Modi's Massive PLI Scheme for Battery Energy Storage Systems. 3 Stocks Worth Adding to Your Watchlist...

To improve India's manufacturing capabilities, the Indian government took a bold step in 2021.

It came out with a massive product linked incentive scheme (PLI) for lithium-ion cells and other advanced battery technologies.

The scheme for the National Programme on Advanced Chemistry Cell (ACC) Battery Storage was approved with an outlay of Rs 181 billion (bn) spanning up to seven years.

Turns out, the government is once again planning another big bang reform in the battery technology space. According to reports, the government is working on a PLI scheme worth as much as Rs 150 bn. It encourages setting up grid-scale battery storage.

A much needed push

Battery energy storage systems (BESS) have seen huge regulatory support recently.

In this year's union budget, Finance minister Nirmala Sitharaman announced funding support and announced BESS with a capacity of 4,000 MWh (megawatt hour) will be supported with viability gap funding.

BESS provides a clean, affordable, and sustainable alternative to traditional power generation. With battery energy storage systems (BESS), we can store renewable energy and release it when needed.

India has set an ambitious target of 500 gigawatts (GW) of renewable energy capacity by 2030. While this target may or may not be achievable, storing renewable energy has become crucial for stabilising the grid and ensuring ample power supply during peak demand.

As the impact of climate crisis becomes ever more apparent, batteries hold the key to transitioning to a renewable-fueled world. More specifically, the electric mobility world.

Currently, China, the US and European Union corner nearly 70% of the global BESS capacity. But the future of this technology could be in India. And the government is making sure that it's not all just talk.

Details about the scheme

The draft of the scheme is expected to be released within a month. As we mentioned earlier, the scheme will be in the range of Rs 150 bn. This scheme won't have any overlap with the previous scheme. The specifications of this PLI scheme are currently being worked on.

Industry officials say this proposed scheme may not specify a particular technology for the development of energy storage systems.

The government doesn't want to limit the possibilities to just one technology and research and development on several technologies is underway. From lithium-ion batteries to sodium-ion batteries to vanadium redox batteries, all would be eligible for the incentive.

According to the power ministry, it would take about six months before the new PLI scheme for BESS is notified. The ministry has projected that it would be released around December 2023.

The scheme would run for five years.

Potential winners

Under the first PLI scheme for manufacturing lithium-ion battery and cells, Rajesh Exports, Reliance New Energy and Ola Electric Mobility were approved to get incentive.

A total of 10 bids were received from companies. Interestingly, the Mahindra group and L&T had also applied but they didn't get approval.

When the bids were initially invited, the target was 50 GW. The scheme saw massive interest from private as well as overseas bidders as it was oversubscribed by 2.6 times. The scheme went on to get bids for 130 GW.

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.

Now for this tentative Rs 150 bn PLI scheme for battery energy storage systems, the details of potential bidders will be published on the government official website once all the information about the scheme is out.

It usually takes a couple of months before the centre approves the bidders. For instance, the PLI scheme was announced in 2021 and the potential bidders were approved in July 2022. Then after a few months, those companies decided to set up subsidiaries and/or JVs for production of battery cells.

So it only makes sense to keep the potential winners on your watchlist and follow their developments on the battery space.

#1 Rajesh Exports

In November 2022, Rajesh Exports incorporated a fully owned subsidiary for energy storage solutions. The largest gold financier in the world setting up a battery facility...let that sink in.

Here's what the company's chairman had to say about it...

• While leading the Global Gold business, REL is foraying into advanced technology solutions with an aim to provide clean and green energy to the World.
  
  REL would be taking all the required steps to emerge as a leading global player in advanced technology solutions.

It's a 100% subsidiary of Rajesh Exports in the name of ACC Energy Storage Pvt Ltd.

Later this year in January 2023, Rajesh Exports signed an agreement with the union ministry and Karnataka government for a 5 GW lithium-ion cell factory.

The Karnataka government will provide Rajesh Exports with a tailor-made incentive package for the gigafactory.

Karnataka is becoming a hub when it comes to setting up battery technologies. In 2022, Karnataka announced an investment of Rs 60 bn by Exide Industries to set up an advanced cell chemistry gigafactory in the state.

This brings us to the next company that could be a potential beneficiary.

#2 Exide Industries

Since 2012, the share price of Exide Industries has remained in a range with only one breakout seen on the chart in 2018.

Between December 2012 and July 2022, it has languished in a range of Rs 140-150 per share.

But the market is now taking note of Exide's increased efforts. After all, it's the leading battery maker in India with over 75 years of experience.

It caters to all top original equipment manufacturers (OEM), including Tata Motors, Maruti, and Bajaj.

The company's segments include storage batteries and allied products. The company is engaged in manufacturing storage batteries for the automotive, industrial, and submarine sectors.

In 2018, the company forayed into lithium-ion batteries and started catering to the electric vehicle (EV) market. By the financial year 2021, it started manufacturing cells in India, which it previously sourced from abroad.

As an established player in the battery market, the foray into EV batteries has allowed the company to grow in the booming segment.

At present, it has nine manufacturing plants in India with a production capacity of 57 million (m) units of automotive power and five bn units of industrial power. In its latest concall, Exide said its lithium-ion cell manufacturing project under their subsidiary, Exide Energy Solutions Limited, is progressing well.

The lithium-ion factory is expected to start production by the end of FY25. For the moment, it's missing out on 70% of the value chain by importing cells. This will soon change once they have their own plant.

As it requires huge capex for setting up a gigafactory, Exide has a first mover advantage as it also has a tie-up with SVOLT for raw material sourcing.

The company is also in the process of a merger with its lithium business subsidiaries - Exide Leclanche Energy and Exide Energy Solutions. This may provide additional turnover of around Rs 4-5 bn in consolidated business once merged.

#3 Amara Raja Batteries

Out of the 10 bidders that participated in the first PLI scheme, only Amara Raja and Exide had the expertise and know-how.

So why weren't these companies selected in that scheme? Well, making lithium-ion batteries is not the same as making lead-acid batteries. This way, the government gave all players an equal chance.

Amara Raja Batteries is India's second-largest automotive batteries manufacturer. It has set its sights on the EV sector and is firmly poised to capture future growth opportunities.

The company will be investing around Rs 70 bn in lithium-ion over the next 5-10 years, while continuing its focus on traditional lead acid batteries.

The company has taken the first steps towards its next phase of growth in the New Energy business by supplying li-ion battery packs to three wheelers.

For the technology, it has invested in two start-ups (Log9, InoBat) and is open for more partnerships, in addition to organically developing technology.

In late 2022, the battery maker also incorporated a subsidiary that will set up a multi-gigawatt hour lithium-ion cell manufacturing facility.

In November 2022, Amara Raja incorporated a wholly owned subsidiary, Amara Raja Advanced Cell Technologies. Setting up a subsidiary is a must if you want to enjoy the benefits of the PLI.

Later in January 2023, the company's board transferred some parts of subsidiary business including lithium battery pack manufacturing, manufacturing Li-ion cells, etc., to Amara Raja Advanced Cell Technologies.

Conclusion

The PLI scheme for battery energy storage systems (BESS) is promising. It could give India the push it needs to achieve the objectives of 'Atmanirbhar Bharat'.

Estimates state that India requires up to 903 GWh of energy storage to decarbonise its mobility and power sectors by 2030, and lithium-ion batteries will meet most of this demand.

Recently, it was reported that Tesla has held discussions with Indian officials about incentives offered by the government for car and battery manufacturing.

With global players also vying for a slice of the pie, investors are waiting with bated breath for more details about the PLI scheme.

Stay tuned for more.

Happy Investing.

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