As India’s power grid becomes increasingly complex due to rising renewable energy penetration, the need for a stable grid has never been more pressing. With the growing share of variable solar and wind power in the energy mix, battery energy storage systems (BESS) are emerging as a critical enabler, helping bridge the gap between generation and consumption while maintaining grid balance.

The Ministry of Power mandated that co-located energy storage systems with a minimum two-hour capacity, equivalent to 10% of the installed solar capacity, be included in all future solar tenders. This directive targets strengthening grid reliability and supporting the country’s goal of achieving 500 GW of renewable energy capacity by the end of this decade.

Integrating storage systems into the grid helps iron out renewable energy output fluctuations. It also ensures that surplus power generated during the day can be deployed during peak evening demand.

Rajesh Zoldeo, Head of Business Development and Commercial for the Renewable Business, Sembcorp India, notes, “The intermittent nature of renewables necessitates the deployment of energy storage systems that can store excess energy during periods of high generation and supply it during times of low generation.”

The scale of what lies ahead is reflected in the National Electricity Plan issued by the Central Electricity Authority, which estimates that India will require nearly 74 GW of storage capacity—amounting to over 411 GWh—by 2032. This capacity is essential to integrate an anticipated 364 GW solar and 121 GW wind capacity.

Zoldeo indicates that energy storage systems can potentially delay the need for expensive transmission infrastructure upgrades by releasing stored energy when needed most, particularly during the evening hours when solar generation tapers off.

The economic landscape for BESS has also undergone a dramatic shift. In 2022, tariffs hovered above ₹1.08 million (~$12,570)/MW/month. Two years later, prices have fallen to ₹221,000 (~$2,550)/MW/month in recent tenders, reflecting a sharp cost reduction.

“The rates discovered in recent tenders for solar, wind, and battery are becoming more competitive, securing tariffs below the levelized cost of thermal power generation, which is a turning point for India’s renewable energy sector,” remarked Zoldeo.

This tariff decline has been largely driven by falling lithium-ion battery costs, bolstered by advances in technology and expanded manufacturing capacity. In 2023, lithium-ion battery pack prices had dropped by 14% to $139/kWh, largely due to easing raw material and component prices. The trend accelerated further in 2024, with prices declining another 20% to $115/kWh, the steepest annual drop since 2017.

Even electricity regulatory commissions have taken note of falling battery costs. In January this year, the Central Electricity Regulatory Commission rejected Solar Energy Corporation of India’s petition to adopt tariffs for its 500 MW/1,000 MWh standalone BESS pilot projects as battery costs had fallen drastically since the auction. While the bidding process was transparent and guideline-compliant, the Commission ruled that adopting the outdated tariffs would harm consumer interests.

Factors contributing to this decline include overcapacity in cell manufacturing, increased adoption of lithium-iron-phosphate chemistries, and slower electric vehicle demand growth.

These cost reductions have prompted the government to scale its viability gap funding (VGF) program for BESS. Initially targeting 4,000 MWh of storage capacity by 2028, the program has expanded its scope to 13,200 MWh.

The financial support, capped at ₹2.7 million (~$32,114)/MWh or 30% of the capital cost—whichever is lower—is designed to enhance the commercial viability of storage projects.

The VGF disbursement structure is spread over five tranches, beginning with an initial 10% release upon financial closure, followed by a 45% share at the point of commercial operation, and concluding with staggered payments of 15% over the following three years. The expanded funding framework is expected to unlock broader participation in the sector while creating a stable foundation for storage-led hybrid energy development.

The Ministry of Power directed all states and implementing agencies to award all BESS contracts by June 2025 to enable the completion of the VGF program by May 2027.

These policy shifts offer developers a range of advantages, from project portfolio diversification to long-term government-backed power purchase agreements. Experts note that the combination of contractual stability and capital assistance makes BESS-integrated tenders compelling for developers with the technical expertise and scale to deliver.

However, the path to scale is not without hurdles. According to industry insiders, despite the declining costs, the high initial investment in BESS technology and the high cost of energy storage continue to remain barriers to its widespread adoption.

With India aiming to scale BESS to match its renewable ambitions, supportive policy frameworks will be vital. Initiatives like waivers on interstate transmission charges and energy storage obligations are good starting points.

One critical regulatory hurdle is the ₹10 (~$0.12)/kWh ceiling on the power exchanges during peak hours, which Zoldeo believes stifles market-based pricing. This cap limits potential revenue from energy arbitrage, reducing the commercial viability of BESS projects.

If this ceiling is removed and true market prices can be discovered during high-demand periods, it would significantly enhance the financial returns of energy shifting. This, in turn, would incentivize many developers to invest in BESS solutions.