Tesla can do a world of good if Elon Musk seizes the coming boom in India's energy market

Key Points
  • India is expected to overtake China as the largest renewable-energy market by 2020.
  • There will be an urgent need for energy-storage solutions in India as solar and wind power grow to as much as 75 percent of new capacity.
  • Battery storage deployments can reach 1,000 Gw by 2040. There are 19 Gw of storage globally today.
  • Companies, including Elon Musk's Tesla, are in a position to build a huge battery-powered storage business.
An Indian security personnel walks over rooftops covered in solar panels at the Solar Photovoltaic Power Plant near Amritsar, India.
Narinder Nanu | AFP | Getty Images

Tesla CEO Elon Musk has Twitter-teased a potential entrance to the Indian market for the electric vehicle maker in recent years. If the billionaire does ever bring his renewable-energy vision to India, he may want to lead with battery-based energy-storage solutions for the grid rather than electric cars.

The Indian power market is undergoing a seismic shift. The country's fight against crippling pollution and the pressing need for clean power have energized its renewable-energy sector. The administration of Prime Minister Narendra Modi has made sustainable, clean electricity a key policy priority by setting an ambitious goal of producing 175 gigawatts (Gw) of renewable energy by March 2022, equivalent to 40 percent of the country's total power capacity.

The world's third-largest energy consumer after the U.S. and China, India has grown leaps and bounds in renewable-energy production over the past few years, with new capacity being brought online by renewable sources surpassing new coal capacity for the first time in 2017. Last year renewables accounted for 71 Gw of India's installed generating capacity, around 8 percent of India's overall electricity generation. As much as 74 percent of India's new power capacity addition in 2018 was renewables, led by solar power, which is projected to soar from 6 percent at present to 24 percent in a decade.

Globally, India ranks fifth in terms of total renewable-energy installed capacity, behind China, the U.K., Germany and the U.S., according to a Climatescope 2018 report from Bloomberg New Energy Finance.

With a population of 1.3 billion people, the South Asian economic nation is projected to overtake China as the largest growth market for renewable energy by 2020. India's energy-consumption growth of 4.2 percent is faster than that of all major economies.

India will be world's largest market for energy storage

India's renewable-energy ambitions face a few hurdles, the most significant of which is storage. There is a wide gap between renewable-energy production and available energy storage. In the absence of large-scale and efficient energy-storage capabilities, much of the excess energy being produced by solar farms or wind turbines is squandered. Storage solutions can ensure a reliable supply of energy to the nearest grid to meet peak energy demand or be transported to parts of the country prone to widespread power outages, as well as to millions of houses lacking grid connections.

Ultimately, the energy-storage gap will create an enormous market in India with attractive investment opportunities for both homegrown battery-storage companies and global players such as Tesla, LG Chemical, Chinese electric battery and car company BYD — which Warren Buffett's Berkshire Hathaway is an investor in — and Daimler's Mercedes-Benz Energy.

India is easily the largest market opportunity for global energy-storage companies, said Vivek Wadhwa, a distinguished fellow and professor at Carnegie Mellon University Engineering.

While India is going flat out to produce solar and wind energy to meet its swelling energy demand, storage isn't as big a focus. That's because in a country where energy demand far outstrips supply, power production remains a more immediate priority. "Indian policymakers aren't seeing the need for storage yet, because they are just playing catch-up with the country's desperate need for energy," Wadhwa said, a vocal advocate for green energy whose views are frequently published in the mainstream Indian media. "You need to store energy only when you have excess."

Energy storage is expected to take off in developed markets in 2019, with North America projected to see more than 500 megawatt hours (MWh) of batteries deployed in utility-scale solar plants this year, according to a new forecast from IHS Markit.

Elon Musk will wake up to the problems with China as soon as the Chinese have learned everything they need and eaten his lunch. ... he needs to focus on India because the real opportunities are there.
Vivek Wadhwa
professor at Carnegie Mellon University Engineering at Silicon Valley

It won't be long before India gets the storage shock. Wadhwa forecasts that energy storage will become "a real problem for India in the next couple of years, and then the market would greatly expand."

A continued decline in renewable energy prices could well work in India's favor. The cost of variable renewables – solar and wind energy – has halved in India since the start of 2017, falling below grid parity. In a similar trend, the cost of battery storage has been dropping and is projected by the International Energy Agency (IEA) to fall faster over the coming years, which will drive the battery deployment in the energy sector and improve grid supply and dispatchability.

"Grid level storage, residential rooftop solar and storage, and even electric vehicles with their significant battery storage capacity will all play a material role in grid balancing and stabilization in any smart electricity grid system of the future," said Tim Buckley, director of energy finance studies at the Institute for Energy Economics and Financial Analysis (IEEFA) in Sydney, Australia.

A slew of factors make it unlikely that battery powerhouses like Tesla will make a beeline for the Indian market even with its renewable energy production growing so quickly. For one, Tesla is sharply focused on expanding its electric car manufacturing and much of its battery storage production is geared towards fulfilling that objective. While Tesla is ramping up energy storage, the supply constraints are expected to remain for some time.

Tesla, whose utility-scale battery storage system in Australia sparked global interest in similar projects, simply can't make enough battery packs to meet the current demand. The resultant supply shortage pushes prices too high for cost-sensitive markets like India. "Demand [for Tesla battery storage] far outstrips its ability to supply, so it is getting a significant premium price for its product," Buckley said. He said that explains why Tesla has "zero presence in India."

China is still in the lead

Moreover, China, India's neighbor to the north, is regarded by foreign companies as a far more attractive market owing to the sheer scale of its industries. India may be on course to become the largest growth market for renewable energy but for now China remains the largest producer and consumer of renewable energy in the world, according to the International renewable Energy Agency. China has been hoovering up much of the interest and investments from foreign companies.

"India is five to 10 years behind China," Buckley said.

Wadhwa, who has communicated directly with Musk, has warned the Tesla CEO about focusing too much on China, where the electric car maker is now building its first overseas manufacturing operation. The Chinese government, he asserts, is only interested in foreign companies whose technology it wants to steal. "China is essentially closed to outsiders; India is open and in desperate need of these technologies," he said. Many companies have learned this the hard way, and allegations of intellectual property theft in the technology arena are one of the major sticking points in a trade deal between the Trump administration and China.

"Elon Musk will wake up to the problems with China as soon as the Chinese have learned everything they need and eaten his lunch," Wadhwa said. "I have told him that he needs to focus on India because the real opportunities are there."

Tesla is betting big on China but faces steep competition there

Tesla is working to increase energy-storage supply. A new manufacturing line made by Tesla Grohmann (Grohmann is the name of a German company Tesla acquired in 2017 and still uses for its battery operations) is increasing production of Powerwall and Powerpack modules at its Gigafactory 1 in Arizona, Tesla said in its Q4 shareholder letter. Tesla said that with a better supply of cells and new manufacturing equipment, it is aiming to more than double energy-storage deployments to more than 2 Gw in 2019.

Tesla declined to comment on its plans for India.

India can't afford to wait too long. Experts say India would be better off developing its own energy-storage ecosystem leveraging on indigenous capabilities and drawing on existing technologies from around the world.

"India should develop its own industry and bring in foreign companies to partner and supplement it," Wadhwa said. "There are gigafactories [being] built all over the world, which can provide India with the storage technologies it needs."

Companies around the world — from the U.S. to Germany, Thailand, China and Australia — are working on battery gigafactories.

One recent report projects global battery-storage deployments reaching close to 1,000 Gw by 2040 from less than 19 Gw in 2018, with $620 billion in investment over the next two decades.

Buckley wants India to leverage the gains China and Germany have made in technology development (Buckley cited the example of Fluence, a joint venture between AES and Siemens) and have domestic players drive the energy-storage development needs of India, because local companies know the Indian consumer, India's needs and India's policy frameworks.

The Indian energy-storage market is so young that any well-capitalized, major industrial player can move into this space, establish an industry leadership and leverage the huge demand potential. "India is not late to this party, and it is going to be huge, so no better time than now to get started, independently or in conjunction with an existing world leader," Buckley said.

India needs to back up its promises

Foreign players remain wary of Indian regulations and skeptical about its lofty targets, many of which aren't enshrined in legislation. This includes the Modi government's bold and aspirational goal of 100 percent EVs by 2030, a target that was later dialed back to 30 percent.

"This was not a formal policy backed up by rigorous analysis and detailed consultation between industry, state and central government bodies," Buckley said. "It was and remains a great aspirational target, [and] corporations don't invest billions on the back of an aspirational target."

Political resistance is to be expected. India will need to consider the potential negative impact of a clean energy transition on the country's employment market, said Sajal Ghosh, an energy economist at the Management Development Institute, near New Delhi. A lower dependence on coal-based power means significant job losses in both labor-intensive mining and its downstream industries, he said. "India, with the world's fifth-largest coal reserves after the U.S., Russia, China and Australia, cannot ignore the role of domestic coal in supplying electricity at an affordable price, which provides much needed energy security and employment prospects, alongside grid stability."

Coal-based power is not going away. India will need to perform a delicate balancing act negotiating a raft of economic, technological and regulatory issues to pull off its ambitious renewable plans or risk being judged as an overpromising and underdelivering laggard.

Wadhwa said the increasingly favorable economics of renewable energy should be the biggest driver. "I don't see any reason why it can't do this, as the cost of solar is dropping 15 percent to 20 percent every year, so this is a winning battle," he said. "India desperately needs solar and wind energies to replace fossil fuels and to save itself from destruction. New Delhi is already a gas chamber with its unbearable pollution."

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Key Points
  • Tesla CEO Elon Musk has said of hydrogen fuel cell vehicles, 'Success is simply not possible.'
  • A 2017 survey of 1,000 global auto executives concluded hydrogen fuel cell technology will ultimately outperform battery-powered electric vehicles.