India slashes tax rate for batteries and their raw materials

With the U.K. government accused of prevaricating after last week's decision to ask industry figures how to encourage the take-up of solar, the Indian administration has set an example by slashing the tax rate applied to batteries and their manufacture.

The federal government has announced a 10% reduction on the Goods and Services Tax (GST) applied to lithium-ion batteries and the raw materials used in their manufacture – from 28% to 18% – in a twin bid to raise storage capacity and boost domestic manufacturing.

Welcoming the decision, Debi Prasad Dash, Director of the India Energy Storage Alliance (IESA) said: “Both the electric vehicle and the renewable energy industry will benefit from this step. However the further reduction of GST to 5% – similar to [the rate for] solar components – or to 12%, similar to [that for] electric vehicles, is essential to boost energy storage adoption in India.

“Energy storage has almost 20 different applications in India, such as [renewables] integration, grid ancillary services, diesel minimization, micro grids for energy access and campuses, [and] electric vehicles and charging infrastructure.”

Dr. Rashi Gupta, Director at Li-ion battery maker Vision Mechatronics, also welcomed the development.

“Energy storage solutions, specifically lithium batteries, have seen a lot of demand recently,” said Dr. Gupta. “Lithium batteries require higher initial investment than other existing technologies, and the 28% GST had made these even costlier for the consumer segment.

End-users felt burden

“[With] batteries being a major component of EVs, the burden of this GST was always felt by the end users. Currently, EVs are priced much higher than [the] equivalent petrol/diesel vehicles, and the reduction in GST should have an impact on the pricing, broadening the buyer segment for EVs.

“Apart from EVs, lithium batteries for street lights will also see a lot of relief with the GST reduction. Off-grid and hybrid solar projects – either rooftops, ground-mounted or megawatt-scale – done under the RESCO [build, own, operate, transfer] model would also become more viable.

“Batteries as a service may become a more attractive model as the investment reduction cuts the payback period significantly. This would also help to promote research on different applications for lithium batteries as colleges and research institutes would find it to be a very welcome step.”

With the federal government reducing GST on fuel cell vehicles even further, to 12%, there is a loophole for lith-ion battery makers, who can benefit from a further 6% tax cut of their products are fitted in EVs.

The market and government policies

According to the India Energy Storage Alliance, the energy storage market in India will grow to more than 300 GWh by 2025.

The country is expected to attract investment for 3-5 gigafactories for advanced Li-ion batteries, attracting more than $3 billion of investment in the next three years.

Already, more than 1 GWh of annual assembly capacity is being set up by Indian and global companies for converting imported Li-ion cells into battery modules. Opportunities include manufacturing, assembly, energy storage project development, equipment supply and R&D for technology enhancement.

“States including Maharashtra, Karnataka, Andhra Pradesh, Telengana, Uttar Pradesh, Gujarat and Rajasthan have taken the first step towards EV and energy storage policy creation to boost the market,” added alliance director Mr Dash. “Currently, [the] Ministry of New and Renewable Energy is also creating [a] National Energy Storage Mission to catalyze manufacturing in India.”

However the decision to focus solely on Li-ion batteries may come as a blow to Hitachi owned battery manufacturer FIAMM, which last week announced its intent to continue developing lead-acid products because of sustained demand in Asia.

FIAMM, based in Montecchio Maggiore, near Vicenza in Italy, announced the strategy in a press release issued to mark the progress made since Japanese conglomerate Hitachi Chemical acquired a 51% stake in the company a year ago.

The company said lithium-ion products would feature technology from the Japanese parent but new lead-acid solutions would be developed by the Italian operation even though “over time, the market demand will shift towards lithium, but lead is still a major resource, also within the industrial field”.

Raimondo Hippoliti, director of R&D for FIAMM, told pv magazine: “Lead acid and lithium ion technologies are complementary, in the sense that they will live together in the future for a quite long time.

“Lithium is much more expensive and it is a waste of money, for example, to use it for UPS [uninterruptible power source] systems, that must work for a very short time, quite rarely – in some cases [a] few times a year.

“On the opposite side, lithium has features that make it the unique choice for certain applications, e.g. heavy traction, energy storage, brake energy recovery. For this reason, [the company] will face [its] future investing in both technologies, using every time the best one for the required application.”

Mr. Hippoliti would presumably back the call made by IESA executive director Rahul Walawalkar who said, in a statement released by the organisation this morning: “We urge [the Indian] finance ministry to extend the rate reduction to other forms of energy storage technologies, including advanced lead-acid, sodium based batteries, flow batteries, metal air batteries, ultra-capacitors, fuel cells and thermal storage technologies.”

This article has been amended to include FIAMM's comments to pv magazine as well as those of Dr. Walawalkar.