India’s Energy Storage Business Trends and Future Projections

Energy storage tenders in India in 2023

India’s energy landscape will necessitate a significant expansion in energy storage solutions, according to a recent report released by the Central Electricity Authority (CEA). Battery-based ESS (BESS) and pumped hydro storage (PHS) emerge as the most feasible avenues for implementing these solutions.

According to the CEA’s optimal generation mix report prepared by Jyoti Gulia, India is anticipated to require a minimum of 41.7 gigawatts (GW) and 208.3 gigawatt-hours (GWh) of BESS and 18.9GW of PHS by the fiscal year 2029-30.

The report underlines the pivotal role of large grid-scale tendering in driving the growth of the Energy Storage System (ESS) market. Recent figures reveal that more than 8GW of ESS tenders have been awarded in India, with over 60 percent allocated in 2023 alone, reflecting the rapid expansion of this sector.

Solar Energy Corporation of India (SECI) and other tendering agencies have led the charge, deploying various tender designs tailored to India’s energy landscape. These designs include solar + BESS, round-the-clock (RTC) supply, standalone ESS, and firm and dispatchable renewable energy (FDRE), aiming to ensure reliability and dispatchability of renewable energy.

Key insights from the auction results of major ESS tenders indicate a downward trend in discovered tariffs for RTC tenders compared to peak power supply tenders. This lower tariff is attributed to the higher utilization rate of ESS in RTC tenders, resulting in reduced levellised tariff rates.

Moreover, the report highlights the growing prominence of FDRE tenders, seen as a game-changer in matching the quality of power supplied by thermal sources. The success of the first FDRE tender and its slightly higher discovered tariff compared to RTC tenders sets expectations for future tenders with stricter power-supply requirements.

Key Insights from Auction Results of Major ESS Tenders

The discovered tariff in RTC tenders is lower than any peak power supply tenders, even though RTC tenders ensure higher availability and supply of renewable energy. This trend is due to the higher utilisation rate of ESS in the case of RTC tenders, leading to lower levellised tariff rates.

The first FDRE tender to conclude was SJVN for 1,500 megawatts (MW) in November 2023. The tariff discovered was Rs 4.38 (US¢5.3)/kilowatt-hour (kWh), marginally higher than the RTC tenders.

For other FDRE tenders, with stricter power-supply requirements in terms of demand fulfilment ratio, at a minimum of 90 percent of the demand profile monthly, the tariffs are expected to be higher, about Rs5(US¢6)/kWh.

While the standalone storage tariff is lower than the other ESS tenders, these projects offer remarkable flexibility and provide value to the system in terms of the different applications offered, thus remaining competitive with other sources of flexibility.

An important factor influencing the tariff of standalone ESS is the project tenure. For the tenders from SECI, NTPC and Power Company of Karnataka Limited (PCKL), the tenures are 12, 25 and 40 years, respectively. Falling ESS costs (especially for BESS) and sustained cash flow over a longer duration enable ESS developers to quote lower tariffs.

However, challenges persist in the ESS landscape, including high initial capital expenditure, extended gestation periods for projects (particularly PHS), inadequate transmission and distribution infrastructure, and a lack of domestic manufacturing in ESS components, posing potential supply chain risks.

The report foresees ESS as the disruptive technology of the 2020s power market, attracting substantial investments amidst the increasing integration of renewable energy into the grid. FDRE tenders are projected to play a vital role in reducing dependence on conventional power sources like coal.

Policy initiatives such as the viability gap funding (VGF) scheme, national energy storage policy, and national pumped hydro policy aim to bolster ESS development in India, as highlighted in the report. Additionally, the national transmission plan to 2030 recognizes ESS as a critical component for future power system development.

While pumped hydro storage currently holds favorability due to its cost-effectiveness, the long-term projections suggest a potential shift. Battery-based ESS, expected to witness declining prices, might surpass PHS as the most financially viable option. Furthermore, the emergence of green hydrogen-based ESS presents a promising prospect for the long-term evolution of grid-scale storage technology.