Siemens To ABB India: Battery Energy Storage Companies To Benefit As Tariffs Fall

Companies operating in the battery energy storage systems (BESS) market are poised to benefit from a surge in demand driven by significant cost reductions.

The latest development stems from a notable 59% decline in battery energy storage system tariffs observed in the recent BESS tender held in March.

This cost reduction is expected to favour entities such as Exide Industries Ltd., Amara Raja Energy and Mobility Ltd., HBL Power Systems Ltd., Tata Power Co., Siemens Ltd., ABB India Ltd., Luminous Power Technologies Ltd., and others.

Battery energy storage systems are large-scale rechargeable batteries designed to store electrical energy for later use.

These systems play a crucial role in the renewable energy sector by addressing the intermittency challenge associated with sources like solar and wind power.

Solar and wind farms cannot consistently generate electricity due to weather and geographical factors. During periods of surplus energy production, excess electricity is used to charge battery energy storage systems.

In times of increased power demand, when renewable sources cannot meet the requirement, BESS discharges the stored energy back to the grid, ensuring a stable and reliable electricity supply.

The recent decline in BESS tariffs reflects a substantial reduction in costs associated with utilizing BESS services. In the March 2024 Gujarat BESS tender, tariffs dropped to Rs 0.449 million per megawatt per month, down from Rs 1.084 million per megawatt per month in August 2022.

This decrease translates to a cost reduction from Rs 9 per unit in 2022 to Rs 6-7 per unit presently, although prices still slightly exceed those of pumped storage hydropower, which stands at Rs 5 per unit.

The decline in tariffs is attributed to a 60% year-on-year decrease in battery cell prices, driven by increased competition and falling raw material costs, particularly for lithium and other key battery materials.

For instance, Lithium Hydroxide prices have seen a significant 66.02% decline between March 2023 and April 2024, while cobalt prices are down 19.6% year-on-year and battery-grade nickel prices have dropped 23% year-on-year.

The reduced tariffs are expected to drive greater adoption of BESS, enhancing round-the-clock power availability. Lower costs could lead to increased demand for companies involved in manufacturing, installation, and maintenance of BESS systems such as Exide Industries, Amara Raja Energy & Mobility, HBL Power Systems, Tata Power, Siemens, and ABB India.

Cheaper battery storage enhances the reliability of renewable electricity generation, facilitating round-the-clock power supply from sources like wind and solar.

The economic viability of using BESS for energy storage hinges on capital costs, which may further decrease in the future. This reduction is anticipated due to declining lithium battery prices.

Economic feasibility of using BESS for energy storage lies in the capital cost, which is the upfront cost of setting up a battery energy storage system.

Capital cost could decrease even further in the future, according to Nuvama. One of the major reasons the brokerage highlighted is the fall in lithium battery prices.

Recognizing the importance of lithium, the Indian government is incentivizing the establishment of lithium processing plants within the country to reduce dependency on imports, particularly from China, and stabilize prices.

The Ministry of Mines has invited bids for critical mineral blocks, including lithium, with allocations expected by July. Key participants in this initiative include Vedanta Ltd., Jindal Power Ltd., and Ola Electric Mobility Pvt.

Successful bidders will be granted licenses to explore, mine, and process lithium to meet the growing demand from the battery industry.

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