The SBICAPS report on energy storage systems highlights how India’s battery energy storage sector is shaping up against the backdrop of changing market dynamics, policy initiatives, and global lessons. The spot power market is expected to remain volatile in the medium term due to weather patterns, demand surges, and a lack of firm capacity addition. Price spikes, especially during summer nights when demand is high but solar output is low, have pushed tariffs toward regulatory ceilings. Large storage capacity, estimated at nearly 30 GW over the next two years, is only expected by FY27, which may then flip the challenge from shortage to possible oversupply. This comes at a time when electricity market reforms, such as market coupling and derivatives, are expected to put downward pressure on spot prices.
Tendering momentum continues to favor battery-based storage projects. With lithium-ion costs declining, longer-duration storage like four-hour projects is now being awarded at tariffs close to shorter two-hour projects. This matches India’s evening peak demand profile and reduces reliance on pumped storage projects. However, challenges remain. Land acquisition and securing transmission connectivity often extend project timelines from the planned 6–9 months to almost 18–24 months. Developers also face risks related to battery performance, such as quicker-than-expected degradation and shorter cycle life, along with delays in payments from counterparties. Developers with strong execution capability, credible counterparties, and minimal bid cancellations are seen as best positioned to succeed.
China’s experience provides critical lessons. The Chinese market has rapidly scaled BESS capacity with integrated manufacturing, aggressive planning, and revenue stacking, where income comes not just from capacity payments but also from ancillary services and price arbitrage. In India, the revenue model is still limited, with ancillary services priced uniformly and merchant revenues only beginning to play a role. For sustainable growth, Indian projects will need to diversify revenue streams beyond fixed capacity charges. On the supply side, India lags in manufacturing, with negligible lithium-ion battery production. The Production Linked Incentive (PLI) scheme has had mixed success, and most domestic efforts focus on EV batteries rather than stationary storage. Given China’s dominance in cell and battery production, India may have to rely on imports in the near term while preparing to adopt next-generation technologies.
The report also cautions that oversupply could soon become a concern. While current storage capacity falls far short of requirements, nearly 30 GW of new capacity expected by 2027 could surpass the estimated 24 GW needed, forcing developers to depend on arbitrage opportunities. With falling exchange prices, high-cost projects may struggle to remain competitive. The experiences of China suggest that India should selectively adopt strategies, focusing on market-based ancillary mechanisms, integrated supply chains, and diversified revenue models.
India’s BESS market is entering a critical phase where cost reductions, tendering momentum, and execution capability will shape the winners. But without revenue diversification and upstream integration, the sector risks being squeezed between volatility in the short term and oversupply in the medium term.
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