Charging Indian BESS With Global Ideas: Lessons From China

India is witnessing a shift in its battery energy storage system (BESS) tendering framework, with new emerging structures within the energy storage space, such as the new tariffs based on energy supplied (Rs/kWh) instead of availability-based payments (Rs/MW/month), according to the latest SBI Capital Markets (SBI CAPS) report.

Drawing on some of the key lessons that India can learn from China and understanding the contrasting features between them, the SBI Caps report on "Energy Storage Systems: Charging Indian BESS With Global Ideas," draws a comparison with China's experience in energy storage deployment and manufacturing.

Here are some of the key takeaways from the report: 

#1: LFP Batteries for ESS – A Gap in India

SBI Caps reported, "Globally, few cell manufacturers achieve a return on equity above 10%, with critical precursors such as cathodes and anodes facing similar challenges. LFP batteries remain relatively less crowded compared to NMC chemistry, ensuring a steady supply and moderate capacity utilization."

It explained that India currently lacks significant production of LFP batteries for energy storage systems (ESS), a gap the report attributes to limited government support. Meanwhile, the Indian government has released the Advanced Chemistry Cell (ACC) PLI scheme, which primarily supports the electric vehicle (EV) battery manufacturing market.

The study showed that China accounted for over 97% of the 345 GWh of ESS batteries produced globally in CY24, with South Korea and Japan contributing the remainder. Based on its findings, India had no significant production of LFP batteries for ESS. The report explained that the ACC PLI scheme released by the Indian government mainly focuses on EV batteries and anticipates the addition of a limited LFP capacity in India over the medium term. 

Therefore, due to higher capacity utilization in China, the country effectively leverages its battery output. India, meanwhile, expects limited LFP capacity to emerge over the medium term.

#2: Key Revenue Sources for BESS Projects

In India, BESS projects derive the majority of revenue—typically over 60%—from capacity payments indexed to normative operating parameters, said the report. Contrarily, for China, the largest revenue share also comes from capacity payments, but the overall contribution is lower compared to India.

While in India, the buying entity, typically DISCOMs, makes these payments, either directly or via intermediaries, at competitively bid tariffs, it added. Moreover, the study explained that in China, payments are made by distribution entities with no involvement of intermediaries. 

The report also drew a comparison between the countries on the payment system used to provide ancillary tariffs in real time. It found that, while 0–30% of BESS capacity in India is tied up via contracts between SECI and NLDC (or state DISCOMs and SLDCs), in China, capacity may be sold specifically for ancillary services, which are often delinked from other use cases. 

Additionally, in India, developers face restrictions on recharging BESS using non-renewable energy due to RPO and ESO compliance requirements. In China, there are no national-level restrictions, although some provinces impose RE-only mandates. 

Whereas in terms of incentives, both countries offer them. The study showed India offers viability gap funding (VGF) and state-level incentives to provide tariff support. China also provides incentives, though its contribution to total project revenue is typically lower.

#3: Revenue Stacking – A Chinese Lesson

China’s energy storage model underlines the importance of revenue stacking—combining income from capacity payments, ancillary services, and energy arbitrage, the report stated. In advanced Chinese provinces, revenues from ancillary services are approaching those from capacity payments, reducing dependence on subsidies.

Whereas, in India revenue model for BESS remains less developed. The report found India's ancillary service capacities to be currently allocated by bidding authorities at uniform tariffs, due to the absence of a day-ahead ancillary market, which is present in many Chinese provinces.  As some projects begin to rely more on merchant allocations, revenue from trading based on diurnal (daytime) energy price variations could become a vital third income stream.

Thus, one of the key findings of the study based on Chinese experience is the benefit of revenue stacking, which is critical for superior project returns and offers lessons for India. 

#4: Upstream Integration and Supply Chains

The report also showed that China’s dominance in global BESS scale stems from its deep upstream integration, providing a cost advantage in local development through control over cell and battery production. In contrast, India’s lithium-ion battery production remains minimal.

It drew a contrast with Chinese players and found that the ACC PLI scheme has had limited success, and cell chemistry remains a high-tech domain dominated by a few players like CATL and BYD, which operate profitably despite low capacity utilization across the value chain. Thus, the report suggested that in the short term, India may need to rely on imports to meet BESS demand, while positioning itself to adopt next-generation battery technologies at the early adoption stage.