Battery Storage

Context: ReNew Power is a rapidly growing renewables firm in India that has raised record
amounts of equity and debt capital and has scaled its portfolio to become India’s largest renewables
power company in a relatively short amount of time. ReNew generates more than 1% of all of
India’s electricity needs each year – all from renewables.
New opportunity: Given ReNew’s success in the clean electricity generation market, ReNew is
now looking to diversify into new business areas. One of the most talked about areas in industry
circles in the cleantech sector is that of battery storage. Batteries are a critical component for
storing intermittent renewable energy and will increasingly become important when renewables
begin to account for a significant portion of India’s energy generation mix. Presently, solar and
wind generate 10% of India’s electricity; this is slated to increase to 25%-plus levels in the next 5-
years. Battery storage, especially the lithium- ion kinds, is the missing link that can allow the Indian
grid to absorb a large quantum of flexible energy. Lithium- ion batteries also play an important role
in powering Electric Vehicles (EVs), a technology that is slated to shift the bearings of the mobility
sector not just in India, but the world over, in the years ahead.
At present, India has very little battery storage capability. On the intellectual property (IP) side,
we do not have access to any of the major components in the supply chain, i.e., the raw materials.
We also do not have the technical know-how to convert those materials into cells of electrodes and
electrolytes, and then bundle those cells into modular battery systems that can be used to store
electricity generated from renewable energy plants or plugged into EVs. On the manufactur ing
side, India does not have any cell manufacturing or cell assembly capacity to produce or assemble
these systems at scale. See Exhibits 1a and 1b on the last page of this case to see what a lithium-
ion battery in an EV looks like.
Task: Yet, as discussed above, battery storage’s prominence in the cleantech sector seems
imminent. ReNew Power’s senior management team would like to, therefore, find answers to the
following questions.
Please answer the following questions, (questions 1 through 5 each in under 200 words):
1. Summarize the different kinds of storage technologies available in the market by their base
type (e.g., mechanical, electro-chemical, etc.), their capacity or system size, and their
discharge rate. This can be best explained using an illustration. Please find the correct
illustration using a search engine, provide the source of your chart, and explain what is
going on in that chart briefly.

2. Can you qualitatively explain how battery technology would work in the case of an energy
project? Suppose there is a solar power plant with a capacity of 10 kW on your home’s
rooftop. Where would the battery come into picture and how would it tie into your solar
system? Explain the energy flow from the battery – when will your solar system provide
electricity to your house, and when will the battery system? Assume you are isolated from
 the main electric grid and rely only on this solar-plus-battery system to meet your home’s
energy demand. Also assume that this entire system is perfectly sized and is sufficient to
power your home.

3. Why is energy capacity (e.g., wind power, thermal power, hydro power, etc.) measured in
Kilowatts (kW), Megawatts (MW), and Gigawatts (GW), but storage capacity measured
in Kilowatt Hours (kWh), Megawatt Hours (MWh), and Gigawatt Hours (GWh). Can you
explain what is happening with these units? Explain only the case of kW and kWh (ignore
mega and giga).

4. Given that there are so many different storage technologies available, do you think lithium -
ion batteries will live up to the hype to become the foremost choice of battery storage type
for clean energy power producers? In other words, what factors would you consider when
advising ReNew’s senior management to place a “bet” on a particular battery storage
technology? Please explain in detail. (Hint: You might want to refer to the concept of
“Levelized Cost of Electricity”; try also to think of what demand factors might be at play
here)

5. Assuming that ReNew’s senior management picks lithium- ion batteries as its choice of
technology (the right answer could very well be that ReNew’s management picks another
technology, so don’t change your thinking for Q4 just yet), what is the total addressable
market for lithium- ion batteries in India annually starting January 2021 and up to
December 2025. Assume there are two markets – renewables integration and EVs. Provide
your answer in terms of both, gigawatt hours (GWh) and US Dollars across all 5 years.
Please consider the following assumptions (Hint: keep an eye out on the units).

Renewables integration market

Large-scale renewable energy capacity in India as of 150
January 2021 (GW)
Annual growth of renewable energy capacity starting 10%
January 2022 onwards
Percentage of renewable energy capacity linked to 2- 10%
hour battery systems
Per kWh rate of battery, capex, in 2021 (USD/kWh) $120
Annual per kWh price reduction in battery capex 10%

Electric Vehicles market

Number of automobiles manufactured in India 30 million
Percentage of automobiles that are 2- and 3-wheelers 80%
Percentage of automobiles that are 4-wheelers1 20%
Average battery size of 2- and 3-wheelers (kWh) 10 kWh
Average battery size of 4-wheelers (kWh) 35 kWh

1 Let’s assume only 2-, 3-, and 4-wheeler sales for the sake of simplicity
 Annual growth in the automobile manufacturing 2.5%
sector in India
Percentage EV sales in 2021 2%
Annual growth of EV share of automobile mix 75%

6. Now that we have mapped out the total addressable market from years 2021 through 2025,
let us look at micro-scale project economics. How does a battery storage system work for
one consumer? For this question, let us look at the economics of battery storage solutio ns
from a rooftop solar perspective. Suppose a consumer, Ms. Anu Joshy, is deciding whether
to install a rooftop solar system with Li-ion batteries at her bungalow in Ooty, Tamil Nadu.

She plans to start operating the system on New Year’s on January 1, 2021 but will make
all the payments and complete the commissioning in 2020. So, 2021 will be the first period
of system operation and all its cash-flows need to be discounted to the present value in
2020. Questions (answers max 50 words each):

a. Should she go ahead and do the project with only solar? Do a present value analysis
to answer this question.
b. Should she add the battery system? Also do a present value analysis to answer this
question.
c. Additionally, what is the IRR for her on this project? With solar? With solar and
batteries?
d. If we remove the income tax incentive from the equation, how would your numbers
– and advice to Ms. Joshy – change?
Use the assumptions laid out below to model out your answers (while we solved the earlier
question in USD, please solve this one in Indian rupees):
Capex of rooftop solar system Rs 5.5 lakhs
First-year solar generation (kWh) 6000
Annual reduction of solar system performance 0.5%
Annual electricity consumption at the Joshy 9000
household (kWh)
Increase in annual consumption 2.5%
Project life (years) 30
Inverter replacement cost in the 15th year (Rupees) Rs 37.5
thousand
Income tax incentive for the solar system (fully 30%
utilizable by Ms Joshy in 2021 for both solar and
battery); in subsequent years, she can utilize the tax
credit fully in any year a replacement is done for that
year)
Retail price of electricity in Tamil Nadu (Rupees per Rs 10
kWh)
Annual increase in retail electricity prices 3%
Discount rate 7%
Battery capex, 2020 Rs 1.8 lakhs
Battery replacement capex, 2030 Rs 90
thousand
Battery replacement capex, 2040 Rs 50
thousand

Please also refer to the critical information below before creating your model. Given
that solar is an intermittent source of electricity, the following table below represents her
annual electricity usage pattern by month. In the case where she does not install batteries,
she loses excess generation as there is no net-metering option available to her. Assume this
proportion of monthly usage will continue to remain constant in all future years as overall
annual consumption rises. Finally, in the case she installs batteries, the system is perfectly
sized so that she does not lose any excess generation.

Monthly Monthly solar

consumption production
1019 126
Jan
Feb 960 212
Mar 1000 376
Apr 1050 629
May 532 873
Jun 473 963
Jul 430 1013
Aug 318 788
Sep 461 509
Oct 600 276
Nov 1110 142
Dec 1047 93
9000 6000

7. Let us go back to the advisory services that we need to provide to ReNew’s senior
management team on the broader battery storage opportunity. If ReNew Power decides to
enter the battery assembly segment organically, it will take 3 years to develop expertise,
and 1 year after that to set up an assembly plant. If it decides to acquire a company that
has the IP, know-how, and an existing assembly facility – with the ability to expand – then
ReNew Power can essentially hit the ground running with that company’s existing
production capacity today. Because ReNew’s board is predominantly comprised of
international investors, solve this question in USD. Questions below (answers max 200
words each):
a. Make a financial comparison between the organic growth route and the acquisitio n
route over an 11-year period using assumptions provided in the table below. Share
your spreadsheet model with us in your response packet.
 b. Should ReNew go ahead and make the acquisition from a financial standpoint?
Provide both an NPV and IRR analysis on both the organic and acquisitio n
pathways.
c. To be sure, this question goes beyond basic financial modeling – while a financ ia l
model might give us some benchmark to anchor our thinking on, this question is
deeply strategic. What should ReNew Power do here? What in your opinion are
the benefits of acquiring an entity with expertise and capabilities? What in your
opinion are the disadvantages? Other than the assumptions provided below, feel
free to be creative and create – though state – your own assumptions in any analysis
you do or provide.
d. Imagine you are presenting to ReNew Power’s CEO. You are in the boardroom
and the company’s investment committee is sitting around the table, with the CEO
at the head of table. You have been called in to present your analysis on this
question. What is your final recommendation to this team? (You are encouraged to
think out of the box and go above and beyond the financial analysis.)
Organic route
Number of R&D personnel 15
Average salary per person $75,000
Additional R&D expenses over and above salaries 30% of salary budget
Annual growth in overall R&D budget 10%
Plant capex (incurred in year 4) $5 million
Plant expansion capex (incurred every year, year 5 $500K
onwards)
Revenue (achieved year 5 onwards) $10 million
Annual revenue growth rate 25%
Gross profit margin 15%
Discount rate 10%

Acquisition route
Value of the company today / acquisition cost 10x of Gross Profit today
(incurred today, year 1)
Revenue today $10 million
Annual revenue growth rate 25%
Gross profit margin 15%
Plant expansion capex (incurred every year, year 2 $500K
onwards)
Discount rate 10%
Exhibit 1a. Tesla’s Model 3 Lithium-ion battery2

Exhibit 1b. Tesla’s Model 3 Lithium-ion battery bird’s eye view3

2 “Selecting the Right Battery Size” Tesla Tap, Web, 2020

3 “Tesla Drops Model 3 Mid Range Battery” PCMag, Web, 2019