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Strictly Private and Confidential
Giga-scale battery
manufacturing in India:
Powering through
challenges in domestic
production
Niti Aayog
248288/2020/O/o Adv(PPPAU)
985
DISCLAIMER:
PricewaterhouseCoopers Private Limited has received the financial assistance under the Research scheme of Niti Aayog (RSNA-2018) to
prepare this report. While due care has been exercised to prepare the report using the data from various sources, Niti Aayog does not confirm
the authenticity of data and accuracy of the methodology to prepare the report. Niti Aayog shall not be held responsible for findings or
opinions expressed in the document. This responsibility completely rests with PricewaterhouseCoopers Private Limited.
Acknowledgement
This study was carried out with the Financial support of Niti Aayog, Government of India, and Conducted by
PricewaterhouseCoopers Private Limited, 17th Floor, Tower C, Building No-10, DLF Cyber City, Gurgaon 122002,
Haryana, India.
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Table of contents
Contents
1. Executive summary ................................................................................................................ 5
2. Introduction ......................................................................................................................... 9
2.1. Background ................................................................................................................................................. 9
2.2. Import of ACCs .......................................................................................................................................... 10
2.3. Purpose of the report ................................................................................................................................ 12
3. Existing regulatory and policy framework........................................................................... 14
3.1. Central level ............................................................................................................................................... 14
3.1.1. National Mission on Transformative Mobility and Battery Storage ............................................. 14
3.1.2. FAME policy ..................................................................................................................................... 15
3.1.3. Why MSIPS could not achieve intended targets ........................................................................... 18
3.2. State level ................................................................................................................................................... 19
3.2.1. State-level electronics policies ........................................................................................................ 19
3.2.2. State-level industrial policies......................................................................................................... 20
3.2.3. State-level EV and storage policies ................................................................................................ 21
3.3. Some examples of international support ................................................................................................ 22
4. Challenges in setting up integrated cell and battery manufacturing facilities ..................... 23
4.1. Key risk assessment .................................................................................................................................. 23
4.2. Developing risk mitigation measures...................................................................................................... 26
5. Proposed interventions by the Government of India ........................................................... 27
5.1. Background ................................................................................................................................................ 27
5.2. Role of NITI Aayog and steering committee ............................................................................................ 27
5.3. Phased manufacturing programme details ............................................................................................. 28
5.3.1. Subsidy disbursement mechanism ................................................................................................ 29
5.3.2. Value capture .................................................................................................................................. 30
5.4. State support............................................................................................................................................. 32
5.4.1. Immediate and long-term benefits to state economies ................................................................ 34
5.5. Competitive ranking and selection criteria ............................................................................................. 34
5.6. Termination clause ................................................................................................................................... 38
5.7. Subsidy revision clause ............................................................................................................................ 38
6. Taxation recommendations ................................................................................................ 40
6.1. Indirect tax side interventions ................................................................................................................. 40
6.1.1. Goods and Services Tax .................................................................................................................. 40
6.1.2. Customs ........................................................................................................................................... 40
6.1.3. Current tax structure on battery storage ........................................................................................ 41
6.1.4. Proposed indirect tax incentives .................................................................................................... 42
6.2. Direct tax side interventions .................................................................................................................... 44
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6.2.1. Tax holiday benefits ........................................................................................................................ 45
6.2.2. Accelerated depreciation ............................................................................................................... 45
6.2.3. Weighted deduction of capital expenditure under section 35AD ................................................ 46
6.2.4. Lower rate for MAT ........................................................................................................................ 46
6.2.5. Section 35 (2AB): accelerated R&D for future /emerging technologies ..................................... 46
6.3. Monitoring mechanism ............................................................................................................................. 47
6.4. Penal provisions ....................................................................................................................................... 49
7. Economic impact of domestic cell manufacturing ............................................................... 51
7.1. Economic cost-benefit assessment ........................................................................................................... 51
7.2. FDI impact ................................................................................................................................................ 52
7.3. Direct and indirect tax collection ............................................................................................................ 52
7.4. Multiplier effect by establishing energy storage facilities .......................................................................53
7.5. Rationale of giving subsidies to encourage cell manufacturing in India ............................................... 54
8. Project and financial assumptions ...................................................................................... 56
8.1. Capital expenditure .................................................................................................................................. 56
8.2. Source of funds ......................................................................................................................................... 56
8.3. Cost breakdown ......................................................................................................................................... 57
8.4. Financial viability ...................................................................................................................................... 57
8.5. Subsidy calculation in various scenarios ................................................................................................ 59
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List of tables
Table 1: Subsidy considered in the financial model ....................................................................................................8
Table 2: Timelines for subsidy programme and shortlisting of potential players ................................................... 15
Table 3: FAME policy elements (phase-II) ............................................................................................................... 16
Table 4: Fund allocation (in INR crore) under phase-II of FAME ........................................................................... 16
Table 5: Localisation in FAME phase-I ...................................................................................................................... 17
Table 6: MSIPS policy benefits ................................................................................................................................... 18
Table 7: State-wise incentives ..................................................................................................................................... 19
Table 8: Industrial policy support actions ................................................................................................................. 22
Table 9: Demand creation measures .......................................................................................................................... 27
Table 10: Possible support from state government ................................................................................................... 32
Table 11: Qualification criteria.................................................................................................................................... 34
Table 12: Energy density benchmarks ....................................................................................................................... 36
Table 13: Illustrative example for value capture, phasing and subsidy calculation ................................................ 37
Table 14: Illustrative computation of customs duty .................................................................................................. 41
Table 15: Current custom duty rates on Li-ion batteries and its components ......................................................... 41
Table 16: Indicative phased value capture .................................................................................................................42
Table 17: Illustrative phasing of BCD ......................................................................................................................... 43
Table 18: Assumptions for source of funding ............................................................................................................ 56
Table 19: Assumptions for financial feasibility .......................................................................................................... 56
Table 20: Subsidy calculations ................................................................................................................................... 57
Table 21: Subsidy calculations in various scenarios .................................................................................................. 59
List of figures
Figure 1: Framework to support battery manufacturing in India .............................................................................. 5
Figure 2: Key developments in the energy storage segment ...................................................................................... 9
Figure 3: Potential of battery storage across various segments ............................................................................... 10
Figure 4: Li-ion cells import trend ..............................................................................................................................11
Figure 5: Li-ion cell import by country .......................................................................................................................11
Figure 6: Comparison of industrial policies across states ....................................................................................... 20
Figure 7: States with dedicated policies for EVs ........................................................................................................ 21
Figure 8: Role of battery storage systems for providing grid management activities ............................................ 28
Figure 9: Benefits to state economy ........................................................................................................................... 34
Figure 10: Li-ion battery price trends ........................................................................................................................ 55
Figure 11: Cost breakdown of various components ................................................................................................... 57
Figure 12: Cell price, subsidy trends ..........................................................................................................................58
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1. Executive summary
Several countries worldwide are prioritising the issue of climate change, as unpredictable climate variations can
pose a serious threat to global socio-economic development, economic growth and long-term poverty reduction
goals. The transition from a carbon-intensive global economy to a low-carbon future comes with a plethora of
challenges and opportunities for a developing country like India. At the Conference of the parties (COP) 21 held
in Paris in FY 2015, close to 200 countries
1
pledged to take measures to keep the increase in global average
temperature to below 2° Celsius above pre-industrial levels and promised to put in efforts towards limiting the
global temperature increase to 1.5 degrees Celsius. To achieve these targets, countries will need to develop a
well-defined pathway towards low-carbon emissions and promote climate-resilient development overall, by
inculcating innovative technology measures and improving adaptability of sectors to adverse climate change
impacts.
Energy storage in the context of climate change is projected to play a major role in assisting India to not only
meet its clean energy commitments, but also help in improving the overall energy security situation of the
country, by reducing dependence on oil imports. Globally, energy storage has evolved a lot in terms of
applicability, including the diverse range of advanced cell chemistries employed, to make such storage
applications a reality. In India, segments like electric vehicles (EVs), stationary storage
2
and consumer
electronics are projected to be major demand drivers for adoption of battery storage. The total cumulative
potential for battery storage in India is 1116
3
GWh, considering a base case scenario, with EVs making up for a
large chunk of this projected demand. While the market for increase in these technologies and their
implementation is enormous, harnessing the potential of such magnitude would require pragmatic steps in the
right direction.
Developing concrete solutions in-house by revamping domestic manufacturing supply chains will provide the
foundation to meet the rising demand of battery storage in India. The battery manufacturing sector in India is
still in its nascent stages, with a majority of the players engaged in assembling and packaging of batteries. This
translates into negligible
manufacturing value being
captured within India. Low
availability of raw materials is a
major impediment, hindering the
growth of domestic vertical
integration.
Design and implementation of a
stable, long-term, forward-looking
and investor-friendly policy
landscape can provide the much-
needed impetus towards scaling up
domestic battery manufacturing in
India. A sustainable domestic
battery manufacturing sector will
be capable of meeting local
requirements and also boost of
export competitiveness, further
reducing the country’s trade deficit
burden. NITI Aayog, through its
‘National Mission on
1
https://unfccc.int/news/finale-cop21
2
Largely includes utility scale applications
3
Rocky Mountain Institute (RMI)
Figure 1: Framework to support battery manufacturing in India
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Transformative Mobility and Battery Storage’,
4
has come up with a programme framework to support the
establishment of ‘giga-scale factories’ in India, focusing on number of innovative initiatives, as highlighted in
the figure.
The mission will be a cross-cutting/multi-disciplinary platform which will consider the perspectives and
feedback of the various concerned ministries. The other important ministries/departments that are part of the
inter-ministerial steering committee include the Ministry of Road Transport and Highways, Ministry of Power,
Ministry of New and Renewable Energy, Department of Science and Technology, Department of Heavy
Industry, Department for Promotion of Industry and Internal Trade and Bureau of Industrial Standards.
5
The policy instrument undergoing design will have provisions for establishing cell manufacturing facilities in
India. Incentives in the form of output-linked subsidies and tax benefits (direct and indirect) are being
considered. State governments will also be major contributors in ensuring the success of the programme, and
states will be encouraged to provide additional incentives to shortlisted investors (through a tendering process)
for setting up manufacturing facilities. Such steps taken by states are expected to result in economic growth and
employment opportunities. NITI Aayog has also organised round-table discussions to be held at its premises,
to initiate dialogues with industry-wide stakeholders, including major cell and battery manufacturing
companies in India and abroad. Representatives of various companies shared their views about current
challenges, requirements for government support, future perspectives on the sector and more. The inputs from
industry experts will be pivotal in drafting the policy document.
NITI Aayog will release a Request for Selection (RFS) to invite Indian and global investors to set up giga-scale
cell manufacturing plants in India. The tender will be technology agnostic; however, cells manufactured must
meet the criteria of ‘advanced cell
6
’covered in this report. Private manufacturers are free to choose suitable
technologies to set up cell manufacturing plants for EVs, stationery storage for grid applications, and consumer
electronics. Though there will not be any assured purchase of manufactured batteries by the government and
market risks must be borne by investors, the government will launch multiple programmes to create demand
for energy storage for EVs and stationary storage for grid applications.
The proposed programme will provide two levels of support, i.e. pan-support for all cell manufacturers and
additional support to select manufacturers, based on competitive ranking after the tendering process. Pan-
support includes import duty waivers for various raw materials and intermediate goods to be used in the
manufacturing process. Additional government support will include output-based subsidy disbursal (per kWh
4
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1567807
5
Niti Aayog
6
Advanced cells shall be defined as new generation cells like lithium polymer, lithium iron phosphate, lithium cobalt oxide,
lithium titanate, lithium nickel manganese cobalt, lithium manganese oxide, metal hydride, zinc air, zinc bromine, sodium air, nickel zinc,
lithium air, sodium sulphur or vanadium redox. The list of battery technologies here is representative and not exhaustive.
•Supportive basic custom duty (BCD) matrix which include:
•BCD waivers for various raw material and intermediate goods to be used in
manufacturing process. No BCD for plant and machinery in initial years. BCD of only
2.5% on raw materials.
•Increase in BCD on imported battery packs.
•Deemed infrastructure status to cell manufacturing
Minimum support to
all manufacturers
•Output linked subsidy –disbursement of subsidy (Rs/kWh) linked to sale of cells.
•Optional concessional and stapled loan facility (tentative).
•Subsidy = Fixed amount per kilowatt hour Xcapacity of advanced chemistry cell sold X
percentage of value addition.
Additional support to
selected
manufacturers after
tendering process
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basis) and optional stapled loan facility. Subsidy support will be limited to 50 GWh annually for cell
manufacturing capacities in India, up to 2030. A single entity cannot bid for more than 20 GWh of cell
manufacturing facility. Also, minimum bid capacity will be 5 GWh. The government will not extend financial
support beyond 2030, as by then domestic manufacturing is expected to become globally competitive, without
external support. The key facets of the proposed incentive scheme have been highlighted below.
Under the said programme the prescribed QCBS mechanism shall comprise of two-envelope system comprising
of technical bid and a financial bid. Following shall be the weights assigned to the respective criteria:
o Technical Bid- 80% Weightage
• ACCs value capture in India: 70% Weightage
• Scale of ACC production/proposed capacity: 30% Weightage
o Financial Bid- 20% Weightage
• Base-subsidy (specified benchmark): 100% Weightage
The participants shall be ranked based on their proposals submitted and the ACC capacities shall thereby be
allocated in the order of their ranking, with the entity ranked 1
st
being allocated the capacity first, followed by
entity ranked 2
nd
, and so on till a cumulative capacity of 50 GWh per year has been allocated. (subject to a
minimum and maximum cumulative allocation for a single applicant) A higher weightage has been offered for
value capture component to encourage manufacturers to integrate vertically and promote indigenization of key
components in the value chain. The third parameter, i.e. the base-subsidy requirement shall be specified by the
applicant in the form of the subsidy benchmark INR per kWh. Under the said programme, the base subsidy
(benchmark amount) shall be capped at INR 2,000 per kWh of ACC sold subject to the year to year phasing.
Additionally, to create and develop an ecosystem to manufacture battery storage in India, import of batteries
and lithium (Li)-ion cells must be discouraged. One of the mechanisms to curb imports is increasing the rate of
basic customs duty (BCD) on import of finished or semi-finished goods in a phased manner. As part of this
exercise, a detailed BCD matrix has been prepared, suggesting revisions in the existing BCD regime, from FY
2020 to post FY 2030. While BCD for raw material used for setting up the advanced chemistry cells (ACCs)
such as lithium, copper, graphite, cobalt, nickel is proposed at 2.5%, the plant and machinery required for
processing of these raw materials is kept at 0% BCD, to encourage promotion of these industries.
Under the programme, the Govt. of India is not planning to offer any additional incentive to the battery pack
segment of the industry on a standalone basis, as battery pack assembly is already happening in India. The
additional incentive in the form of cash subsidy is intended to support domestic manufacturing of ACCs with
emphasis on value capture. The cash subsidy disbursement shall commence once the domestic value addition
and actual sale of ACCs begins. It shall be phased out over a 10-year window from the appointed date (i.e.
AD+10 years) or 31
st
March whichever is earlier. The proposed mechanism is expected to incentivize the
beneficiary firms to expeditiously invest into production capacity and greater domestic value addition for
manufacturing ACC in order to avail maximum benefits under the programme. Additionally, the total cash
subsidy to be disbursed by the GoI will be capped at 20 GWh per beneficiary with cumulative capacity of 50
GWh under Phase-1 of the programme.
To be eligible for this programme the beneficiary firm would have to commit to set-up an ACC manufacturing
facility with value addition of minimum 25% at the Mother Unit level and minimum 60% overall. To ensure a
single window mechanism for the potential investors, a state level grand challenge will be initiated to invite
state government and take their offer on suitable incentive package, including provision for encumbrance-free
land, trunk infrastructure facilities, power at rationale rate to the potential investors for attracting project in
their states.
Utilisation of ACC is expected to boost the nation’s economy strongly, with an economic internal rate of return
(IRR) of 24%. India is already providing a substantial push through an expeditious approval process for foreign
direct investment (FDI) in battery-related segments, to develop a complete domestic supply chain in India and
boost FDI. Total corporate tax collection from 50-GWh projects is estimated to be approximately INR 16,000
crore, while the net impact on indirect taxes, due to changes in total Goods and Services Tax (GST) collection,
will be approximately INR 58,000 crore.
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In order to ascertain the financial viability of a giga-scale battery manufacturing project, a detailed financial
model has been prepared. The model includes capital expenditure (capex) phasing, revenue and cost
forecasting, cash flow projections and profitability assessment for a 10-GWh advanced cell manufacturing
facility (considering NMC 622 as the base technology). The subsidy calculations have been done considering
various scenarios (aggressive, conservative and most likely). The capex, source of funding, cost breakdown and
all other assumptions have been explained in detail in the chapter on project and financial assessment.
The major component of overall cell manufacturing plant is expected to be contributed by plant and machinery
required for various value chain activities i.e. cathode manufacturing, anode manufacturing, electrolyte
manufacturing, separator manufacturing, cell assembly. Soft cost comprising of components such as IDC,
financing cost, contingency, insurance, pre-operative cost, etc. have also been considered to determine the
overall capital cost.
In the financial model, cell prices have been considered in line with Bloomberg New Energy Finance (BNEF)
cell prices. However cell manufacturers will presumably invest continuously in R&D and asset maintenance to
strive for better cell technology, allowing them to stay ahead of competition and also be eligible for a bonus
subsidy under the central government programme run by NITI Aayog. Due to higher technology adoption, it is
considered that from 2025, cell prices will reduce at half the rate of the BNEF price forecast
7
.
The financial model of the considered subsidy (in most likely scenario) is shown in the table below:
Table 1: Subsidy considered in the financial model
Mar-22 Mar-23 Mar-24 Mar-25 Mar-26 Mar-27 Mar-28 Mar-29 Mar-30
GWh 15 25 35 50 50 50 50 50 50
Expected subsidy
Rs/kWh
570 722 857 1271 1144 915 922 553 277
Value capture 30% 40% 50% 65% 65% 65% 65% 65% 65%
Subsidy (in
crore)
855 1805 3001 6353 5718 4574 4611 2767 1383
It is to be noted that the subsidy figures, highlighted above are only indicative, and the actual subsidy
component will be derived after a competitive bidding process.
7
PwC Assessment
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2. Introduction
2.1. Background
The Government of India (GoI) has plans to improve the energy situation in the country by focusing on clean
energy sources and reducing dependency on imported oil, two areas in which India has consistently
underperformed. Some of the most polluted urban areas in the world are in India
8
. The country’s energy
security situation is very fragile, which is reflected in the fact that 80% of the country’s oil demand is being met
by imports.
9
To reduce reliance on thermal energy and lessen the severity of air pollution, the government
announced its target to achieve 175 GW
10
of renewable energy (RE) by 2022. Additionally, the Union Cabinet
approved the National Mission on Transformative Mobility and Battery Storage in March 2019, to promote
clean mobility. Energy storage technologies and infrastructure will enable the government to meet the above
targets of RE and clean mobility. Stationary energy storage solutions for grids are required to achieve large-
scale RE integration and advanced battery technology with higher energy density will be required for efficient
and reliable operation of EVs.
The government’s ambitious plans to adopt clean energy in order to transition towards a low-carbon economy
offers a lucrative set of opportunities for energy storage in India. The evolving technological landscape of the
energy sector, coupled with effective cost-cutting strategies across the supply chain, has made battery storage a
reality. Developing application-specific customised storage solutions, which were complex and demanding a
few years ago, have eventually become feasible with the advent of ACCs. Co-ordinated public and private sector
action can shape up a disruptive battery manufacturing ecosystem for the future.
The recent market dynamics in the energy storage market are highlighted below.
8
https://www.weforum.org/agenda/2019/03/7-of-the-world-s-10-most-polluted-cities-are-in-india/
9
Petroleum Planning and Analysis Cell
10
https://mnre.gov.in/file-manager/annual-report/2018-2019/English/pdf/chapter-1.pdf
Figure 2: Key developments in the energy storage segment
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The falling price of Li-ion batteries has been instrumental in pushing the market for battery storage globally. In
the last 8 years, Li-ion battery pack prices have been reducing at a compound annual growth rate (CAGR) of
20%, primarily due to economies of scale, technology maturity and learning curve
11
. As per BNEF estimates,
battery prices are further expected to fall to USD 100/kWh by FY 2024 and USD 65/kWh by FY 2030
respectively, making the Li-ion technology a clear winner amongst its peers. There are numerous cell chemistry
variants within Li-ion batteries, such as Lithium-Titanate (LTO), Lithium Ferro phosphate (LFP), Lithium
Cobalt oxide (LCO), Nickel Cobalt Aluminium (NCA) and Li-ion Manganese Oxide (LMO), but the one which is
expected to dominate the Indian market is the nickel manganese cobalt (NMC) type, owing to its superior
charge density and overall performance for different applications. Additionally, the declining share of cobalt in
these cell chemistries, from NMC 111 to NMC 532 and finally to NMC 811, further reduces the supply chain
pressure of availability of cobalt. In India, with battery technology still being in its developmental stages with
respect to adoption, investors and domestic players are bound to be circumspect about the technology and
hence, formation of joint ventures (JVs) for manufacturing and supply is the preferred mode.
Segments like EVs, stationary storage and consumer electronics are anticipated to be major demand drivers for
adoption of battery storage in India. This huge potential across these segments till FY 2030 has been
highlighted below.
(Source: RMI)
The emerging electric vehicles (EV) mobility paradigm is an important opportunity to foster
Make-in India for advanced cell chemistries and its components. EVs are the key component of
the overall estimated demand for battery storage requirement and are expected to be the
primary driver of ACC battery storage production over the next decade.
2.2. Import of ACCs
Advanced battery value can be broadly divided (at the sales end) into the battery pack and the advanced
chemistry cells (ACCs). India has resources and expertise to build both the battery packs and cells. While
several companies have already started invested in battery pack assembly, the capacities of these facilities are
too small when compared to global averages. Investments in manufacturing and overall value addition for ACCs
are still negligible in India. Hence, almost entire domestic demand for ACCs is still being met through imports.
11
https://about.bnef.com/blog/behind-scenes-take-lithium-ion-battery-prices/
521
289
207
99
Cumulative demand (in GWh) in FY
2030: base case
Electric vehicles Stationary storage
Consumer electronicsRail and defence
237
109
164
99
Cumulative demand (in GWh) in FY
2030: conservative case
Electric vehicles Stationary storage
Consumer electronicsRail and defence
Figure 3: Potential of battery storage across various segments
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Overall market for advanced cells, especially Li-ion, has grown exponentially since 2016, with the bulk of the
growth coming from use of Li-ion cells in EVs. Additionally, there has been an increase in demand of Li-ion
batteries in consumer electronics as well. The graph below illustrates imports of Li-ion primary cells.
Figure 4: Li-ion cells import trend
In terms of import dependency, India is heavily reliant on China, which accounts for 63% of India’s Li-ion cell
imports. Other countries from where India imports Li-ion cells include Hong Kong (22%), Vietnam (9 %) and
the USA (2%). It is evident from the graph above that Li-ion cell imports have increased drastically in the recent
couple of years. The trend is expected to continue and if domestic cell manufacturing facilities do not get
established, India will remain largely dependent upon imports. Such high dependency on imports will lead to
trade deficit, resulting in second and third-degree economic impacts, such as currency depreciation and loss of
job opportunities.
Secondly, once the ecosystem of battery
manufacturing kick starts in India, it will
certainly lead to increase in export
competitiveness of the industries once they
have met the domestic demand, thereby
reducing the burden on trade deficit.
Additionally, once the vertical integration
starts and cell manufacturing facilities are
established, the reliance on imported Li-ion
battery packs, will also be reduced
considerably. The focus will be on acquiring
direct raw materials (which are not available
in India), such as Lithium, Cobalt and Nickel,
for establishing a dedicated and sustainable
supply chain.
Furthermore, setting up of few integrated
advanced chemistry cell and battery storage
manufacturing facilities of Giga-scale in India
shall create significant opportunity for direct and highly skilled employment. As per the estimates provided in
EU Commission -Policy report on Li-ion battery for E-mobility and stationary storage applications, it is noted
that establishing a competitive Li-ion cell and battery manufacturing facility in EU is expected to create
between 90-180 direct jobs per GWh per annum production volume. In India, with relatively lower cost of
labour, emphasis on automation of functions is also relative lower and hence the effective job creation shall be
on higher side compared to EU. Furthermore, the downstream application of battery storage shall create many
more direct and indirect jobs in renewables, electric vehicles, etc.
Also, according to the estimates provided in the note on FAME Scheme of the government, the demand side for
ACCs would generate in excess of 30 Lakh jobs in total considering fresh investments being made in
Li-ion cell import (in INR million)
China PRPHong KongVietnam Soc RepUSAOthers
18072
22058
35320
85740
0
20000
40000
60000
80000
100000
2015-162016-172017-182018-19
Import of Li-ion cells (in INR million)
Imports
Figure 5: Li-ion cell import by country
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Giga-scale battery manufacturing in India: Powering through challenges in domestic production September 2020
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manufacturing EVs and the support infrastructure. Higher indigenous manufacturing of cells, and other battery
components will create opportunities for new skills and jobs in areas across the value chain.
2.3. Purpose of the report
Advanced battery manufacturing represents one of the largest economic opportunities in the 21
st
century, with
companies settling in for their chance to own a slice of one of the most lucrative markets of the new
millennium; whichever countries or companies are able to create and manufacture the dominant battery
technologies will control some of the world’s largest growth sectors such as consumer electronics, EVs,
advanced electricity grids, and more. Billions of dollars are pouring into battery research at this critical
juncture, and India has the capabilities to step into an advantageous position.
Furthermore, it is anticipated that over 450 GWh of new ACC and battery storage manufacturing capacity shall
be built around the globe in next 3-5 years. Most of these upcoming manufacturing capacities are today
increasingly concentrated in a handful of countries including China, South Korea, USA, Japan and Thailand.
Moreover, these countries are expected to account for about 90% of ACC production by FY 2021. These
countries today are offering a vast bouquet of fiscal and non-fiscal incentives, both at end consumption and at
manufacturing level, in order to create an enabling ecosystem for promoting investment in newer technologies
and commercial production of advanced chemistry cells and batteries at giga scale.
For India to exploit the tremendous market potential for energy storage, the advanced cell chemistry (ACC)
manufacturing segment needs to be revamped, which is still in its embryonic stages and largely driven by
imports.
It is imperative to acknowledge that though giga-scale manufacturing of advanced chemistry batteries is a
globally sunrise industry, but in the existing market conditions the ACCs are expected to compete and replace
the dominant and well-established applications like Internal Combustion Engine (ICE) vehicles, energy storage
(like pumped hydro, gravity storage, etc.) Hence to enable ACC’s giga scale domestic manufacturing and
promote widespread commercial application of the same, globally various countries including USA, China,
Eurozone, etc. are extending suitable incentives to ACC manufacturers and for the demand creation.
Most domestic players in India are engaged in battery packaging of imported cells, which is the last stage of
battery manufacturing supply chain and is a very small portion of actual manufacturing value captured. Hence,
the focus should be to not only improve export competitiveness, but also to realise the potential high value of
battery manufacturing in India. Given India’s strong track records in research, manufacturing and
entrepreneurship, India can rise to a dominant position in the world. But this will not happen in vacuum.
Ambitious goals, concerted strategies, government support, and a collaborative approach will be necessary.
There is no existing central sector scheme or programme that is applicable for extending suitable fiscal
incentives to the manufacturers towards ACC manufacturing in India. The existing framework of FAME-II
scheme incentivizes the procurer of EVs in India and doesn’t specifically targets the ACCs only.
In order to stimulate growth in domestic ACC manufacturing and encourage development of dedicated giga-
scale battery manufacturing capacities, NITI Aayog is drafting a policy to incentivise advanced chemistry cell
manufacturing in India. The policy proposes to offer incentives in the form of subsidies to domestic
manufacturers, to help lower the selling price of cells and be globally competitive. Successful implementation of
the policy will help India become a global entity in advanced chemistry storage manufacturing.
This report brings out the essence of the much-needed impetus towards scaling up battery manufacturing in
India, by providing a stable, unambiguous and investor-friendly policy framework without any loopholes for
misuse. The report analyses the proposed framework and the roles different nodal agencies are to play, and
studies the suggested interventions in the form of taxation and subsidy incentives. A base financial model for
domestic cell manufacturing was prepared to further substantiate financial assessment and subsidy
calculations.
The report also analyses existing support to domestic manufacturing of batteries at both state and central level
to further streamline cell manufacturing efforts in the right direction. Additionally, NITI Aayog arranged for
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one-on-one discussions with potential interested manufacturers, and held two stakeholder meets to take the
manufacturer perspective into account while drafting the policy framework.
During the preparation of this report, comments from various ministries were invited and the feedback received
was incorporated after discussions with NITI Aayog. Though India lacks large-scale battery manufacturing
capacities at present, India’s battery market is large enough to pave the way for setting up giga-scale
manufacturing capacities in future. The growth of large-scale domestic battery manufacturing will also help
India meet its RE goals. Furthermore, the initiative will:
A functional domestic battery manufacturing sector will help reduce India’s dependency on imports and
cater to the country’s future market needs.
Facilitate Make in India: Greater emphasis on value capture
Reduce petroleum import dependance: The programme by supporting
EV adoption will translate into net savings of INR 300,000 Cr on account
of oil bill reduction
Improve air quality in India's highly polluted cities: 14 of the top 20 most
polluted cities in the world are in India. Transformative mobility has the
potential to tackle the increasing level of vehicular and ambiet pollution
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3. Existing regulatory and policy
framework
Policy and regulatory frameworks are the biggest drivers towards mobilising market penetration for adoption of
battery manufacturing technologies. A favourable and stable long-term policy framework is one at the central
level with minimal amendments, providing adequate support mechanism for investors to plan and develop
their entry strategy for Indian markets. State-level assessments are also equally crucial, considering the
plethora of enablers provided by state governments in the form of electronic, industrial, EV and energy storage
policies and taking decisions on appropriate site selection for setting up battery manufacturing facilities. These
two assessments, critical at central and state levels, have been presented below.
3.1. Central level
At the central level, the government has launched programmes like Make in India, the National Policy on
Electronics (NPE) and the Modified Special Incentive Package Scheme (MSIPS) to push the agenda of domestic
manufacturing in India. The electronics market in India is expected to reach USD 400 billion
12
by FY 2020. The
electronics system design and manufacturing sector (ESDM) is envisaged to achieve ‘net zero imports ‘by FY
2020, strengthening the focus on Make in India. The government’s focus is to help build an ecosystem of
domestic manufacturing and R&D, with strict focus on 100% value captured being realised in India. NPE,
released in February 2019, stressed on promoting domestic manufacturing and exporting in the entire value
chain of ESDM for economic development, with a target to achieve a turnover of USD 400 billion by FY 2025.
The National Energy Storage Mission (NESM) also agreed on the need to create policy and regulatory
frameworks for battery manufacturing growth, scaling supply chain strategies and scaling of battery cell
manufacturing.
13
The GoI’s policy framework in the recent past aims to upgrade the manufacturing sector for it to work towards
practical solutions to add value and create new products, thereby developing a niche market. The GoI’s
intention is to create forward and backward linkages in manufacturing to create a string multiplier effect in the
economy, in addition to driving export competitiveness.
3.1.1. National Mission on Transformative Mobility and Battery
Storage
The National Mission on Transformative Mobility and Battery Storage is a central government programme
aiming to boost mobility solutions and encourage development of a competitive domestic manufacturing
ecosystem, focusing on maximum value capture within India. The cabinet approval for the mission was given on
7 March 2019, with the programme being chaired by NITI Aayog. The mission will serve as a cross cutting/
multi-disciplinary platform and take feedback of concerned ministries. The other key ministries part of the
inter-ministerial steering committee are the Ministry of Road Transport and Highways, Ministry of Power,
Ministry of New and Renewable Energy, Department of Science and Technology, Department of Heavy
Industry, Department for Promotion of Industry and Internal Trade and Bureau of Industrial Standards.
14
The
vision includes developing a phased manufacturing plan (PMP) for implementation of giga-scale integrated cell
and battery manufacturing plants, focusing on global benchmarking to ensure export competitiveness,
transparent procurement and domestic demand creation for five years. The broader goal is to establish a PMP
for localising production for EV supply chain till FY 2024.
The key processes and subsequent timelines associated with the plan include:
15
12
Make in India Initiative
13
https://pib.gov.in/newsite/PrintRelease.aspx?relid=181698
14
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1567807
15
NITI Aayog
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Processes:
Timelines:
Table 2: Timelines for subsidy programme and shortlisting of potential players
Action points Month 1 Month 2 Month 3 Month 4-6
Steering committee and inter-ministerial consultations/approvals
1 Conducting financial modelling
and
finalise incentive package
2 Developing PMP template and
programme documents
Cabinet
approval
3 Rolling-out state grand
challenge
Ground
validation
4 Finalising states and state-level
subsidy package
State-level negotiation
5 Rolling-out programmes for
selection of battery
manufacturer
Consultation process
6 Selecting private
manufacturers
(Source: NITI Aayog)
3.1.2. FAME policy
EVs are being regularly developed in India with cutting-edge technologies, providing the much needed traction
in the segment. While technology has been crucial in bringing down costs, a conducive policy framework has
also played its part in commercialisation of many EV models in India. Much of the success needs to be
attributed to the Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles (FAME) scheme
implemented by the Department of Heavy Industries (DHI).
16
Under the FAME scheme, over two lakh EVs
17
have been sold, resulting in average fuel saving of over 50,000
litres/day and an estimated CO2 reduction of over 130,000 kg/day. Phase-II of the FAME scheme
18
, which is
currently in progress (April 2019-22), proposes to introduce more EVs in public transport and increase
penetration levels through market creation and demand aggregation. The second phase envisages a holistic
growth of the EV industry, including provisions for charging infrastructure, R&D and push towards domestic
manufacturing. The scheme also stresses on demand incentives to be given to the end consumers in the form of
an upfront-reduced purchase price of EVs, to be reimbursed to the original equipment manufacturer (OEM) by
the central government. Under the scheme, a demand incentive of INR 10,000/kWh for all vehicles, excluding
16 https://dhi.nic.in/writereaddata/UploadFile/Fame_India_Revised_270415.pdf
17
https://www.fame-india.gov.in/
18
https://dhi.nic.in/writereaddata/UploadFile/publicationNotificationFAME%20II%208March2019.pdf
Float policy and
prescribe timelines for
expression of interests
(EOIs): two months
Steer the state grand
challenge and finalise
state-level package: two
months
Potential firms submit
detailed proposal by
performance
description document
(PDD): three months
Competitive ranking
and earmarking the
package: four months
Finalisation of state and
private vendor: award
of package: four
months
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public buses, is being proposed. For public transport buses, a demand incentive of INR 20,000/ kWh is being
proposed, subject to competitive bidding among OEMs on operating expense (OPEX) model. The key elements
in the policy have been highlighted below.
19
Table 3: FAME policy elements (phase-II)
S.
no.
Vehicle
segment
Maximum
number of
vehicles to be
supported
Approx
imate
sizes of
batteri
es
(kWh)
Total approximate
incentive at INR
10000/kWh for all
vehicles and INR
20000/kWh for buses
and trucks
Maximum ex-
factory price
to avail
incentive (in
INR)
Total fund
support
from DHI
(in INR)
1 Registered e-
two-wheelers
1000000 2 20000 1.5 lakh 2000 crore
2 Registered e-
three-wheelers
500000 5 50000 5 lakhs 2500 crore
3 E-four-
wheelers
35000 15 150000 15 lakhs 525 crore
4 Four-wheeler
strong hybrid
vehicle
20000 1.3 13,000 15 lakhs 26 crore
5 E-buses 7090 250 50,00,000 2 crore 3545
Total demand incentive 8596
crore
The amount of incentive per kWh will be reviewed with declining battery costs, which will eventually involve
further reduction in vehicle prices. The breakup of fund allocation has been presented below.
20
Table 4: Fund allocation (in INR crore) under phase-II of FAME
S. No. Parameters 2019-20 2020-21 2021-22 Total fund
requirement
1 Demand incentives 822 4587 3187 8596
2 Charging infrastructure 300 400 300 1000
3 Administrative
expenditures including
publicity, ICE activities
12 13 13 38
4 Committed expenditure
of phase-I of FAME
366 0 0 366
Total 1500 5000 3500 10000
(Source: DHI)
The EV market in India has grown since the implementation of FAME-I in 2015. The key point of the scheme is
setting up of adequate public charging infrastructure through participation and involvement of government
agencies, industries and public sector enterprises. Charging infrastructures needs to be established as per
guidelines set by the Ministry of Power (MoP), titled ‘Charging Infrastructure for EV-Guidelines and
Standards’.
21
3.1.2.1. Localisation efforts within FAME
To promote indigenous manufacturing of EVs, assemblies and sub-assemblies, a PMP has been notified to
increase localisation efforts and value addition in India.
22
The DHI has come up with a BCD revision proposal,
19
https://www.fame-india.gov.in/WriteReadData/userfiles/file/FAME-II%20Notification.pdf
20
https://www.fame-india.gov.in/WriteReadData/userfiles/file/FAME-II%20Notification.pdf
21
https://powermin.nic.in/sites/default/files/webform/notices/scan0016%20%281%29.pdf
22
https://dhi.nic.in/writereaddata/UploadFile/DHI%20OM%20on%20Phased%20Manufacturing%20Programme%20PMP.pdf
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along with timelines for localisation of component manufacturing to increase domestic value capture. These
details have been analysed in the following sections.
• Phase-II of FAME offered an incentive @ INR 10,000 per KWh for EVs (except buses) and INR
20,000 per KWh for electronic buses. To qualify for the incentive, the hybrid/EV, including its
variants and versions, should be locally manufactured or have certain percentage of localisation, as notified
from time to time.
An internal draft notification circulated to industry players by the DHI states:
“To avail incentive under FAME India Scheme localization content level should be at initial level
of 40% for Buses and 4Ws and 50% for 2Ws and 3Ws subjected to review from time to time.”
• Roadmap for indigenisation of EV parts: Specifies the timelines for achieving localisation of different
components involved in EV manufacturing.
Localisation in FAME phase-I
• In FAME phase-I, dated 12 September 2017, incentives were offered for electric buses, linked with
localisation:
Table 5: Localisation in FAME phase-I
Bus Category of Central
Motor Vehicles Rules
(CMVR)
Incentive level 1 Incentive level 2
Fully electric bus M2 and M3 60% of purchase cost or Rs.
85 lakh, whichever is lower
In case localisation of
minimum 15% is
achieved
60% or purchase cost
or Rs. 1 crore,
whichever is lower
In case localisation
of minimum 35% is
achieved
Notes attached with the gazette notification also defined localisation as:
“Localisation will be calculated based on ex-factory price.
OEM/supplier to issue self-certification about localisation contents; however, DHI retains the right to get
the same validated from specialised expert agencies.”
• Through gazette notification no. 1958, DHI notified incentives for low-speed three-wheelers through
FAME, available to only those vehicles which are manufactured in India and have at least 35% value
addition in India.
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3.1.3. Why MSIPS could not achieve intended targets
(Source: https://meity.gov.in/writereaddata/files/msips_notification.pdf)
MSIPS policy: Analysis of key elements
MSIPS was a revolutionary step undertaken by the central government in FY 2012, followed by series of
amendments in the form of support extended and the applicability of policy, ultimately ending on 31 December
2018. MSIPS provided a subsidy to manufacturing companies for capital expenditure of 20% for investments in
a special economic zone (SEZ) and 25% in other places. High capital investment projects could avail benefits
such as reimbursement of excise, tax and duties on capital equipment. For battery manufacturing, the following
incentive package was available under the consumables and accessories.
Table 6: MSIPS policy benefits
Category Investment threshold (in INR crore) Financial incentives
Fab Assembly,
testing,
marking and
packaging
(ATMP)
Manufacturing
SEZ
Non-SEZ
Consumables
and
accessories
such as
mobile
phones and
IT
accessories-
batteries
NA NA
1
20% of
capex
25% of capex+
reimbursement of
excise/countervailing
duty (CVD) on
capital equipment
Despite offering capex subsidy and other incentives, MSIPS could not garner positive response from investors.
MSIPS was initially extended to FY 2020 as per an amendment, but the lukewarm reaction from the industry
resulted in the timelines for the last application being cut short to 31 December 2018. The number of
investment proposals came down to 238 in April 2018 from 269 in April 2017, with only a handful of companies
showing interest. Investors said the slow pace of approval of disbursal of incentives and tedious demands in
documentation and eligibility criteria were the main reasons why many of them opted out. Additionally,
amendments like putting a cap on the maximum incentive (INR 100 billion) to be given, reducing timelines for
availing the incentive from 10 years to 5 years and making it mandatory for companies to give an undertaking,
post availing the subsidy, compulsory commercial production by a unit for a minimum of 3 years, further
resulted in low investments in this segment.
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3.2. State level
Many states in India have been very pro-active in offering lucrative and customised packages to investors
(super-mega projects) to increase competitiveness among them. States often offer investors to set up industries
in favourable locations such as a special economic zone (SEZ), domestic tariff zone (DTZ), Electronic
Manufacturing Cluster (EMC), Coastal Economic Units (CEU) or in the vicinity of ports, which offer strategic
advantages to maximise the overall efficacy of industrial operation. Each area is already endowed with a
number of sectoral industries, which enjoy numerous benefits and in-house facilities in terms of superior-
quality infrastructure (24*7 water availability, electricity, and communication), incentivised business
frameworks (capital subsidies, power subsidies, land rebates, tax concessions, etc.), connectivity to both
domestic and international markets and streamlined logistics networks (proximity to container ports, inland
container depots (ICDs), internal road network, including cost of labour. These incentives at state levels can be
primarily categorised into industrial, electronic, EV and storage segments. These state-specific attributes for
some of the leading states for establishing battery-manufacturing facility have been presented below.
3.2.1. State-level electronics policies
State-level electronics policies supporting electronic manufacturing clusters (EMCs) and electronics system
design manufacturing (ESDM) has led to investments in the electronics sector. State policies provide a plethora
of fiscal and non-fiscal incentives in the form of R&D subsidy, capital subsidy, interest subsidy, exemption
duties, and land benefits, including tax-based waivers. Some states are also supporting skill upgradation and
training of local labour. The policies are generally amended after a period of five years. Typically, investors
leverage the sectoral policies to seek additional incentives under different heads or incremental higher
incentives under the same heads of capital/operational incentives. An overview of incentives offered by states
has been provided below.
Table 7: State-wise incentives
Incentive
Andhra
Pradesh
Tamil
Nadu
Maharashtra Karnataka
Gujarat
Capital
incentives
Exemption of
registration and
stamp duty
NA
(The state is
in the
process of
drafting an
electronics
policy.)
Capital subsidy
R & D
subsidy/incentives
*
Interest subsidy
Infra subsidy for
green measures
taken by firm
Land rebate
Operational
incentives
Indirect tax
concession
Power subsidy
Incentive related to
employment
Entry tax
exemption
Bespoke incentives package based on
investment size
*Assistance in the form of patent filing (both domestic and international)
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3.2.2. State-level industrial policies
States have been instrumental in driving investments on the industrial front through establishment of manufacturing hubs for both import and export. These policies offer
incentives depending upon the scale of investment, along with meeting the criteria of local employment generation. Some states like Gujarat and Maharashtra also offer
customised tailor-made support packages for ultra-mega projects which have sizeable investments and potential to generate employment. Additionally, there are increased
benefits in areas like SEZs, ports and DTZs in terms of waivers and exemptions. A detailed analysis of industrial policies followed by few states is given below.
Capital incentives
Operational incentives
EPF reimbursement
Indirect tax subsidy
Electricity duty
Interest subsidy on
industrial research
Stamp duty exemption
Interest subsidy
Infra interest subsidy
Capital subsidy
Bespoke incentives package based on investment size
Differentiated incentives package based on location
Gujarat
Andhra Pradesh Maharashtra Tamil Nadu Uttar Pradesh
#
#
#
Industrial policy comparison against key states
Karnataka
Incentive/policy applicable Incentive/policy not applicable
Figure 6: Comparison of industrial policies across states
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3.2.3. State-level EV and storage policies
Several states are coming out with specific policies and schemes for manufacturing EVs and energy storage. Many of these policies are in drafting stage, like in case of Gujarat, but
others have come up with firm incentives in the form of stamp duty exemptions, state GST (SGST) reimbursements, concessional registration charges, power subsidies, land
conversion fee reimbursement, research subsidy and interest subsidies. Delhi, Kerala and Uttarakhand have also come up with specific policies related to promotion of
manufacturing of EVs and related services infrastructure.
The upcoming EV policies need to be reshaped, so that incentives are also allocated towards encouraging battery manufacturing in India, along with R&D-based support
framework. States can also work towards making policies more fruitful, by forming separate parks (like in case of Uttar Pradesh), especially dedicated to setting up of battery-
based small plants. Details of major states having dedicated policies for EVs have been analysed below.
23
Figure 7: States with dedicated policies for EVs
23
State-level EV and storage policy incentive analysis based on policy instruments of various states
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3.3. Some examples of international support
China has been at the forefront in promoting battery manufacturing facilities by extending number of different
policy instruments and tax incentives. Some crucial decisions undertaken by the Chinese government include:
❑ release of revised industry standards for vehicle power batteries by providing subsidies to only those
players which have 8-GWh of Li-ion battery production capacity, thereby promoting domestic interests
(only companies like BYD and CATL qualify)
❑ restricting providing incentives to only those vehicles whose batteries are manufactured in China,
thereby forcing foreign investors to partner/form joint ventures with local Chinese players for availing
subsidies. The table below had details of incentives offered to some of the battery manufacturing
facilities across the globe.
Table 8: Industrial policy support actions
24
Source: ICCT - International Council on Clean Transportation
Facility and
location
Battery production
(GWh)
Examples of industrial policy support
24
actions
BYD (Shenzhen,
China)
30 GWh (2020) • Exemption from battery consumption tax
• USD 35 million in subsidies from central
authorities for R&D of Li-ion batteries since FY
2015
CATL (Ningde,
China)
50 GWh (2020) • Exemption from battery consumption tax
• USD 13 million in central special funds, used to
support innovation technology of new energy
vehicle industry since 2015
• 100 million-yen (USD 15 million) in subsidies
from central authorities for national key R&D
programme
Tesla/ Panasonic
(Nevada, US)
35 GWh (2018) • Transferable tax credits which can be invested
further
• 100% sales tax abatement for 20 years
• 100% property tax abatement for 10 years
• 100% modified business tax abatement for 10
years
LG (Michigan, US) 3 GWh (year) • USD 151 million federal stimulus grant to
finance 50% of USD 303 million plant
• USD 125 million in state tax credits, with the
condition of employing at least 300 people
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4. Challenges in setting up integrated
cell and battery manufacturing
facilities
India in the past has missed multiple opportunities to tap the potential of ‘Make in India’ in various sunrise
industries. These opportunities have been lost to other globally competitive industrial countries that have
timely extended suitable incentives and provided requisite infrastructure for such industries to thrive and
consequently attract investments. It is important to investigate risks and devise an optimal strategy to minimise
risks before developing an enabling ecosystem for domestic battery manufacturing. Key risks in the form of
technology transfer, including advancing cell chemistries, development of alternatives and ongoing R&D in
material science, are a major focus area. Policy and regulatory barriers in the form of inconsistencies,
applicability and sudden reduction or removal of particular incentive/benefit can hamper investments.
Moreover, battery manufacturing in India, represents a paradigm shift in technology and hence, availability of
low-cost financing may become a barrier for comparatively smaller domestic players. Other issues like
availability of ample land, proximity to ports for easy movement of logistics, overall connectivity and regional
level approvals and clearances must also be accounted for.
The sections below provide an elaborate view, covering all major roadblocks towards setting up battery
manufacturing facilities in India, which require further deliberation and requisite action.
4.1. Key risk assessment
There are several risks associated with setting up
battery manufacturing plants in India. Establishing
the entire value chain of battery manufacturing in
India itself is a big constraint, given the rapidly
evolving battery chemistries. This is a risk for
investors, due to no precedents on what works and
what does not work in India for battery
manufacturing. Lack of technical expertise and
knowledge about the sector, especially when it comes
to hiring local people for plant operations and
maintenance could pose an operational risk.
Bankers/financial institutions will not find it feasible
to provide low interest financing to a technology,
which is looking to establish its footprint for the first
time. On the contrary, they may charge a relatively
higher interest rate to minimise risks for themselves.
Policy and regulatory landscapes undergo continuous
amendments and revisions with changing
governments, thereby shifting the market dynamics
and preferences. Major areas of concern surrounding
the setting up of integrated and cell battery
manufacturing facilities in India have been identified
below.
Key risks assessed
Raw material
availability
Financing
First mover
disadvantage
Miscellaneous
Technology
and material
science
Policy and
regulatory
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Raw material
availability
•For capturing a large portion of value for battery manufacturing supply chain in India, raw material sourcing is the biggest concern. India currently has
extremely low reserves of in-house materials like lithium, cobal and nickel, which are key constituents for manufacturing cathode and electrolyte.
Additionally, the country also does not have battery grade graphite (annode material) and imports it from China.
•India does not have the requsite infrastucture in the form of advanced metal processing and refining capital machinery, whichisessential for processing
the raw material procured to ensure that differenct materials are used in proper concentration.
•Dominance of China in controlling the overall supply chain by engaging in local tie-ups/collaborations with lithium producing countries like Australia, for
establishing processing plants, has further increased Chinese influence in controlling raw material sourcing.
•India does not have a major partnership or a bilateral agreement with other raw material producing countries like Australia (nickel and lithium), Chile
(lithium), Brazil (nickel) and Congo (cobalt) to ensure a steady supply.
Policies and
regulations
•Keeping in mind long-term investments, policy uncertainity remains a crucial challenge. In the past, policy changes such as discontinuaton of tax holidays,
reduction of accelerated depreciation benefit from 80% to 40% impacted the growth of the clean energy sector. Additionally, regional level industrial,
electronics, EVs and storage policies provide benefits in the forms of capital subsidies, electricity duty exemption, SGST reimbursement, R&D subsidies,
power subsidies, etc. All these state-level policies provide these incentives only for a certain period (mostly five years), post which these support
mechanisms can become subject to amendment/revisions. Hence any unfavourable change in supportive policy decisions, can drastically impact the
viability of a project and financial returns.
•At regional level, many states do not have EV and storage policies in place and even if they have, many do not have a dedicated component to support
indigenous battery manufacturing
•Absence of any assured offtake is another area of concern. Battery manfuacturing is being encouraged in India anticipating huge demand in areas of
storage, EVs and consumer electronics. However, the demand creation itself is subject to vagaries of policy and regulatory decisions and hence is uncertain.
Technology and
material science
•The battery market is an evolving market with battery chemistries being repeatedly altered with more and more advancements inmaterial science. Globally,
variety of Li-ion NMC batteries like NMC-111, NMC-621 and NMC-811 are being developed to reduce the proportion of cobalt, whichis costly. R&D is being
conducted on using silocon as annode instead of graphite. Identification of the kind of 'battery technology' ideally suited for Indian markets becomes a key
investment decision.
•Lack of appropriate technology transfer and exchange of information due to technology patents is also a key concern, limitingthe technical expertise gained
at local levels
•India currently lacks high-quality R&D infrastructure to research in detail on advanced cell and battery manufacturing.
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Financing
•Availability of low-cost financing may be an issue for smaller investors. Banks/finacial institutions (FIs) may be reluctant to provide loans for
a new technology due to lack of technical expertise, standard evaluation templates and a standardised financial model. Moreover,from a
bankers' perspective, there will be huge uncertainity or security related concerns when it comes to re-sale value of the technology (if the asset
or technology becomes obselete).
•The lack of assured offtake and a guaranteed market, further aggravates the issue of financing. To compensate for this, banks/FIs may be
forced to charge a higher rate of interest for a comparitively newer technology to minimise risks for themselves.
•Lastly, financial institutions will not be aware about the actual pricing dynamics of batteries (upfront costing involved considering Indian
market scenario) and how to measure the output of battery production.
Miscellaneous
• There are significant chances that a boom in the Li-ion battery manufacturing market can hamper the livelihood of players in the
supply chain of lead acid technology.
• Identification of an ideal site suited for battery production when it comes to land availability at cheaper rates, proximity tocontained
and ICD ports, connectivity, energy availability, uninterrupted power and water supply and land readiness are the most vital components.
Hence, the investor needs to plan for at least 2-3 good sites, considering he may lose out on a preferred site.
• The battery manufacturing market is heavily reliant on the EV market to step up and generate high quantum of demand in the future
(more than 50%). However, if the demand doesn't pick up, then battery manufacturing businesses will suffer.
• Additionally, developing technical skills of local manpower working in battery manufacturing plants is another major operational risk,
which the investor needs to account for while planning.
• There must be provisions for protection against cheap and superior quality of Chinese imports, specially when the industry isat a
nascent stage.
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4.2. Developing risk mitigation measures
To reduce various risks related to battery manufacturing, it is important that central and state governments set up
a strong collaborative framework to encourage battery manufacturing in India. Since lack of a guaranteed market
is a key concern, it is important for the government to form new and innovative policies which will fuel growth of
demand.
Boosting domestic manufacturing
•Despite India being the second largest producer of graphite, battery-grade graphite is imported from China. To
kick start anode manufacturing in India, establishing battery-grade graphite processing industries is a primary
step to be taken.
•Policies must be formed to stimulate battery manufacturing at both central and regional levels. States' EV and
storage policies must necessarily include direct benefits in the form of capital subsidies, interest subsidies,
electricity duty exemptions and other benefits.
•The government must work towards enhancing technical capacities, including plant operations, related to
advanced battery chemistries.
•State governments should provide long-term assurances to investors, pertaining to amendment of laws and
policies, so that investors are confident and willing to invest further.
•Ensuring protection in the initial stages, especially from Chinese players, by providing safeguarding and anti-
dumping measures
Demand creation measures
•Demand for batteries should be created by forming favourable policies and regulatory mechanisms. At both
central and state levels, policy instruments for EVs and storage, must be designed to support both buyers and
manufacturers of Li-ion batteries.
Formation of bilateral agreements
•For acquiring the necessary raw material needed to encourage domestic battery manufacturing, India should
consider signing MoUs with countries like Chile, Australia, Congo, Bolivia for uninterrupted supply of processed
raw materials, particularly nickel, lithium and cobalt. Public sector companies such as NALCO, MECL, Hindustan
Copper have already visited Argentina, Bolivia and Chile in FY 2019 to scout for raw materials. Argentina has
offered full support for sharing geological information for mining of lithium.
Research and development in battery recycling
•Battery recycling is necessary when there is lack of domestic availability of dedicated raw material. R&D related to
recovery of precious metals such as lithium and cobalt can assist in bringing down the cost of battery. Ensuring
lesser wastage of raw material will also help in reducing dependency on imports.
•Regulations and standards pertaining to battery recycling must be drafted.
Technology partnership and formation of JVs
•Local Indian manufacturers must form JVs with international players to get access to patented technology.
•Local JVs must also be promoted to research on advanced chemistries catering to Indian environment, including
undertaking pilot projects. NMC variants are expected to dominate the Indian markets and gradual reduction of
usage of cobalt, the major raw material, should be planned (for example, ISRO is commercialising its research and
looking to partner with domestic players).
•A technical committee at the centre, consisting of experts on battery technology and advanced chemistries, should
be formed. The same committee can also take up the task of capacity building at both central and state-level
departments like state nodal agencies (SNAs) and DISCOMs.
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5. Proposed interventions by the
Government of India
5.1. Background
Climate change, increasing energy requirements, rising fossil fuel prices and the perceived depletion of fossil fuel
supplies have been the main causes why India is looking to shift to cleaner energies. Rapidly evolving battery
technologies, coupled with clean energy solutions, have increasingly become central towards reducing regular use
of renewable energy and supporting EVs. As per BNEF estimates, India may become the third largest country in
terms of energy storage installation by 2040.
25
Battery manufacturing for advanced chemistries is at a very nascent stage in India, where the battery industry
constitutes of primarily assembling and packaging. Domestic manufacturing must be provided impetus, so that
maximum value of battery manufacturing is captured within India. NITI Aayog has been at the forefront of
designing a framework for giga-scale manufacturing in India and promoting the right set of policy instruments to
bring investments in the domestic battery manufacturing sector and reduce dependency on imports of final
products. The Union Cabinet has given its approval on the mission and the programme is proceeding smoothly,
through rigorous discussions with various line ministries, investors, sector and technology experts, regional level
officials and other concerned entities.
5.2. Role of NITI Aayog and steering committee
NITI Aayog is acting as the nodal agency for the policy formulation by co-ordinating with various ministries of the
GoI. The policy instrument will provide support for establishing cell manufacturing facilities in India. Incentives
in the form of output-linked subsidies, tax benefits (direct and indirect) are being considered to encourage
investments. States are also expected to provide additional incentives to shortlisted investors (through tendering
process). Doing so will also contribute to economic growth and employment generation for states.
NITI Aayog has also organised round table discussions at its premises to initiate dialogues with industry-wide
stakeholders, including major cell and battery manufacturing companies in and outside India. In the round table
discussions, representatives of various companies shared their views on current challenges, requirements of
government support, future perspectives on the sector and more. These pivotal inputs from industry are being
considered in drafting the policy document.
Additionally, NITI Aayog is coordinating with various ministries to assess demand for stationery storage, EVs, etc.
The table below summarises some of the current efforts envisaged for demand creation of energy storage in India.
Table 9: Demand creation measures
Recommendations for demand creation
Implementation of a soft loan facility to state discoms/transmission companies to deploy energy storage
and battery solutions.
Provide fiscal incentives for co-located battery storage and rooftop solar, micro-grids, telecommunication
towers and other backup applications.
25 https://economictimes.indiatimes.com/industry/energy/india-may-emerge-the-third-largest-energy-storage-installation-country-by-
2040/articleshow/70485052.cms?from=mdr
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Establish a firm bid trajectory for renewable energy and battery storage tenders by the Solar Energy
Corporation of India (SECI).
Develop policies that support the replacement of diesel generator-sets on islands and isolated areas with
renewable energy and battery storage systems, including army cantonments/outposts, etc.
Enable demand creation under the Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM) scheme for
solar pumps and small-scale solar projects.
Revise regulatory frameworks to enable adequate compensation for stationary storage providing spinning
reserves, frequency management (fixed band) for network stabilisation, and other ancillary services.
Establish a firm national target and vision for EVs by 2030.
Facilitate demand creation of e-buses/e-cabs/e-autos, backed with MoUs and firm-contracts with state
transport units (STUs)/cab aggregators and operators/railways.
Develop a framework to support electrification of locomotives and other stationary applications
associated with railways.
Produce and implement guidelines for standardisation of charging infrastructure and battery swapping in
India for EVs.
The figure below shows role of battery storage systems for providing grid management activities and improving
system reliabilities.
Figure 8: Role of battery storage systems for providing grid management activities
Battery energy storage system (BESS) can thus play a multi-function role in the electric supply network to manage
resources effectively.
Additionally, NITI Aayog will formulate a technical sub-committee to oversee how batteries could be
manufactured for multiple technologies and used for multiple purposes. The committee will devise
recommendations to advance research on battery reuse and recycling. It will also work to modify the standards
and specifications to ensure quality of the final product.
5.3. Phased manufacturing programme details
The proposed PMP for cell manufacturing will be a central level programme, run by NITI Aayog. The programme
will focus on incentivising advanced cell manufacturing in India, supported adequately by states to encourage
investors. Battery pack assembly will not receive any incentives under this programme.
Bulk energy services
•Flattening of load
curve
•Arbitrage (time
shifting of energy)
•Capacity supply
•Mini grid
applications
Grid support services
•Frequency response
•Reserve power
•Voltage support
•Load following
•Renewable energy
output smoothening
•Minimise deviation
settlement
mechanism
(DSM)/unscheduled
interchange (UI)
charges
Transmission and
distribution
•Transmission and
distribution
infrastructure
deferral
•Transmission
congestion relief
•Distribution voltage
support
Consumer energy
support
•Power quality
•Power reliability
•Timely shifting of
energy
•Demand charge
management
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NITI Aayog will release an RFS to invite Indian and global investors to set up giga-scale cell manufacturing plants
in India. The tender will be technology agnostic; however, manufacturers’ produced cells must meet the criteria of
‘advanced cell.’26 Private players are free to choose the suitable technology to set up cell manufacturing plants for
EVs, stationery storage for grid applications and consumer electronics. There will not be any assured offtake by
the government and market risk must be borne by investors. However, the government will launch multiple
programmes to create demand of energy storage for various applications.
The proposed programme will provide two levels of support i.e. pan-support for all cell manufacturers and
additional support to selected manufacturers based on competitive ranking, after completion of the tendering
process. Pan-support includes import duty waivers for various raw materials and intermediate goods to be used in
manufacturing. Additional support will include output-based subsidy disbursal (per kWh basis), and optional
stapled loan facility.
Subsidy support will be limited to 50-GWh annual cell manufacturing capacities in India up to 2030. A single
entity cannot bid for more than 20-GWh cell manufacturing facility. Also, minimum bid capacity will be 5 GWh.
No financial support by government is envisaged beyond 2030 as it is expected that by then domestic
manufacturing will become globally competitive, without external support.
5.3.1. Subsidy disbursement mechanism
The scheme has been drafted to incentivise cell manufacturers of ACCs like Li-ion cells to come and set up large-
scale cell manufacturing facilities in India.
As the capacity on offer is 50 GWh, submissions against the request for proposal (RFP) with a cumulative capacity
of 50 GWh shall be allocated the requisite capacities, subject to a maximum cumulative capacity of 20 GWh for a
single entity. Should the total capacity requested from qualified investors exceed 50 GWh, the allocation shall be
carried out through a transparent ranking process, based on total capacity sought and value capture targeted by
2025; and a financial parameter on subsidy requirement (per KWh basis) quoted by the beneficiary.
The participants shall be ranked on the basis of their submissions and manufacturing capacities shall be allocated
in the order of their ranking, with the entity ranked one allocated the capacity first, followed by entity ranked one,
and so on till a cumulative capacity of 50 GWh per year has been allocated; subject to a minimum allocation of 5
GWh and a maximum cumulative allocation of 20 GWh to a single entity. A higher weightage has been offered for
value capture component, to encourage manufacturers to integrate vertically and promote manufacturing of key
components in the value chain.
The method of selection of beneficiaries also finds precedent under the General Financial Rules 2017;
Procurement of Goods and Services, Rule 192 “Quality and Cost Based Selection (QCBS)”, recommended
for procurement of consultancy services, where quality of consultancy is of prime concern. The proposed
disbursement method ensures better utilisation of available funds as beneficiaries are now submitting their
competitive bid. This also enables more beneficiaries to benefit, while ensuring that larger capacities are deployed.
The disbursement method is in accordance with Rule 230 (3) of General Financial Rules 2017 specifying “Award
of Grants should be considered only on the basis of viable and specific schemes drawn up in sufficient detail by
the institution or organisation. The budget for such schemes should disclose, inter alia, the specific quantified
and qualitative targets likely to be attained against the outlay. In the cases of the schemes where Grants are
given as part of the expenditure on reimbursement basis (i.e. the expenditure has already been incurred on
26 Advanced cell shall be defined as new generation cells like lithium polymer, lithium iron phosphate, lithium cobalt oxide,
lithium titanate, lithium nickel manganese cobalt, lithium manganese oxide, metal hydride, zinc air, zinc bromine, sodium air,
nickel zinc, lithium air, sodium sulphur or vanadium redox. The list of battery technologies here is representative and not
exhaustive.
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approved project/scheme and reimbursement from the Government in the form of Grant/Subsidy etc. is due) the
same will be treated as the Central Financial Assistance (CFA) and no Utilization Certificate shall be required in
such cases of reimbursements.”
Rule 232 (vi) under General Principles for award of Grants-in-aid for Centrally Sponsored Schemes also
prescribes that “The Ministries or Departments should focus attention on the attainment of the objectives and
not on expenditure only. A mechanism for avoiding release of large part of funds towards the end of the year
should be devised and incorporated in the Scheme design itself.”
Companies will have until 2025 to complete the pre-specified value capture and the proposed capacity in India.
Subsidies will be effective till 2030 and total subsidies under this programme are capped at 50-GWh annual
deployment capacities. All subsidies will be given to the mother unit on a kWh basis. In addition to output-linked
subsidy, selected manufacturers will be eligible for reduced BCD on imported material and state-level incentives.
The amount of subsidy to be distributed to the eligible unit may be given as the fixed amount linked to the
following factors of the self-certification:
• capacity of advanced chemistry cells sold (in per kilowatt hour)
• value capture
27
within India. The percentage of value addition may also include the value addition by ancillary
units or domestic suppliers manufacturing in India.
In other words, the amount of subsidy to be disbursed would be calculated as:
Failure by the manufacturer to achieve the value capture milestone defined in the proposal shall lead to
imposition of penalties. The parameters to monitor the scale of production or value addition to disburse subsidies
are defined below.
5.3.2. Value capture
There should be a minimum 50% of value addition to the cell manufacturing ecosystem in India by the
manufacturer by 2025 to be eligible for subsidy. Subsidy disbursement shall initiate once the sales begin and will
continue till 2030.
Value addition is to be validated by the statutory auditor, based on the following parameters:
• The eligible unit on its own should achieve a minimum value addition threshold of 25% to be eligible for
subsidies. Subsidies would be disbursed to the eligible unit once its value addition exceeds the aforesaid
threshold
• The eligible unit shall establish a facility to manufacture Advanced Chemistry Cell with a minimum
production capacity of 5 (five) GWh or as quoted by the selected bidder in its Bid and investment of minimum
USD 30 (thirty) Million per GWh (excluding the cost of land);
• Ensure Value Capture to be at least 25% (twenty five percent) and minimum 50% (fifty percent) of overall
domestic Value Capture;
• The minimum value addition (i.e. 25%) should be achieved by the eligible unit; and
27 The term “value addition” may be construed as the percentage of manufacturing activity undertaken in India to manufacture
advanced chemistry cells, either on its own or through ancillary units or via domestic suppliers.
Fixed amount per kilowatt hour X capacity of advanced chemistry cell sold X percentage of value addition
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• Value addition should be achieved as a result of change in Harmonized System of Nomenclature (HSN), as per
the Customs Tariff Act, at six digit level (of the final product vis-à-vis the goods procured for the
manufacturing activity) due to manufacturing by the eligible unit, ancillary unit or domestic suppliers
• The final process of manufacture must take place in India
• Value addition
28
in respect of the goods (battery cells) may be denominated as the ratio of ‘actual value added’
to the sale value
29
(net of returns, price adjustments, discounts etc.) of the said goods (battery cells), excluding
indirect taxes, if any paid on the goods. The ‘actual value added’ may be calculated based on financial records
(including turnover reported in GST returns) as per the following formulae:
The ‘actual value added’ may be calculated on the basis of financial records (including turnover reported in GST
returns) as per the following formulae:
· Sale value of the said goods, excluding indirect taxes, if any, paid on the goods
· Less: Cost of raw materials and packing materials consumed in the said goods (i.e. in the sale price
of the goods sold) to be calculated in terms of generally accepted costing principles
· Less: Cost of fuel consumed, if eligible for GST input credit
· Less: Any Material whose Origin cannot ascertained beyond prescribed threshold
· Less: Expenses incurred in foreign currency for royalty and technical know- how as debited in the
Income statement
· Add: ‘Actual value added by the ancillary units or domestic manufacturers’ attributable to sale value
of said goods
‘Actual value added by the ancillary units or domestic manufacturers’ is actual value added (as per the
above formulae) by such units/ suppliers in relation to supplies made (to the Beneficiary Firm) and sale considered
by the Beneficiary Firm (for computation of the ‘actual value added’ by the beneficiary firm).
The onus to validate the value addition by business premises, ancillary units or third parties or domestic
suppliers would remain on such eligible unit.
• Additionally, where the eligible unit is also engaged in manufacture of battery packs and a value addition till
the cell stage cannot be determined with the abovementioned approach, the percentage of value added
calculated (as above) should be reduced by 34%, to calculate the percentage of value added to manufacture
battery cells. For example, if the value capture at the battery level is x%, then the value capture at the cell level
shall be (x-34)/(100-34)%.
• The certificate from the Statutory Auditor may not be required where value addition by the ancillary unit or
the domestic suppliers is less than 2% (viz. calculated as percentage of actual value added by domestic
supplier to the sale value of ACC's manufactured by Mother unit) or INR 200,000 (Gross amount), whichever
is lower, in the corresponding period.
• Following documents may also be considered for validation of subsidy claims:
o Document issued by the concerned Director of Industries, confirming the commencement of commercial
production;
o Certificate by a Statutory auditor certifying the quantity and value of finished goods procured;
28
A similar procedure has been prescribed by the central government in the notification no. 01/2010 – Central Excise, dated 6 February 2010
29
Updated as per inputs from Mr. Aman (& as per discussions with MeitY)
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o Certificate by a Statutory auditor certifying the reconciliation of value and quantity of battery cells
manufactured, traded, sold as scrap, stock transferred and GST paid vis-à-vis the amount reported in
financial statements and GST returns;
o Unit level audited accounts for the relevant financial year, where the eligible unit is operating through
various ancillary units.
o The audited accounts and company’s GST audit report for the relevant financial year.
The proposed incentives may be reviewed annually or on periodic basis by the concerned department of the
government, based on price trends for various components, demand and market parameters.
5.4. State support
State governments will also play a major role towards the success of the programme. States will be encouraged to
provide incentives to shortlisted investors for establishment of local battery manufacturing facilities. NITI Aayog
will brief state governments about the final programme design and work with them to create an investment-
friendly environment. States will benefit from strong economic and employment growth by enlisting in the
programme.
State governments can provide support under various categories, including infrastructure support and making
provisions for subsidised utilities, such as electricity. State governments can provide additional financial
incentives, under the PMP. Some of the possible fiscal/policy supports that may be considered by state
governments are tabulated below:
Table 10: Possible support from state government
Categories Description
Trunk infrastructure The primary purpose of ready trunk infrastructure is to encourage
investments in the state. State governments should develop trunk
infrastructure to attract cell manufacturing. Trunk infrastructure may
include ready common facilities to be used by manufacturing such as:
I. road and transport facilities
II. availability of utilities such as power, gas, and water
III. electricity and water distribution network
IV. water and sewage treatment plants
V. common effluent treatment plant (CETP)
VI. public parks and land for community facilities.
Provision of land
State governments can provide land at concessional rates, with good
connectivity and lower/exempted stamp and registration fee. State
governments can provide possible subsidies such as:
I. encumbrance free land of minimum 200 acres
II. 6% circle rate (stamp duty and concessional registration) for a
period of 99 years
III. land connectivity
IV. access to national highways (within 5 kms)
V. proximity to ports (preference for container or cargo port)
VI. capital subsidy on infrastructure development
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VII. stamp duty exemption
VIII. concessional registration charges
IX. reimbursement of fee charged for converting agricultural land to
industrial land.
Provision of utilities
State governments can also make provisions for utilities and provide
concessions to industries accessing such utilities. Some utilities state
governments can provide are:
I. adequate water/industrial water
II. subsidised power supply
III. subsidised water supply
IV. provision of open access with transmission, wheeling, and banking
charges only
V. electricity duty exemptions
VI. net-metering and banking facilities for rooftop solar projects.
Tax incentives
States can reimburse net SGST within a pre-specified duration, after
commencement of commercial production.
Additional incentives/
concessions by the state
government
States can also provide several additional subsidies and concessions to battery
manufacturing industries. Some such concessions state can offer are:
I. subsidy on technology upgrade
II. interest subsidy on INR loan for capital investments and/or working
capital loan for plant operations
III. subsidy on the expenses incurred for quality certification
IV. subsidy on clean/green production measures
V. R&D encouragement
VI. reimbursement of expenses incurred in R&D, patent registration fees
exemption
VII. subsidy on laboratory testing facility establishment to encourage R&D
VIII. subsidy on expenses incurred on training and skill enhancement.
IX. subsidy on recycling of chemical and plastic waste
X. encourage export by means of state export oriented units/SEZs policy.
Clearances
State governments can also work towards speeding up the process of granting
clearances to industries. Some steps states can take to ensure smooth and
speedy clearance processes are:
I. in-principle upfront clearance/issuance of no objection certificate
(NOC) as condition precedents
II. having a single-window clearance system in place
III. having an e-platform, for facilitating all necessary clearances for
starting and operating an industry within a pre-specified time period
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IV. ensure time bound approvals and escalation at various levels for
regular monitoring.
5.4.1. Immediate and long-term benefits to state economies
States which come forward in support of the programme will benefit from GDP push, job growth and positive
investment outlook in front of key global investors. Some other benefits for states are given in the figure below.
Figure 9: Benefits to state economy
5.5. Competitive ranking and selection criteria
NITI Aayog shall issue a Request for Selection (RFS) to invite domestic and global investors to set up Giga-scale
cell manufacturing plant in India and apply for incentives under the scheme. The tender will be technology
agnostic hence the investors are free to choose suitable technology and the corresponding plant & machinery, raw
material and other intermediate goods for setting up cell manufacturing plant to cater to any end use application.
It must be noted that already commissioned projects will not be considered under this scheme.
Projects under construction or projects which are not yet commissioned can, however, be
considered, in case these projects are not already a part of any other central or state schemes.
Pre-qualification criteria has been drafted to ensure that only credible investors with a credible track record of
delivery will get to avail the benefits under the scheme. The criteria cover technical eligibility, which is to be
illustrated through previous experience in manufacturing batteries and financial eligibility, so that only financially
capable investors get to apply for incentives under the scheme. The table below covers major selection criteria of
cell manufacturers:
Table 11: Qualification criteria
S. no. Categories Criteria
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1 Qualification criteria
(financial)
• The Bidder shall have a corporate long-term credit rating of at-
least CRISIL AA+ or ICRA AA+ or at-least S&P BB+ or FITCH
BB+ or Moody’s Ba1 from at-least 2 (two) credit rating
agencies.
• The Bidder shall have a minimum Net Worth of USD 30 (thirty)
Million per GWh (the “Financial Capacity”) as an average of
the last 3 (three) financial years, i.e., FY 2016-17, FY 2017-18
and FY 2018-19.
• The applicant can be a single entity or a lead member of a group
of companies (consortium). In case of a Consortium, number of
members in a consortium shall not exceed 3 (three)
▪ In case of a Consortium, the aforementioned qualification of
the Lead Member, who shall have an equity share of at least
26% (fifty-one per cent) in the SPV, should satisfy the above
conditions of eligibility.
The Bidder will deposit a Bid Security in accordance with the provisions
of the RFP.
Net worth to be considered shall be the total net worth as calculated in
accordance with the Companies Act, 2013 and any further amendments.
The minimum scale of production shall be 5 GWh of cell manufacturing by the terminal year, i.e. March 2025, and
the manufacturers shall specify the targeted value capture within India, which in no case shall be below 50% by
the terminal year. Subsidy disbursement shall initiate once the production begins and will run up till 2030, with
disbursement of total subsidies capped for a cumulative capacity of 50 GWh. Subsidies to be disbursed shall be
capped basis the annual capacity and value addition proposal submitted. All subsidies shall be disbursed only to
the applicant or the beneficiary on a kWh basis. The government will provide no financial support
beyond 2030, as it is expected that by then, domestic manufacturing will reach a stage where it is
globally competitive without external support.
As the total capacity on offer in the proposed tender is 50 GWh hence the submissions against the RFS, with a
cumulative capacity of 50 GWh, shall be allocated the requisite capacities subject to a maximum cumulative
capacity of 20 GWh for a single entity. Should the total capacity requested from qualified investors exceed 50
GWh, the allocation shall be carried out through a transparent ranking process, based on the total capacity sought,
value capture targeted by 2025 and subsidy requirement (per KWh basis).
The selection of investors will be based on both technical and financial parameters. Total weightage to technical
parameters shall be 80%, which would be further segregated into 70% weightage to value capture and with 30%
weightage to scale of production. Weightage to financial criteria shall be 20%. The division of weightage to
technical and financial parameters is as follows:
• technical parameters – 80% weightage
▪ value capture (implementing PMP) in India – 70% of 80% i.e. 56%
▪ scale of production/proposed capacity – 30% of 80% i.e. 24%
▪ financial parameter – 20% weightage Subsidy requirement
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Value capture has been given a higher weightage to encourage manufacturers to integrate vertically and promote
indigenisation of key components. The third parameter i.e. the base subsidy requirement shall be specified by the
applicant in the form of the subsidy benchmark of INR per kwh. Under the said programme, the base-subsidy
shall be capped at INR 2,000 per kWh of the ACC sold, subject to the year-to-year phasing.
The applicant is expected to submit the bid (‘x’ being the financial bid parameter) in the format provided below.
The beneficiary can manufacture the ACCs with any combination of the cycle life and energy density, as eligible in
the subsidy window and beyond.
The third parameter, i.e. the variable subsidy requirement shall be specified by the bidders in the application in
the form of the subsidy benchmark (x) per KWh
INR per
ACC in
KWh
Energy density (Wh/kg)
Cycle
life
>=50 >=125 >=200 >=275 >=350
>=1000 N.A. N.A. N.A. x x* 1.2
>=2000 N.A. N.A. X x* 1.2 x* (1.2^2)
>=4000 N.A. X x* 1.2 x* (1.2^2) x* (1.2^3)
>=10000 X x* 1.2 x* (1.2^2) x* (1.2^3) x* (1.2^4)
The lowest quoted benchmark is given the maximum financial score of 1. The formula for determining the scores
of all other proposals is calculated as following:
Score = 1 * minimum quoted benchmark/quoted benchmark of respective bidder
The table below illustrates upper limit of subsidies at various values of cycle life and energy density:
Table 12: Energy density benchmarks
INR per
ACC in
KWh
Energy density (Wh/kg)
Cycle
life
>=50 >=125 >=200 >=275 >=350
>=1000 N.A. N.A. N.A. 2000 2400
>=2000 N.A. N.A. 2000 2400 2880
>=4000 N.A. 2000 2400 2880 3456
>=10000 2000 2400 2880 3456 4147
Even within advanced cell technologies, there are niche technologies which are really at the forefront of higher
performance and are the future of cell technologies. These are either at the pre-commercialization stage with
number of start-ups or at early stage of commercialization. Their application is also currently limited due to high
cost but as the costs come down these technologies are going to find more and more mainstream applications.
Therefore, the business case for incentivizing higher charge density needs to be strengthened, considering the
developments in advancing cell chemistries globally. Additionally, higher energy density is crucial for enabling
high performance products such as electric cars with longer driving range, electric planes or Unmanned
Ariel Vehicle (UAV) applications. Currently, there are only few technologies (Lithium sulphur and solid state
batteries) with 350+ Wh/kg, which are mostly in early stage of commercialisation and exhibit limited cycle
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life. Design improvements are likely to improve the cycle life significantly in the next 5 years. Moreover, their
production costs are also higher owing to their small scale of manufacturing, which implies advanced technologies
would tremendously benefit from higher levels of subsidy. From the Indian perspective, it is the appropriate time
to attract developers of these next generation technologies to set up their manufacturing base in India.
An illustrative example of ranking, based on value capture and capacity phasing for two companies (X and Y) has
been illustrated below:
Table 13: Illustrative example for value capture, phasing and subsidy calculation
Technical Bid (80%) Price Bid (20%)
1. Phasing for Value Capture (70%) 2. Scale of Production (GWh)
Operational in Year (30%)
3. Cash Subsidy (20%)
Year Weight Company
X
Company
Y
Weight Company
X
Company Y Company X Company
Y
Year 1 - - - - - -
Year 2 4 30% 50% 4 3 2
Year 3 3 - 30% 3 - -
Year 4 2 - - 2 2 -
Year 5 1 70% 20% 1 1 4
Weight 4*0.3 +
1*0.7 =
2.7
4*0.5+
3*0.3
1*0.2 =
3.1
4*3 +
2*2 +
1*1 =
17
4*2 +
1*4 =
12
1800 2000
Standardized 0.87 1 1 0.71 1 0.9
SCORING:
• Technical Score: Company X = (70% x 0.87) + (30% x 1.0) = 0.91
• Technical Score: Company Y = (70% x 1.00) + (30% x 0.71) = 0.91
• Financial Score for Company X = 1.00
• Financial Score for Company Y = 0.90
• Overall score for Company X = 80% x 0.91 + 20% x 1.00 = 0.93
• Financial Score for Company Y = 80% x 0.91 + 20% x 0.90 = 0.91
The total score is calculated by weighing the scores and adding them as per the formula and instructions specified
above. The bidders achieving the highest combined score will be allocated the capacity first.
Failure to achieve the value capture milestone defined by the manufacturer in the proposal shall lead to penalties
being imposed.
1. Penalty for failing to meet the scale of production shall be estimated by the deficit in committed and actual
production. The deduction in subsidies shall be calculated and the deficit shall be deducted from
disbursement of subsidies in the same quarter.
For example, if 10 GWh was committed, and only 8 GWh produced, this will result in a subsidy cut of 2*(10-8)
= 4. Thus, subsidies will be paid on only (committed capacity-penalty), or (10-4) = 6-GWh of capacity, even
though 8 GWh has been produced. The penalty shall be levied each quarter, for the previous quarter of deficit
in deployment of committed production.
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2. Penalty for failure to meet required value capture shall be estimated by the deficit in value capture committed
and actually realised. The retrenchment in subsidy (subsidy at value capture committed – actual subsidy
disbursed) shall be calculated and this deficit shall be deducted from disbursement in the same quarter.
For example, if 50% value capture was committed, and only 40% realised at the end of a quarter, this will lead
to a retrenchment in subsidy. The retrenchment shall be (subsidy at 50% value capture-subsidy at 40% value
capture), say an amount y. In the quarter, the amount y shall be deducted from the subsidy to be disbursed in
the quarter.
In case an entity is penalised for eight consecutive quarters due to a non-achievement of committed scale of
production and/or the committed value capture, the subsidy disbursement shall be stopped immediately.
However, NITI Aayog can offer a two-year grace period to such entities for exogenous factors such as market
demand, technology issues and raw material risks.
5.6. Termination clause
Advance cell manufacturing program envisages to mitigate investors’ risk and exposure in case the program is
scrapped by the government after the appointment date. In such scenario, the manufacturer will receive NPV
30
(Net present value) of subsidy in line with following scenarios and calculations-
Scenario 1: If program is scrapped between AD +2
31
and AD + 5
In such case, manufacturer is eligible to receive NPV of subsidy for a period of next three years. The year-wise
subsidy will be calculated as per the value capture and scale of production achieved by the manufacturer in the
previous year. For example, if program is scrapped in (AD + 3), manufacturer will receive NPV of next three years
of subsidy calculated as per the value capture and capacity achieved in the year AD + 3.
Scenario 2: If program is scrapped after AD + 5
In such scenario, manufacturer is eligible to receive NPV of remaining years’ subsidy as per the program
document. The subsidy will be calculated as per the value capture and scale of production achieved by the
beneficiary in the year AD + 5 i.e. the maximum value capture and capacity to be achieved as mentioned by the
manufacturer in the technical proposal. If there are any increase in value capture and capacity post AD +5, it will
not be considered for subsidy calculation. The utilization factor achieved in AD + 5 shall be treated as constant for
the purpose of estimating subsidy for future years.
5.7. Subsidy revision clause
If the demand for the Advanced Chemistry Cell falls short of the Committed Scale of Production as a result of a
low market demand and for reasons not attributable to either Party for 3 (three) consecutive Financial Years, the
Beneficiary Firm may by way of request the government to re-negotiate the Subsidy.
Upon receipt of the Subsidy Revision Notice, the Government may ask the Beneficiary Firm to provide a certificate
specifying the CUF of the Facility for capacity that has been operational for a full Financial Year to support the
Beneficiary Firm’s claim. The Beneficiary Firm agrees that to be eligible to claim Subsidy revision, the Beneficiary
Firm’s CUF shall be less than 60% (sixty per cent) of the total Committed Scale of Production for 3 (three)
30
NPV calculation will be carried out at SBI Marginal Cost Based Lending Rate (MCLR) on the date of computation of NPV
31
No subsidy will be provided if program is scrapped before AD + 2. Beneficiary Firm shall not be eligible to receive any
Compensation Payment in the event the Beneficiary Firm has not commenced production and manufacturing of the Advanced
Chemistry Cells.
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Financial Years. The Beneficiary Firm shall not be entitled to issue a Subsidy Revision Notice prior to March 31,
2025.
If the Government is satisfied with the Subsidy Revision Notice, it shall have the right to remove the discounting
factor on the Subsidy for the subsequent 3 (three) Financial. Also, beneficiary firm shall be eligible to claim re-
negotiated Subsidy, if not less than 2 (two) other battery manufacturers under the Policy Document claim such
revision in Subsidy within a period within certain months from the Beneficiary Firm’s claim as per RFP document.
The the Government shall have a right to reduce Subsidy by limiting such Subsidy at 20% of the battery price in
the Advanced Chemistry Cell, in the event that the Subsidy is greater than 25% (twenty-five per cent) of battery
price for 4 (four) consecutive quarters due to a drop in the cost of manufacturing of the Advanced Chemistry Cell
in the market.
Also, if the Subsidy exceeds 25% (twenty-five per cent) of the battery price of Advanced Chemistry Cell for a
period 4 (four) consecutive quarters as a result of Change in Law, Firm shall, in addition to the remedy available
under Article 14, be entitled to receive revised Subsidy in accordance with provisions of this Clause.
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6. Taxation recommendations
6.1. Indirect tax side interventions
Broadly, the indirect tax-related inputs have been discussed and analysed under:
• GST
• The Customs Act.
6.1.1. Goods and Services Tax
GST became effective in India from 1 July 2017 and has replaced erstwhile central and state taxes such as excise
duty, service tax, value added tax (VAT), central sales tax (CST), entry tax to mitigate double taxation and
cascading of taxes.
GST is levied on sale (supply) of goods or services, unless specifically exempted from tax. It is a destination-based
tax and follows a multi-stage collection mechanism. The tax paid on procurement is available as input tax credit
to the purchaser and can be utilised to off set the tax payment liability on its outward supplies.
In GST, intra-state sale of goods or services are covered under central GST (CGST) and state GST (SGST), whereas
interstate sale of goods or services (including imports), are subject to integrated GST (IGST).
The rate of GST on goods or services supplied depends upon the nature and type of goods or services. At present,
goods and services come under five GST slabs, that of 0%, 5%, 12%, 18% and 28%. Following are some examples
of how goods and services are divided under their respective slabs.
• 0%: fruits, vegetables, food grains, essential medicines, etc.
• 5%: essential items of mass consumption used by common people
• 12%: concessional rate of tax for goods or services
• 18%: standard rate for goods and services
• 28%: higher rate for luxury, demerit, and sin goods. Further, GST cess is also applicable on certain goods and
services taxable under 28%, such as luxury cars, aerated beverages, tobacco, etc.
6.1.2. Customs
Import of goods into India is governed by the Customs Act of 1962 and the Customs Tariff Act of 1975, and is
subject to customs duty. Customs duty can be broadly classified into the following:
• BCD
• IGST
• Social Welfare Surcharge (SWS).
Customs duty is levied on goods at the rates specified under the Customs Tariff Act, depending upon their
respective classification in terms of HSN.
IGST levied at the time of custom clearance is available as credit and does not becomes a cost. However, BCD and
SWS paid upon import of goods into India is a cost to be borne by the importer.
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Table 14: Illustrative computation of customs duty
Particulars Rate Amount Cost in supply chain
Value of imported goods
10,000
BCD 5% 500 Yes
SWS (10% of BCD) 10% 50 Yes
Total Value After Duty (1+2+3)
10,550
IGST (18% of total value after duty) 18% 1,900 No
Landed cost of goods
12,450
6.1.3. Current tax structure on battery storage
At present, Li-ion batteries in India are subject to customs duty and GST as provided below:
Table 15: Current custom duty rates on Li-ion batteries and its components
Batteries or Li-ion cells, when imported into India are subject to 24.50%
36
of total customs duty, (wherein 19%
duty is available as credit [i.e. amount of IGST] and the balance 5.5% duty becomes a cost in the chain).
However, parts of batteries (except of Li-ion cells) and raw material (viz. for manufacturing such parts) are only
subject to IGST of 18% or 28%, as BCD is not levied
34
on import of such goods into India.
32 In terms of the S. No. 17 of the notification no. 57/2017 – customs dated 30 June 2017.
33 In terms of the S. No. 39 (i.e., all goods required for manufacture of goods under Chapter 8471 – computers or laptops) of the
notification no. 24/2005 – customs dated 1 March 2005.
34 In terms of the S. No. 16 of the notification no. 57/2017 – customs dated 30 June 2017.
35 This rate of BCD varies depending upon the classification and nature of goods. However, in general the rate of BCD is 7.5%.
36
BCD at 5%, SWS at 10% and IGST of 18% in terms of the notification no. 50/2017 – customs, dated 30 June 2017 as amended by notification
no. 03/2019 – customs, dated 29 January 2019.
HSN Goods Particulars Current rate
structure
8507 Finished
goods
Batteries or battery packs for electrically operated
vehicles
5%
Li-ion batteries of cellular mobile phones 15%
32
Li-ion batteries for manufacture of goods under
Chapter 8471
0%
33
Li-ion batteries for other than mentioned above 10%
34
8507
6000
Semi-
finished or
processed
goods
Li-ion cell for manufacture of Li-ion accumulator,
except battery pack of cellular mobile phones and
power bank
5%
85 or any
other
chapter
Parts of batteries (except Li-ion cell and printed
circuit boards), viz. anode, cathode, electrolytes, and
separators
0%
Any
chapter
Raw
material
Goods required to manufacture parts of Li-ion cells
such as graphite, cobalt, lithium, nickel, copper.
0%
Chapter
84 or 85
Capital
goods
Plant and machinery required to set up a
manufacturing facility
7.5%
35
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Similarly, effective customs duty on import of capital goods into India is ~ 28%
37
(wherein ~ 20% duty is available
as credit [i.e. amount of IGST], whereas 8% duty is a cost for the importer (i.e. amount of BCD and SWS).
Further, on inter-state or intra-state supply of batteries or parts of batteries or raw material, GST is applicable at
the rate of 18% or 28%(viz. varying rates on batteries, its parts and raw material used for manufacturing such
parts) . When these batteries are sold to persons registered under GST law (i.e. B2B sales), GST charged is not a
cost in the chain. However, upon selling them to end customers, (i.e. B2C sales), GST is a considered as a cost in
the chain.
6.1.4. Proposed indirect tax incentives
India has the potential to develop a robust battery manufacturing industry capable of meeting domestic demands
and eventually competing and exporting in the global market. Manufacturing of battery packs involves the
following components or processes:
• battery pack assembly
• cell manufacturing
• anode manufacturing
• electrolyte manufacturing
• cathode manufacturing
• separator manufacturing
• raw material processing.
To create an environment for battery manufacturing in India, domestic facilities for the aforesaid processes need
to be built. The indicative phasing of the aforesaid facilities, as per NITI Aayog’s assessment is proposed below:
Table 16: Indicative phased value capture
Capability India (Indicative Phasing)
2020 2022-23 2024-25
Raw material processing X X X
Separator manufacturing X X ✓
Cathode manufacturing X ✓ ✓
Electrolyte manufacturing X ✓ ✓
Anode manufacturing X ✓ ✓
Cell manufacturing X ✓ ✓
Pack manufacturing ✓ ✓ ✓
Value chain captured <20% 40%-60% 60% +
Based on the above indicative example, India is expected to have a wholesome battery pack manufacturing
framework in place by 2020. This would be followed by manufacturing of cells, cathodes, electrolytes and anodes
in India by 2022–23 and thereafter, manufacturing of separators by 2024–25 to fully integrate the entire
37
Basis the assumption, BCD is applicable at 7.5%, SWS at 10% and IGST at 18%.
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manufacturing of Li-ion batteries in India. At present, battery manufacturing in India is in a nascent stage,
wherein parts and components of pack manufacturing (i.e. Li-ion cells, battery separators) are imported.
To create and develop an ecosystem to manufacture battery storage in India, import of batteries and Li-ion cells
must be discouraged. Imports can be curbed by increasing the rate of BCD on import of finished or semi-finished
goods in a phased manner. However, imports must not be overly curbed in the early phases of the programme,
before significant domestic cell manufacturing capacity becomes operational in India. A phased approach to
increasing BCD on the import of finished cells is recommended to enable healthy growth of the EV market as
domestic manufacturing gathers steam. Additionally, the BCD on raw materials required to manufacture finished
or semi-finished goods may remain at 0%. Once 100% value integration happens in India, the domestic industry
will be globally competitive and the BCD on imports may be lowered to make the same at par with global rates.
Similarly, an exemption from BCD on import of capital goods (plant and machinery) required to set up
manufacturing could be given initially to encourage investment in India.
Table 17: Illustrative phasing of BCD
Phasing of basic customs duty
S.
no.
Goods HSN
2020-
22
2022-
23
2023-
25
2025-
27
2027-
31
2031 -
onwards
1a
Batteries or battery packs
of ACC,
38
including
batteries of EVs, except
for 1b and 1c
8507
5% 15%
39
15%
40
15%
1b
Li-ion batteries of cellular
mobile phones
15%
41
1c
Batteries used to
manufacture goods under
chapter 8471 of the
custom tariff heading
0%
42
1d
ACC batteries for medical
and surgical instruments,
apparatus, appliances
10%
43
2
ACC for manufacture of
battery packs
8507 5% 10% 10% 10% 10% 10%
3
Parts required to
manufacture advanced
chemistry cells, such as
anode, cathode,
85 or
specific tariff
heading to
be notified
2.5% 2.5% 5% 10% 10% 10%
38
ACC would cover batteries such as lithium-ion, nickel manganese oxide (NMC), lithium iron phosphate (LFP), lithium nickel cobalt
aluminium oxide (NCA), lithium titanate oxide (LTO), lithium cobalt oxide (LCO), lithium manganese oxide (LMO).
39
In the PMP proposed by the DHI, to promote indigenous manufacturing of EVs, the Ministry of Heavy Industries and Public Enterprises has
proposed levying BCD of 15% for 2021-22 (in terms of FAME policy). Refer notification number F.No 12(31)/2017-AEI dated 6 March 2019. In
case of any revision/change in the FAME Policy, the rate of BCD may be aligned with the FAME policy for the period beyond 2021-22.
40
Suggested by Niti Aayog in consultation with Ministry of Finance
41
The Ministry of Electronics and Information Technology (MEITY), to promote indigenous manufacturing of cellular mobile handsets, has
introduced PMP. The rate of BCD may be kept in alignment with PMP of MeitY. Refer notification no.57/2017 – customs dated 30.06.2017, as
amended by notification no. 22/2018 – Customs dated 2 February 2018. In case of any revision/change in the PMP by Meity, the rate of BCD
may be aligned with the said policy framework for the period beyond 2021-22.
42
The government, in accordance with the Information Technology Agreement has exempted BCD on import of goods under Chapter Heading
8471 of Customs Tariff i.e. laptops or computers. Moreover, the government has exempted all the goods required to manufacture such goods
under Chapter 8471 of the customs tariff heading i.e. laptops or computers vide notification no. 24/2005 – customs dated 1 March 2005. The
rate of BCD on such goods should continue to remain same in accordance with the Information Technology Agreement of GoI and accordingly,
may be revised in case of any revision/change.
43
Suggested by Niti Aagyog in consultation with Ministry of Finance
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Phasing of basic customs duty
S.
no.
Goods HSN
2020-
22
2022-
23
2023-
25
2025-
27
2027-
31
2031 -
onwards
electrolytes and
separators
4
Goods (processed and
unprocessed) required to
manufacture parts of
advanced chemistry cells,
such as graphite, cobalt,
lithium, nickel, except for
copper, and any other
product as may be
notified
Specific
tariff
heading as
may be
notified
44
2.5%
5
Machinery
45
required to
set up a manufacturing
plant for advanced
chemistry cells
As may be
notified
0% 0% 0% 5% 7.5%
Additional notes:
• BCD rates from 2022 onwards may not be published and could be released later, subject to review of actual
situation
• The proposed BCD phasing may be reviewed annually or on periodic basis by the government, based on price
trends for various components, demand and other relevant parameters.
India has entered into bilateral trade agreements (i.e. free trade agreements and preferential trade agreements)
with many countries (for e.g. Japan, Korea, Singapore etc.). Under these trade agreements, import of battery
packs and Li-ion cells or parts of battery could be imported to India at the concessional BCD rates (0%, 2%, 5%,
etc.).
The proposed BCD phasing may be reviewed annually or on periodic basis by the government, based on price
trends for various components, demand, and other parameters.
6.2. Direct tax side interventions
Income tax is levied in India under the Income-tax Act, 1961, enacted by the central government. Income Tax (IT)
Rules, 1962 lay down the procedures to be followed in compliance with the provisions of the Act. These rules are
administered by the Central Board of Direct Taxes (CBDT), which operates under the aegis of the Union Finance
Ministry.
Indian companies are required to pay corporate tax on the income computed as per normal provisions of the Act.
Such taxes are normally calculated at the rate of 30%, plus applicable surcharge and cess. However, in certain
cases, tax rate of 25% is also applicable. Additionally, the Indian tax laws permit levying of Minimum Alternate
Tax (MAT). MAT is calculated at the rate of 15% (plus applicable surcharge and cess) on book profits computed
after making certain adjustments to accounting profits. If the tax payable under normal provisions is less than
MAT, the company shall be liable to pay MAT. The excess of MAT payable over normal tax is available as credit
over next 15 years and can be adjusted against tax calculated under normal provisions.
44
It is suggested that the exemption should be availed basis the certificate issued by the concerned ministry of the GoI and should be subject to
Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017.
45
Plant and machinery required to set up facility to manufacture batteries and its components could be prescribed and the exemption could be
availed basis the certificate issued by the concerned ministry of GoI. Also, it is suggested that the exemption should be subject to Customs (Import
of Goods at Concessional Rate of Duty) Rules, 2017.
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Indian tax laws also provide for various incentives, which are essentially designed to attract investments to
specific industries, promote the development of economically lagging regions and encourage exports of goods and
services. The country offered and continues to offer a number of benefits, including tax and non-tax incentives for
specific sectors like infrastructure facilities (power, port, highways etc.), electronic or software, state-specific and
SEZ investments for export purposes.
Further, the government is has launched various programmes to make India an attractive manufacturing hub and
attract global investment. India’s endeavour is to become a global investment destination and it is necessary to
simplify the country’s tax structure, provide incentives and reduce corporate tax to attract global investment.
Direct tax incentives that should be considered by the government for the promotion of battery manufacturing
are discussed below:
6.2.1. Tax holiday benefits
The government has provided tax holidays under sections 80IA, 80IB, etc., of the IT Act to various sectors, with
the intention to attract investors. As per these provisions, the income of the entities from activities in those
specified sectors is exempt from taxation. Such tax holidays are generally provided for a block of 10 years out of
initial 15/20 years.
Since the government is looking to promote manufacturing of cells and batteries, such tax holidays should be
extended to manufacturers of batteries in India by the government.
Recommendation
It is important that tax holidays be introduced for battery manufacturers (as was provided for the infrastructure
sector under section 80IA) to provide 100% tax exemption on profits earned from manufacturing batteries for a
period of 10 out of 20 years.
However, the government is gradually moving away from the concept of tax holidays. While tax holidays are still
available to entities which qualified earlier, new entities are no more eligible for tax holidays due to applicability of
a sunset clause. While tax holidays may provide impetus for the growth of battery/cell manufacturing in India, the
government may not be keen to extend the tax holidays to this sector.
6.2.2. Accelerated depreciation
Under the tax laws, depreciation is a deductible expense for computing taxable income and taxpayers are allowed
depreciation on the written down value (WDV) of assets at the rates specified in the law. Rates of depreciation
generally range from 10% to 40%. The general rate of depreciation specified for plant & machinery at present is
15%.
Recommendation
Accelerated depreciation of 40% (current rate for renewable sector on machineries used for manufacturing
batteries should be considered. This specific rate of depreciation is currently available for plant and machinery
used in renewable power generation or electrically EVs. This would help in improving the cash flow and encourage
further investment.
However, the government is not extending the benefit of accelerated depreciation to new sectors. Further, the rate
of accelerated depreciation has also been reduced from 80%/60% to 40%. Therefore, the government may not
extend the benefit of accelerated depreciation to plant and machinery for any new sector.
Since the government is phasing out tax holiday and accelerated depreciation, those benefits
may not be extended. Instead of those, the government could provide the following benefits.
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6.2.3. Weighted deduction of capital expenditure under section 35AD
Many sectors which were earlier eligible for tax holidays are now eligible for deduction under section 35AD, under
which they can avail 100% deduction of capital expenditure in the first year of operation. Prior to amendment by
the Finance Act of 2016, the section provided a weighted deduction of 150% of capital expenditure incurred.
However, from FY 2017-18, the deduction had been reduced to 100%.
Recommendation
It is therefore suggested that cell manufacturing be included under the definition of ‘specified businesses’ as a
sector eligible for deduction under section 35AD.
The following points should be considered by cell operators:
• while the loss on account of deduction under section 35AD can be carried forward indefinitely, such loss
cannot be set-off against any other income
• if there is a change in shareholding resulting in change in voting power by more than 49%, the losses
claimed under section 35 AD will not be carried forward for set-off.
6.2.4. Lower rate for MAT
While tax holidays, if provided, will result in tax exemption under normal provisions of the Act, there will still be a
substantial cash outflow on account of taxes payable under MAT, once the entity starts generating book profits.
The initial years of operation are most important for any business entity as there can be major concerns on
account of a cash crunch situation. The sustainability of a business becomes more vulnerable when it is involved
in production/manufacturing of evolving technologies which are yet to see large-scale demand. Advanced cell
manufacturing is one such business and for it to thrive, support mechanism in initial years will help in its
sustainability.
Recommendation:
The MAT rate notified by the government for battery manufacturing companies should be reduced to 9%. This
reduction can be provided by a process of registration, wherein selected entities can avail a reduced MAT rate, and
any non-compliance or ineligibility for subsidy shall lead to a de-registration, following which the normal MAT
rate shall be applicable.
Similar reduction in MAT was recently introduced in 2017 for units in International Financial Services Centre and
it may go a long way in making India globally competitive and self-sufficient in this sector.
Moreover, reduction in the MAT rate will not affect total tax collection. Only the tax collected in initial years will
be low, which will get compensated later. If reduced MAT rate is introduced for cell manufacturers, the amount
they save in initial years will give them cushion to tackle various initial year challenges such as operational
stability, technology and R&D expenses, demand uptake.
6.2.5. Section 35 (2AB): accelerated R&D for future /emerging
technologies
R&D is a definite requirement to source raw materials locally and develop substitutes or changes in cathode
composition (NMC ratio variations) for different cell chemistries suited for Indian markets. Additionally, R&D on
supply chain would also be required to realise larger value addition in India to get a higher proportion of subsidy
share. R&D would also be required in later stages, to minimise costing across the supply chain by devising
solutions of recycling and reusing costlier raw materials.
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Section 35 (2AB) of the Income Tax Act provides a weighted tax deduction of 150% on expenditure incurred by a
specific company, on scientific research (not expenditure incurred through any building or land) in in-house R&D,
centres as approved by the prescribed authorities.
46
As per the guidelines, these entitled companies are eligible to
claim weighted deduction of capital investment on R&D of more than INR 10 million in the preceding financial
year of application for section 35 (2AB). The key eligibility requirements include:
47
• well-defined R&D programmes, including provisions for documentation of such programmes
• recognition of the R&D centre by the Department of Scientific and Industrial Research (DSIR)
• the R&D centre must be located in a dedicated building with exclusive manpower for conducting R&D
• separate accounting for R&D expenditures, duly audited by statutory auditors.
Recommendation
The battery manufacturing facilities in India will initially be primarily involved in establishing the facilities and a
dedicated supply chain for raw material procurement. to realise maximum value in India. However, with increase
in production capacities, rise in material constraints as cell chemistries evolve, there will be a huge impetus for
R&D, including the scope for battery mineral recycling and building in effective cost cutting strategies. Hence, it is
suggested that battery manufacturing facilities can look to establish in-house R&D facilities which will make them
liable for availing tax benefits under Section 35 (2AB).
6.3. Monitoring mechanism
The following parameters would be the basis to monitor the disbursal of cash subsidies to the beneficiary firm:
a) The beneficiary firm shall set up a manufacturing unit (hereinafter referred to as the “mother unit”), ensuring
minimum USD 30 million of investment (excluding the cost of land) per ACC GWh committed capacity under
a single-roof structure and on the books of the SPV till Appointment date + 2 years or FY 2022, whichever is
later.
The beneficiary firm shall ensure production of the committed ACC capacity and overall value addition as per
the proposal submitted to the government, with at least 5 GWh of ACC manufacturing facility with minimum
value addition at the mother unit till AD + 5 years or FY 2025, whichever is later.
b) The term value addition shall be defined as the percentage of manufacturing activity (manufacture ACC) being
undertaken in India, by the beneficiary firm either on its own or through ancillary units or domestic suppliers.
The same may be validated as basis for the certificate of value addition given by the statutory auditor. The
following parameters may be considered to calculate the value addition in India:
I. To be eligible for disbursement of subsidy, the beneficiary firm shall ensure an overall value addition
of at least 50% of the ACC being sold till AD+5 years or 2025, whichever is later. A minimum value
addition threshold of 25% must be achieved by the mother unit under a single-roof structure on the
books of the SPV. The disbursement to the beneficiary firm would begin once the value addition by
the mother unit exceeds the aforesaid minimum threshold. The beneficiary firm shall not be eligible
for availing any additional incentives on undertaking trading of finished ACCs from the mother unit
and where the criteria prescribed are not fulfilled including subject to other conditions as prescribed
under the programme.
46
https://www.pwc.in/assets/pdfs/news-alert-
tax/2017/pwc_news_alert_20_september_2017_updated_guidelines_for_approval_of_in_house_rd.pdf
47
http://www.dsir.gov.in/#files/12plan/bird-crf/FI_G_2016_E.html
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II. The minimum value addition should be achieved as a result of change in HSN (as per the Customs
Tariff Act, 1975) at the six-digit level (of the final product manufactured vis-à-vis the goods procured
for the manufacturing activity) on account of manufacturing activity undertaken by the eligible unit,
ancillary unit or by the domestic suppliers, respectively.
III. The final process of manufacturing must take place in India. Reference to the term “manufacture”
may be drawn from section 2(72) of the Central Goods and Services Tax Act, 2017 manner that results
in emergence of new product having a distinct name, character and use.
IV. Value addition
48
in respect of the goods (battery cells) may be denominated as the ratio of ‘actual
value added’ to the sale value
49
(net of returns, price adjustments, discounts etc.) of the said goods
(battery cells), excluding indirect taxes, if any paid on the goods. The ‘actual value added’ may be
calculated based on financial records (including turnover reported in GST returns) as per the
following formulae:
a) Sale value of the said goods, excluding indirect taxes, if any, paid on the goods
b) Less: Cost of raw materials and packing materials consumed in the said goods (i.e. in the sale price
of the goods sold) to be calculated in terms of generally accepted costing principles
c) Less: Cost of fuel consumed, if eligible for GST input credit
d) Less: Any Material whose Origin cannot ascertained beyond prescribed threshold
e) Less: Expenses incurred in foreign currency for royalty and technical know- how as debited in the
Income statement
f) Add: ‘Actual value added by the ancillary units or domestic manufacturers’ attributable to sale value
of said goods
g) Actual value added by the ancillary units or domestic manufacturers’ is actual value added (as per
the above formulae) by such units/ suppliers in relation to supplies made (to the Beneficiary Firm)
and sale considered by the Beneficiary Firm (for computation of the ‘actual value added’ by the
beneficiary firm). The absolute value may be validated on basis of the statutory auditor’s certificate
received from the respective ancillary unit or domestic supplier.
I. The certificate from the statutory Auditor may not be required where value addition by the ancillary
unit or the domestic suppliers is less than 2% or INR 200,000 (gross amount), whichever is lower, in
the corresponding period.
II. The onus to validate the value addition by ancillary units or third parties or domestic suppliers would
be on the beneficiary firm
III. Additionally, where the eligible unit is also engaged in manufacturing of battery packs and a value
addition till the cell stage could not be determined with the abovementioned approach, the percentage
of value added calculated (as above) should be reduced by at least 34% to calculate the percentage of
value added to manufactured ACC. For example, if the value capture at the battery level is x%, then
the value capture at the cell level shall be (x-34)/ (100-34)%.
IV. for the purpose of validation of subsidy claim, following documents may also be considered:
a) document issued by the concerned Director of Industries on the commencement of commercial
production;
b) certificate by a Statutory auditor, certifying the quantity and value of finished goods produced;
48
A similar procedure has been prescribed by the central government in the notification no. 01/2010 – Central Excise, dated 6 February 2010
49
Updated as per inputs from Mr. Aman (& as per discussions with MeitY)
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c) certificate by Statutory auditor, certifying the reconciliation of value and quantity of ACCs
manufactured, traded, sold as scrap, transferred as stock and GST paid vis-à-vis the amount of
reported in financial statements and GST returns;
d) unit level audited accounts for the relevant financial year, where the eligible unit is operating
through various ancillary units; and
e) audited account and GST audit report for the relevant financial year.
6.4. Penal provisions
Failure to achieve the committed milestone defined by the manufacturer in the RFS proposal, shall result in
imposition of the following penalties:
a) Performance security –
The beneficiary firm will be required to furnish a performance security for an amount of certain fraction
of expected capital cost per GWH. It will be computed as below:
Fraction of performance security * Capital cost * Percentage value addition committed * overall
committed capacity (GWh)
Performance security will be subject to following ceiling – INR 50 Crores upto 5 GWh, INR 75 Crore upto
10 GWh and INR 100 Crores upto 20 GWh of annual ACC committed capacity. The government shall have
a right to invoke the performance security in the manner as follows –
1. If within 2 years from the appointed date, the beneficiary fails to invest USD 30 Million per GWh and
establish cell assembly facility with at least 25% value capture at the mother unit level on the books of the
SPV. However, if the beneficiary achieves the abovementioned milestones and achieves completion of
targets specified in the RFP (for commensurate milestones) the performance security would remain in
force.
2. The other milestone would be 5 years from the appointed date, when beneficiary would be required to
achieve completion of all targets specified in the RFP. If the beneficiary fails to achieve this target, the
authority would have a right to levy penalties from the subsidy payable.
3. If any of the above shortfalls continues for a period for certain number of consecutive quarters, the
authority shall have a right to appropriate the performance security.
b) Failure to meet the committed capacity:
The penalty for capacity provision will be linked to actual implemented capacity and committed capacity
(under the RFS) by the beneficiary firm at the mother unit level and include penalising the beneficiary
firm for two times (committed minus actual implemented) capacity, based on the milestones. For
example, if 10 GWh was committed, and only 8 GWh was produced, a subsidy cut of 2* (10-8) = 4 will be
implemented. Thus, the subsidy will be paid on only (committed-penalty, i.e. 6 GWh) GWh of capacity,
even though 8 GWh has been produced. The penalty shall be levied in same quarter or in case of any
shortfall, shall be carried forward to be adjusted with future cash subsidy disbursements. The penalty on
account of failure to install ACC manufacturing capacity shall be levied till the terminal year i.e. five years
from the appointed date or FY 2025, whichever is later.
c) Failure to meet the committed value capture:
The penalty for value addition provision shall be estimated by the deficit in value addition committed and
actually realised by the beneficiary firm. The retrenchment in subsidy (subsidy committed as per the
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proposal minus the actual subsidy disbursed) shall be calculated and this deficit shall be deducted from
disbursement in the same quarter or in case of any shortfall, be carried forward to be adjusted with future
cash subsidy disbursements. For, example, if 50% value capture was committed and only 40% realised at
the end of quarter, it will lead to a retrenchment in subsidy. The retrenchment shall be (subsidy at 50%
value capture minus subsidy at 40% value capture), say an amount X. X will be deducted from the subsidy
to be disbursed in the same quarter, based on actuals, or in case of any shortfall, be carried forward to be
adjusted with future cash subsidy disbursements. The penalty on account of failure to meet the committed
value addition of the ACCs being sold by the beneficiary firm shall be levied till FY 2030 or ten years from
the appointed date, whichever is later.
In case if the penalty is levied for six consecutive quarters owing to non-achievement of committed scale of
production and/or the committed value capture, the subsidy disbursement and the other financial incentives can
be terminated.
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7. Economic impact of domestic cell
manufacturing
7.1. Economic cost-benefit assessment
Output-linked subsidy has been calculated to arrive at a healthy equity internal rate of return (IRR) for a cell
manufacturer. ACC manufacturers who meet minimum energy density and cycle life criteria will be eligible for
this subsidy, hence no bonus incentives will be considered in this scenario. Additionally, the project will be
economically viable for the government on account of the following benefits:
• Reduction of battery cell import on account of domestic manufacturing facilities which will come up after
subsidies and incentives.
• India is heavily dependent on oil imports and Indian economy is vulnerable to volatility of global crude oil
prices. Increase of crude oil prices often result in oil subsidy by the government to reduce the market prices
because if increase in prices is passed on to the end consumer, then other second and third-degree economic
indicators start to worsen. Such direct and indirect damage to economy can be avoided by reducing oil
imports. Advanced cell manufacturing will enable EV deployment and reduce oil imports to a great extent. As
per an estimate by Rocky Mountain Institute (RMI), total reduction on oil imports will be valued at INR 300,
000 crore due to EV manufacturers using 50 GWh cells
• Due to increase in EV deployment, there will be reduction in emission of harmful greenhouse gases (GHG),
which have deteriorated air quality, especially in metros and Tier-1 cities. There are also various second-
degree positive effects of reduction in air pollution, such as reduced health expenditure. Advanced cell
manufacturing will result in reduction in carbon emission and societal cost implication for the same. The
social cost of carbon is associated with damage to human health and property, adverse impact on the climate
and the eco-system. The Dynamic Integrated Model of Climate and Economy (DICE), one of the most
prevalent global models, estimates the social cost of carbon emissions in India to be around USD 10.44/ton
• Advanced cell storage adoption at grids will enable RE integration. RE is infirm and it causes disturbance in
grid parameters i.e. frequency and voltage. Storage application at generation and transmission will enable RE
injection and ultimately reduce dependency on thermal power plants, reducing import of coal and
improvement of air quality
Considering the above parameters, advanced cell manufacturing will have various direct and indirect economic
benefits. Hence, promotion of domestic manufacturing of cells will be an economically viable investment for the
government.
For Economic IRR calculation, we have only considered savings due to reduction in advanced cell import.
Although, there will be savings in oil imports and benefit to society on account of reduced carbon emission
however these benefits will also accrue if battery cells are imported instead of manufactured in India hence these
are not considered in economic IRR calculation. The economic IRR is calculated to adjust future cash outflows
such as capital and operational expenditure with avoided costs of reduction in advanced cell imports. Considering
the above parameters, advanced cell manufacturing has an economic IRR of 24% and will contribute greatly to the
Indian economy.
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7.2. FDI impact
As per the consolidated FDI Policy of 2017, FDI comes primarily through two routes, government or automatic.
For sectors in which FDI comes through the automatic route, no prior approval from GoI is required for the
investment.
50
In India, FDI in battery-related ecosystem covering manufacturing of auto components, automobiles, electronic
systems, mining and exploration of metal/non-metal ores (barring, mining and mineral separation of titanium
bearing minerals and ores, its value addition and integrated activities which are 100% directed through the
government route), ports and shipping industries are all directed through the automatic route. Hence, there is
already an existing mechanism in the country to expedite in FDI in battery-related segments to develop complete
supply chain in India.
The automobile component industry is expected to account for 5% to 7% of India’s by 2026 from current 2.3%,
with component manufacturing for EVs expected to lead this transition.
51
The automobile industry has attracted
USD 21.4 billion FDI between April 2000 to March 2019, accounting for 5.1% of the total FDI inflows (7.5%
contribution to GDP).
52
Along similar lines, the share of domestic electronics production in India’s GDP has reached 2.3%. The FDI
inflows in electronics in India for FY 2019 were valued at USD 451.9 million compared to USD 196.9 million in FY
2018.
53
The National Policy on Electronics (NPE),
54
2019, targets to promote domestic manufacturing and export
in the entire value chain of ESDM and achieve a turnover of USD 400 billion by 2025.
Such initiatives by GoI are encouraging foreign investment in the automobile sector, allowing for 100 per cent FDI
under the automatic route.
7.3. Direct and indirect tax collection
55
Total corporate tax collection from 50-GWh projects will be approximately INR 16,000 crore. The net present
value (NPV) of total corporate tax collection exceeds INR 3500 crores.
On the indirect tax front, the programme proposes increase of BCD on import of finished goods imports i.e.
battery packs (from current BCD of 5% to 15% in year and 2022-2030 thereafter). Also, we have proposed
increase of BCD on intermediate goods such as cells (from current BCD of 5% to 10% in within years 2024-2030
and 5% thereafter). This increase of BCD is proposed in order to discourage imports of intermediate or finished
goods and promote domestic manufacturing. BCD on raw material is proposed to remain at 2.5%. Hence, there
will be revenue accrual to government on part of proposed increase on BCD on various intermediate and finished
goods. The quantum of change cannot be computed at this point due to uncertainty in demand and level of value
capture to be achieved in India.
Net impact on indirect taxes due total GST collection from 50-GWh projects will be approximately INR 58,000
crore. NPV of total GST collection is expected to approximately INR 22,000 crore.
50 https://dipp.gov.in/sites/default/files/CFPC_2017_FINAL_RELEASED_28.8.17.pdf
https://www.investindia.gov.in/foreign-direct-investment
51
http://www.makeinindia.com/sector/automobile-components
52
Invest India
53
http://www.makeinindia.com/sector/electronic-systems
55
Tax calculation after considering latest amendment in tax laws. In initial years, MAT is considered at 7.5%. It is assumed that
after the tax benefits due to 35AD get exhausted, the entity will switch to new tax rates i.e. 22% base corporate tax rate.
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Overall, total direct and indirect tax collection is expected to exceed INR 74,000 crore and NPV of total collection
is expected to be more than INR 25,000 crore.
If only the subsidy period is considered, on account of the proposed tax incentives to the advanced battery
manufacturing industry, the net impact due to changes in direct taxes (total corporate tax collection from 50-GWh
projects during the subsidy window, i.e. till FY 2030) will be approximately INR 800 crore. The net impact due to
changes in indirect tax (total GST collection from 50-GWh projects during the subsidy window i.e. till FY 2030)
will be approximately INR 22,000 crore.
Figures in INR crores NPV Absolute
Only subsidy years calculation IDT 11890 22044
DT 373 863
Project life calculation IDT 21998 58,067
DT 3580 16159
7.4. Multiplier effect by establishing energy storage
facilities
Establishing battery storage facilities is anticipated to bring in number of socio-economic benefits, apart from
environmental advantages in terms of reducing GHG emissions, reliance on conventional fuel sources and oil
imports. The benefits can be broadly classified across the following main sub-heads.
Benefit Category Key benefits
Environmental • Promotion of green image for entities
• Reduction of GHG and CO2 emissions, that would have resulted due to deployment of
conventional fuel options
• Assistance in meeting environmental/sustainability targets of GoI
Social • Increasing number of employment opportunities
• Promotion of Make in India Campaign
• Global recognition in terms of leading by example
• Increasing opportunity for skill development, incubation centres and entrepreneurship
programmes
• More effective learning opportunities with foreign technical entities, leading to more
R&D opportunities
Economic • Improved State GDP
• Increase in FDI, with an investment opportunity of INR 8,000 Cr
• Improved export competitiveness
• Increase in tax revenue collection
Because battery manufacturing industry has substantial links with so many other sectors throughout the
economy, its output can spur considerable economic activity. Some of these have been analysed below.
• As the battery manufacturing output grows, it will require more input raw materials from metal and mining
industries to feed its increasing demand, pushing further growth of the mining sector
• Similarly, with penetration of increasingly large amounts of renewables into the grid, the power industry
(utilities) would also require energy storage to ensure a stable and flexible power system operation, leading to
more number of T&D solutions coupled with battery being implemented across the country.
• Thirdly, battery manufacturing will also provide the much-needed impetus to growth of EV based automobile
sector in India, leading to increased number of sales and purchasing transactions done for EV vehicles.
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• Another, industry which will gain profitability due to advent of battery storage facilities is the transport and
logistics segment, which will face an increased demand due to the much needed swift movement of necessary
raw material inputs.
• The construction industry will also reap the benefits of such a change due to more number of infrastructural
facilities such as R&D labs, testing laboratories, metal refining and recycling facilities being established in the
country
• Telecom industry, which currently employs expensive diesel generators for meeting energy requirements,
would eventually switch over to more cost-effective battery-based solutions. This will also improve the
telecom tower business expansion, making it more reliable and less capital intensive. (OPEX is lower for
battery-based solutions)
• The demand for local materials for electrolyte manufacturing, separator manufacturing and other chemicals
will also lead to more economic growth for the chemical industry
• Lastly, several foreign investors looking to establish battery manufacturing facilities in India, will try to reduce
their dependence on imports and create their own supply chain here, through setting up of ancillary units,
providing support to main production unit. This will further lead to improved manufacturing growth figures
in India.
7.5. Rationale of giving subsidies to encourage cell
manufacturing in India
In the last eight years, Li-ion battery pack prices have reduced worldwide at a CAGR of 20% due to factors driven
by operations, technology and market. These factors are explained in the illustration below.
Metal and
Mining
Industry
Power
Industry
Telecom
Industry
Chemical
Industry
Constructio
n Industry
Transport
and
Logistics
Industry
Battery
manufacturi
ng ancillary
units
Automobile
Industry
Multiplier
effect
across
sectors
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Li-ion battery prices have gone down from USD 1160/kwh in 2010 to USD 176/kWh in 2018. The figure below
shows a trajectory of Li-ion battery prices.
Figure 10: Li-ion battery price trends
As per a price forecast by BNEF, battery prices are expected to fall further, i.e. below USD 100/kWh by 2024 and
below USD 65/kWh by 2030.
Based on a financial assessment by PwC India, it was found that domestic cell manufacturing business becomes
unprofitable if BNEF prices are considered due to high cost of manufacturing. In order to encourage domestic
manufacturing, output-linked subsidy component is required (in terms of Rs/kWh) to ensure domestically
produced cell prices are globally competitive in line with the BNEF forecast.
To calculate subsidies, a detailed financial model has been prepared by us which includes capex phasing, revenue
and cost forecasting, cash flow projections, profitability assessment of a 10-GWh advanced cell manufacturing
plant. In the calculation, cell prices have been considered in line with BNEF cell prices.
56
56
It has been assumed that cell manufacturers will continuously invest in R&D and asset maintenance in order to strive for better cell
technology to stay ahead in competition and also be eligible for bonus subsidy under the central government programme run by NITI Aayog.
Due to higher technology adoption, it is considered that cell prices from year 2025 will reduce at half the rate of BNEF price forecast.
Operations
•Operations-driven factors
such as reduction in per
unit cost of material while
purchasing in bulk, labour
economies, improvement in
production technology,
marketing economies by
distributing the total cost
over a larger number of
units will drive the cost
down.
Markets
•A major reason of price
reduction is oversupply of
Li-ion batteries in the
market. Battery and cell
manufacturers, loaded with
overcapacity, are reducing
price in order to sign long
term supply contracts with
auto companies.
Technology
•Advancements in terms of
cell chemistry, production
technologies will lead to
cost reduction. For
example, solid-state
batteries are seen as
responsible for the biggest
innovation in the space
sector. That is because the
solid-state electrolyte can
lead to as much as a 40%
increase in the energy
density of a cell, as pure
lithium anodes can be used.
1160
899
707 650 577
373 288 214 176
23% 21%
8% 11%
35%
23%
26%
18%
0%
10%
20%
30%
40%
0
500
1000
1500
2010 2011 2012 2013 2014 2015 2016 2017 2018
Historical price evolution –Li-ion battery (USD/kWh)
Battery price ($/kwh) Reduction
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8. Project and financial assumptions
8.1. Capital expenditure
The major expenditure component of a cell manufacturing plant is plant and machinery required for various value
chain activities such as cathode manufacturing, anode manufacturing, electrolyte manufacturing, separator
manufacturing, cell assembly. Soft cost comprising components such as Interest during construction, financing
cost, contingency, insurance, pre-operative costs add to the overall capital cost. Currently, capital cost of USD 120
million/GWh is considered for establishing a cell manufacturing plant. For calculation purposes, land lease is
considered as an annual outgo on recurring basis and hence not considered a part of capital cost.
8.2. Source of funds
For base case calculation, it has been assumed that debt-equity ratio is 50%-50%. Domestic source of funding has
been considered in base case scenario. The capital structure with high equity has been assumed to be on
conservative side, considering that the large-scale cell manufacturing for advanced cells such as Li-ion is a
relatively new technology for domestic banks and risk perception of bankers may be initially high. Moreover, there
is not any assured offtake by the government and market demand is still evolving, which exposes such a project to
market risk. It is to be noted that debt-equity ratio may be better than this considering the strong market outlook
for battery applications. The cost of debt and other terms are as per the table below:
Table 18: Assumptions for source of funding
Assumption head Sub-head Unit Value
Financing
assumptions
Debt % 50%
Equity % 50%
Interest rates Debt % 10%
Loan tenure Debt Years 12, moratorium period – 1 year
In addition to above, assumptions and financial assumptions required to undertake financial feasibility of a cell
manufacturing plant have been summarised in the table below.
Table 19: Assumptions for financial feasibility
Assumption head Sub-head Unit Value
Plant size Capacity GWh 10
Timelines Deployment timelines Months 12
Project life Year 20
Plant utilisation
factor
Initial five years % 80%
6
th
year onwards % 95%
Interest rates Debt % 10%
Loan tenure Debt Years 12, moratorium period – 1 year
Taxes and
depreciation
Income tax % 15% base rate + surcharge and cess
(17.16%)
MAT % Not applicable
Book depreciation rate % 4.5% for useful life of 20 years
Salvage value % 10%
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8.3. Cost breakdown
Costs of raw material in cathode manufacturing, anode manufacturing, electrolytes and separators contribute to
53% of the total cost of setting up a cell manufacturing plant. Depreciation, which denotes upfront capex,
contributes to only 11% of the total cost break-up, which indicates that operating a cell manufacturing plant is
much costlier than setting it up.
Other expenses such as labour and electricity are much lower than overall raw material expenses. The chart below
indicates the cost breakdown of various components of a cell manufacturing plant.
Figure 11: Cost breakdown of various components
8.4. Financial viability
In order to ascertain financial viability of a cell/battery manufacturing project, a detailed financial model has been
prepared, which includes capex phasing, revenue and cost forecasting, cash flow projections and profitability
assessment of a 10-GWh advanced cell manufacturing plant.
In the calculation, cell prices have been considered in line with BNEF cell prices. However, it has been assumed
that the cell manufacturer will continuously invest in R&D and asset maintenance to achieve better cell technology
to stay ahead in competition and also be eligible for bonus subsidy under the central government programme run
by NITI Aayog. Due to higher technology adoption, it is considered that cell prices from year 2025 will reduce at
half the rate of the BNEF price forecast.
The subsidy considered in the financial model are shown in the table below:
Table 20: Subsidy calculations
Mar-22 Mar-23 Mar-24 Mar-25 Mar-26 Mar-27 Mar-28 Mar-29 Mar-30
GWh 15 25 35 50 50 50 50 50 50
Expected subsidy
Rs/kWh 570 722 857 1271 1144 915 922 553 277
Value capture 30% 40% 50% 65% 65% 65% 65% 65% 65%
Subsidy (in
crore) 855 1805 3001 6353 5718 4574 4611 2767 1383
Cell assembly cost
13.31%
Land lease
0.20%
depreciation
11.17%
Interest -long term
3.19%
Interest -working
capital
1.20%
Tax
1.46%Cathode material cost
24.77%
Anode material cost
11.50%
Electrolyte cost
8.58%
Separator cost
8.26%
Wages & Salaries,
SG&A and utilities
7.71%
R&D
8.64%
Other
53.12%
Cost breakdown of various components
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It is to be noted that the subsidy figures are only indicative and actual subsidy component will be derived after the
competitive bidding process.
Overall, on the basis of financial model, cell prices and subsidy trends for subsidy window, i.e. 2022-2030, is
shown in the figure below.
Figure 12: Cell price, subsidy trends
It is clear from the graph above that in any year, subsidy will remain below 20% of the cell price.
6,579
6,099
5,654 5,590 5,528 5,466 5,405 5,427 5,451
9%
12%
15%
20% 20%
17% 17%
10%
5%
0%
5%
10%
15%
20%
25%
0
1000
2000
3000
4000
5000
6000
7000
Jan-22Jan-23Jan-24Jan-25Jan-26Jan-27Jan-28Jan-29Jan-30
Cell price, subsidy trends
Cell prices Rs/kWh Subsidy Rs/kWh Subsidy/cell price %
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8.5. Subsidy calculation in various scenarios
There can be multiple scenarios of total subsidy disbursement by the government, if maximum subsidy and overall value capture of domestic cell manufacturing in India
are considered. Based on stakeholder consultations and assessment, three scenarios have been prepared, i.e. conservative, aggressive and most likely. The table below
illustrates the year-wise subsidy requirement for value capture and maximum subsidy that is likely to be disbursed in all three scenarios.
Table 21: Subsidy calculations in various scenarios
NPV (INR
crores)
Absolute sum
(INR crores)
Scenario Parameter
Year
Mar-
22
Mar-
23
Mar-
24
Mar-
25
Mar-
26
Mar-
27
Mar-
28
Mar-
29
Mar-
30
GWh 15 25 35 50 50 50 50 50 50
12514 19746
Scenario-1
(Conservative)
Maximum
subsidy Rs/kWh 1900 1805 1715 1629 1466 1173 821 493 246
Value capture % 30% 40% 50% 60% 60% 60% 60% 60% 60%
Expected
subsidy Rs/kWh 570 722 857 977 880 704 493 296 148
CUF % 80% 80% 80% 80% 80% 95% 95% 95% 95%
Total subsidy Crores 684 1444 2401 3910 3519 3343 2340 1404 702
46500 70505
Scenario-3
(Aggressive)
Maximum
subsidy Rs/kWh 3940 3743 3556 3378 3040 2432 1702 1021 511
Value capture % 80% 80% 80% 80% 80% 80% 80% 80% 80%
Expected
subsidy Rs/kWh 3152 2994 2844 2702 2432 1946 1362 817 409
CUF % 100% 100% 100% 100% 100% 100% 100% 100% 100%
Subsidy (Crores) Crores 4728 7485 9955 13511 12160 9728 6810 4086 2043
19239 31067
Scenario-4
(Most likely)
Maximum
subsidy Rs/kWh 1900 1805 1714.8 1955 1759 1407 1419 851 426
Value capture % 30% 40% 50% 65% 65% 65% 65% 65% 65%
Expected
subsidy Rs/kWh 570 722 857 1271 1144 915 922 553 277
CUF % 100% 100% 100% 100% 100% 100% 100% 100% 100%
Subsidy (Crores) Crores 855 1805 3001 6353 5718 4574 4611 2767 1383
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Giga-scale battery manufacturing in India: Powering through challenges in domestic production
September 2020
PwC 60
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