Indian battery incentives cut could raise tariffs but will be offset by falling energy storage costs

A report by SBICAPS anticipates the planned reduction in incentive support under the second phase of the VGF scheme for standalone BESS could lead to a tariff increase of around 10%. However, industry experts believe this increase is manageable and could be absorbed in the coming months as capital expenditure (capex) costs continue to decline.

Announced in June, the second tranche of the VGF scheme targets to support the development of 30 GWh of BESS capacity with a total budgetary outlay of INR 5,400 crore ($631 million). While the framework is similar to the first tranche, of 13.2 GWh, it introduces a lower incentive ceiling of INR 1.8 million per megawatt-hour – 33.3% lower than the earlier cap of INR 2.7 million/MWh or 30% of the project cost, whichever was lower.

The scheme will extend financial support to 15 states and the National Thermal Power Company (NTPC). Of the total 30 GWh target, 25 GWh will be distributed among 15 states to meet their energy storage needs and 5 GWh will be allocated to the NTPC to optimize the use of existing thermal generation and transmission infrastructure, and to supply electricity during non-solar hours in a reliable and cost-effective manner.

A significant portion of the first tranche is still awaiting tendering and the reduced financial support in the latest phase is expected to drive tariffs upward. Nonetheless, falling battery prices and improving cost efficiencies are expected to offset the impact over the coming months.

The SBICAPS report’s authors believe that incentives will gradually be withdrawn as capex costs reduce, to maintain tariffs near current levels as these are competitive with alternates.

From pv magazine India.