India’s battery storage market faces volatility, seeks new growth

Low battery prices in the first three quarters of 2025 led to record-low tariffs in standalone battery tenders in the range of INR 160,000 ($1,660)/MW/month to INR 190,000/MW/month. However, increasing battery prices in recent months, driven by tightening supply of raw materials and policy changes in China, still the world’s dominant battery manufacturer, have pushed standalone battery tender tariffs to around INR 210,000/MW/month, leaving some of the previously tendered capacity at risk of delays or non-delivery.

Despite this volatility, there is broad consensus that batteries will play a critical role in India’s power sector.

This year’s delayed monsoon and heatwaves in April and May increased electricity demand, leading to consistent periods of power prices clearing at the INR 10/kWh price cap in the Day Ahead Market during the evening and overnight. On the other hand, extended periods of hot, dry weather across parts of India created favorable conditions for stronger solar generation, leading to low power prices around midday. The higher renewable output increases the risk of curtailment where transmission infrastructure and grid flexibility cannot keep pace.

The challenge is not new. In 2025, delays in the commissioning of transmission lines, record solar capacity additions of more than 38 GW, and subdued power demand during an extended monsoon season resulted in more than 5 TWh of renewable generation being subject to T-GNA curtailment. Retrofitting batteries at solar sites can provide a hedge against such curtailment, allowing excess generation to be stored, while also creating opportunities to sell power in the evening when prices are higher.

The Central Electricity Authority of India (CEA)’s Generation Adequacy Plan of 2026-2036 estimates 147 GWh of battery storage to be required by 2031-32 and 321 GWh by 2035-36 to maintain reliability as renewable energy grows. Given the Indian power sector’s solar-heavy nature, batteries are uniquely positioned to charge up excess solar generation during midday hours and discharge in the evening to meet demand when solar output falls.

This balancing role becomes important as coal capacity additions struggle to keep pace with the growth in peak demand. Unlike large thermal projects, batteries have short commissioning timelines and can be deployed quickly. Over time, as technology improves and costs fall further, India is likely to see a shift toward longer-duration storage, allowing batteries to cover extended periods of evening and nighttime demand. Grid-forming batteries have also picked up globally in recent years, providing better voltage and frequency regulation in addition to load-shifting capabilities.

Most battery storage projects in India have been contracted through tenders conducted by renewable energy implementing agencies (REIAs) or distribution companies (DISCOMs). These range from relatively simple capacity-based tolling contracts to complex Firm and Dispatchable Renewable Energy (FDRE) tenders, which require optimization across renewables, storage, and market procurement to meet power delivery requirements. These tenders have provided the revenue certainty required to kick-start the market, with batteries forming a crucial component of FDRE project portfolios due to strict non-delivery penalties.

The interest in batteries is also growing beyond the government tender route. The commercial and industrial (C&I) sector has seen increased interest in contracting battery capacity in recent months, driven by tightening electricity banking regulations in some states and mandatory storage capacity requirements. Maharashtra’s recent Renewable Energy and Energy Storage Policy mandated at least two hours of energy storage equivalent to 50% of project capacity for new projects.

Regulatory changes are also strengthening the case for battery storage. The tightening of deviation bands under the Deviation Settlement Mechanism from April 1, 2026, has increased the penalty risk for standalone solar and wind projects, leading developers to explore adding battery storage at plants facing high penalties or at pooling substations to collectively manage deviations rather than doing so at the individual plant level.

The merchant market for batteries in India remains nascent but offers an advantage compared with fully contracted models. Rising price volatility, driven by excess midday solar generation and strong evening demand, has widened arbitrage opportunities, with average one-hour price spreads increasing to INR 7.42/kWh in 2025 from INR 6.95/kWh in 2024. Events such as this year’s delayed southwest monsoon and severe heatwaves in April and May further demonstrate how weather-related shifts in supply and demand can create additional value for flexible storage.

This is already translating into real activity, with developers commissioning merchant battery projects and trading power on exchanges, such as Juniper Green’s 100 MWh system. An important next step for the sector is the development of domestic battery manufacturing. India’s Production-Linked Incentive scheme has allocated 40 GWh of manufacturing capacity across two auctions, but progress on the ground has been slower than hoped. Most battery projects being deployed in India today use batteries imported from China, which has most of the global battery manufacturing capacity. Scaling up domestic manufacturing, first in cell-to-pack assembly and eventually in cell manufacturing, will be key to reducing costs, improving security of supply, and supporting long-term growth.

Globally, there is no single model for deploying battery storage. Some markets, like the United Kingdom, support batteries through capacity markets; others, like Australia’s NEM, rely on highly volatile energy and ancillary service markets; and still others, like India, are building systems based on long-term contracts that provide revenue certainty. What is clear is that batteries can be deployed under different frameworks, provided market design evolves alongside system needs to allow batteries to stack various revenue streams.

For India, this evolution is underway, but further reforms will strengthen the business case for battery storage. Despite high volatility in power exchange prices, the INR 10/kWh price cap in the Day-Ahead Market and Real-Time Market limits revenue potential for batteries and constrains the growth of merchant models. Revising this cap would improve project economics and unlock greater private investment.

Batteries are also well suited to provide ancillary services such as frequency control due to their bidirectional and dispatchable nature and quick response times. While primary, secondary, and tertiary reserve ancillary services exist in India, only tertiary reserve is currently procured through power exchanges. Expanding procurement across these services would create additional revenue streams and accelerate deployment.

Ultimately, the opportunity for battery storage in India is clear, but the pace of scale-up will depend on how quickly these market constraints are addressed.

The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.

From pv magazine India