The Start Of The Energy Storage Era Has Arrived In India- SBI Caps

Investment bank SBI Caps has released a new report on the evolving battery scenario in India. The report makes a number of observations and recommendations to ensure that the critical sector delivers on its promise. From cautioning against a rush towards reducing dependence on China, calling instead for a more calibrated approach, to  increasing import duty (currently) 11% to reduce import of containerised systems. We present a detailed look at the key takeaways.

A Slump In exchange prices Makes Strong Case For Energy Storage Systems

In May’25, power exchanges in India hit an unwanted milestone: spot prices for electricity during solar hours plummeted to Rs. 0/unit, while non-solar peak hour prices grazed the Rs. 10/unit ceiling. These extremes placed the spotlight firmly on the need for energy storage to balance demand and supply.  While this has been reflected in the trajectory of tenders in the past year, with pure solar tenders accounting for less than 50% of total tendered capacity, despite over 150 GWh of BESS tenders being floated to date, only a negligible portion has reached completion. Achieving the target of 230 GWh of BESS by FY32 necessitates a substantial increase in tendering activity, supported by a stable policy framework and stringent adherence to the ESO trajectory.

Improving Economics Of BESS projects

Standalone BESS tenders are the primary mechanism for enhancing the capacity credit of existing variable renewable energy (VRE) systems integrated with the grid. Following an initial period of aggressive bidding by new market entrants, tariffs have stabilised in the range of Rs. 0.22-0.28 mn/MW/month for 2h systems. Notably, while tariffs hit bottom in Oct’24, battery prices, which constitute over 50% of the total capex, have significantly decreased from approximately USD 115/kWh in Dec’24 to about USD 55/kWh currently in China. This price drop is expected to lead to the realization of sustainable IRR for projects in India as well, which should ideally reduce the currently high cancellation rate of tenders and improve lender comfort.

Shifts in capex quantum could topple the battery and overcharge tariffs; indigenisation moves should be gradual

Current standalone BESS tariffs are competitive when compared to alternative sources of high-quality baseload power, such as thermal power. This competitiveness is contingent on two key factors: the availability of inexpensive Li-ion batteries from China and the provision of a 40% VGF (up to Rs. 2.7 mn/MWh). For instance, removal of VGF can increase tariffs by over 30%.
Therefore, the introduction of non-tariff barriers like ALBM (Approved list of Battery manufacturers) needs to be phased.

FDRE  Bids Favour Traditional Players With Better IRRs, New Players Adding To Intensity

While standalone BESS addresses the integration of existing RE within the system, government policy also aims for future RE capacities to possess high capacity credit. This strategic shift has led to the emergence of sophisticated FDRE contracts. Under these, developers are required to adhere to a strict 96*15-minute block schedule daily, with high availability mandated during evening peaks. The inherent complexity of such FDRE contracts, combined with their holistic emphasis on solar, wind, and storage (rather than just storage), has readily attracted traditional power sector participants. The potentially higher IRRs offered, which compensate for the elevated risk of penalties, likely contribute to their engagement in this segment.

Success beyond storage – tapping ecosystemic opportunities in BESS

The projected 230 GWh BESS capacity presents a significant opportunity for developers. However, an equally substantial opportunity exists for ecosystem players. Factoring in oversizing requirements, annual battery demand is anticipated to reach 40 GWh over the next seven years. Even considering substantial capex announcements by major battery manufacturers, ample opportunities remain for new entrants due to low LiB capacity at present.. Despite this, India and the world will likely remain dependent on China well into CY30. This is because solving the cell and battery puzzle won’t get rid of the iron grip on the critical minerals supply chain which China has. Only a mine-to-electron approach can help achieve true energy independence

Towards a self sufficient BESS ecosystem

Other measures to support a strong domestic market include Zero import duty for pack and BESS manufacturing equipment, Reduction of GST on BESS components from 12% to 5%, Incentives for BESS and pack manufacturing in line akin to cell manufacturing and  Development of a dedicated BESS certification laboratory.

The report  acknowledges the reality of the times by proposing a gradually imposition of DCR norms for batteries used in utility BESS along with a long-term plan to introduce ALBM (Approved List of Battery Manufacturers).