The cost of the Li-ion battery—already down 87%—is expected to fall further to around $100/kWh by 2023, according to a BNEF report, due to improvements in tech and higher energy density. As a result, global battery storage installations are expected to surge to 2,850 GWh in 2040, from 17 GWh in 2018.
If the costs, and subsequently tariffs, continue to fall, there might come a time when competition among companies could lead to tariffs dropping too low to be viable.
One just has to take a look at the past.
The tariffs of solar projects without storage are currently 20-30% lower than the rates in existing thermal plants and around 50% lower than that of new coal-based projects, according to IEEFA. States have tried to renegotiate agreements with older projects to buy power at lower prices. ReNew—whose agreements for nearly 60% of its capacity are with state government-owned utilities, according to Fitch Ratings—is among those affected.
A recent report from IEEFA notes that tariffs below Rs 2.5/kWh ($0.03) in solar projects without storage are not feasible for developers. ACME Solar, which won a 600 MW solar project in 2018 at a record-low tariff of Rs 2.44/kWh ($0.03), recently terminated it by invoking force-majeure provisions.
Among the reasons ACME cited were the lockdown and the disruption of supplies—of solar cells and modules—from China.
Rough weather
This reliance on Chinese batteries isn’t just a pandemic-related problem.
China accounts for over 70% of the world’s global solar panel manufacturing. We’d written earlier that India’s solar power generation capacity went from 2000 MW to almost 28 GW between 2014 and 2019. But most of this was buoyed by 90% imports of solar cells and wafers from China. India only did the assembling.
With Li-ion cells, too, China holds the key. It accounts for three-fourths of the global Li-ion cell manufacturing capacity.
India wants to move up the value chain of batteries by transitioning from assembling battery packs with imported cells to making the cells here. To that end, it wants to have 50 GWh of Li-ion cell manufacturing capacity. But an attempt to promote local manufacturing could be accompanied by making imports dearer, if the past is any indication.
ReNew figured out how to produce clean energy. Now it must store it
In 2018, India imposed a safeguard duty on imported solar cells and modules to promote domestic manufacturing. But it failed to make an impact. “Even with import duty, solar is cheap. For batteries, we still haven’t reached that point. We are still two to three years away. If you suddenly have an import duty, you won’t have a battery market developing here,” says Sinha.
India has to make up its mind on what it wants: ramp up its adoption of renewable energy with imported batteries, or become a global manufacturing hub. The latter is a lot harder than the former, and pulling both off is a Herculean challenge.
Sinha is optimistic, however.
“I think there definitely will be more storage-linked projects. Covid hasn’t dented the government’s speed of coming out with [renewable energy] bids,” says Sinha, referring to the 400 MW project ReNew won this month and a 2 GW solar tender by state-owned NHPC Limited in April.
The new tenders notwithstanding, delayed payments from distribution companies—which saw losses of Rs 30,000 crore ($4 billion) in 2019-20, according to Icra—have long been an issue. ReNew’s trade receivables rose by 66% between March and September to Rs 3,200 crore ($420 million). Power producers hope that the Union government’s Rs 90,000 crore ($11.9 billion) liquidity infusion into utilities will finally help them recover their dues.
The progress of ReNew’s recent projects will be closely watched, as their success will partially determine the government’s approach on clean energy, particularly on storage. Sinha will have to draw on his experience not just to find financial backers for the projects in these uncertain times but also to deal with the caprices of government entities.
