Home / Opinion / Views /  Mint Explainer: Gigafactories, the building blocks of Ambani's clean-energy play

Smokestacks belching out dark clouds have long been the symbol of factories. But, as the industrial revolution is about to make way for a new "green industrial revolution", factories would need to get a new symbol. The fulcrum of this new revolution is gigafactory, the new production hub that makes a world driven with clean energy possible.

Since clean energy is the future of the industry, can big industrialists in the energy sector ignore the writing on the wall? Certainly not. Mukesh Ambani, who heads Reliance Industries, India's fossil-fuel giant, announced at his company's AGM recently that Reliance would be building several gigafactories in India. Will the man who ushered in a data revolution in India with his new venture Jio also spearhead a clean-energy revolution?

What is a gigafactory?

A truly futuristic word, gigafactory entered the common parlance just a few years ago and quickly became a byword for a clean-energy future. The word was coined by Tesla CEO Elon Musk, who used it for the first time during an investors' call in 2013. Musk told investors that some kind of gigafactory needed to be built. He said it would be a giant factory with a capacity comparable to all the lithium-ion batteries the world produced.

About three years later, Tesla, along with Panasonic, built a gigafactory in the Nevada desert. Giga means giant in Latin, and the factory lives up to its name: it is spread over 1.9 million square feet, and with three floors, the total area adds up to 5.4 million. The gigafactory manufactures batteries, storage devices and motors for Tesla cars. Tesla now has four more gigafactories, two more in the US and one each in China and Germany. Soon it's expected to build one more in Canada and then six more at different locations.

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Though gigafactories are associated with their production capacity of batteries in gigawatt hours (GWh), a unit of energy, gigafactory has become a clean-energy catch-all phrase that means any extremely large facility that manufactures batteries and other equipment used for producing clean energy.

Mukesh Ambani's gigafactory ambitions

When starting his new telecom business, Ambani famously said that the data is the new oil, indicating that his transition from oil to telecom was a strategy with a vision. With the fossil-fuel industry under pressure due to the global pursuit of clean energy, Ambani might have realized that in future, the gigafactory could be the new oil refinery. 

At the Reliance AGM, Ambani announced building a gigafactory for power electronics. Ambani also elaborated on the four gigafactories to be set up at Jamnagar he announced last year—one each for photovoltaic panels, energy storage, green hydrogen and fuel cell system. Ambani said Reliance would invest close to $10 billion in establishing a fully integrated new energy manufacturing ecosystem in Jamnagar.

Why gigafactories matter for Reliance

Reliance currently generates more than half of its revenue from refining and petrochemicals. It is trying to shift to renewable fuels. It has set itself the target to become net zero by 2035.

Though there aren't much details yet on Reliance's new-energy manufacturing plans, the company's requirements and deep pockets encourage it to set up gigafactories. Its captive energy requirement across businesses provides it, according to Ambani, with a large base-load demand to support its plans to set up giga-scale manufacturing.

The company's strong cash flow generation in the "best-in-class" old energy business can fund the capex of the new energy business and, in turn, drive one of the fastest and most profitable net-zero transitions by 2035 amongst large energy companies, Goldman Sachs said. In a note in April, it said Reliance was adopting a manufacturing approach to net zero emissions with a hyper-integrated model spanning solar, battery and hydrogen and a focus on a net-zero supply chain.

"We believe RIL's investment in new energy can be fully funded by internal cash generation from their old energy business (oil-to-chemical) and, in turn, could drive one of the fastest net-zero targets (2035) among large energy value chain companies," Goldman Sachs said. So, clean-energy transition is not a clean break from Reliance's core business. The foundation of gigafactories will be laid on the company's conventional energy business because that will be the source of funds for its gigafactories project.

Why India needs gigafactories

Gigafactories will be significant drivers of electric mobility as they chiefly cater to the rising demand for batteries for electric vehicles. As part of its net zero plan, India has announced 500 gigawatts (GW) of non-fossil electricity capacity, half of the energy from renewables and a reduction of emissions by one billion tonnes by 2030. All that's not possible without gigafactories.

Gigafactories are central to India's efforts to increase electric mobility. Unless the batteries are available domestically at lower rates, the cost of electric vehicles will not come down to the level where mass adoption is possible.

Globally, there is now 6,387.6 gigawatt hours (GWh) of lithium-ion battery capacity in the pipeline, as assessed by analyst firm Benchmark Minerals Intelligence in May. That's a 68% year-on-year increase. But India is nowhere in this game.

While India's renewable industry is still very young, China has become a world leader in clean technology. China remains the dominant builder of gigafactories, with 226 due to be operational by the end of the decade, making up over 75% of all facilities tracked by Benchmark Minerals Intelligence. Europe has a plan to build gigafactories to gain battery independence from China. But India has no such concrete plan yet.

Gigafactories manufacture at a gigantic scale, so they also create and vitalize many other renewable ecosystems, thus giving a boost to the overall economy. That's why governments try hard to attract FDI to set up gigafactories. Ambani's proposed gigafactory ecosystem at Jamnagar will fill a crucial gap in India's clean-energy project.

Elsewhere in Mint

In Opinion, Ajit Ranade profiles Cyrus Mistry, a leader who shunned limelight. Amish Mehta argues decarbonizing conventional smokestacks will be no cakewalk. Vidya Mahambare & Praveen Kumar write about a crucial piece of information hidden in the price data. Long Story details how IndiGo will defend its No. 1 position.

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