Vanilla To BESS: Share of Energy Storage Tenders Goes From 5% To 23% In 10 Ys

From plain vanilla tenders to Firm and Dispatchable Renewable Energy (FDRE), the Indian tendering system has come a long way. Since 2020, demand for energy storage has surged. With nearly a quarter of tenders now requiring energy storage, the need for Energy Storage Systems (ESS) is gaining momentum. SBI CAPS, in its latest report on energy storage systems, has identified a potential global growth pattern in variable renewable energy sources (VRE), particularly in wind and solar capacities.

The report highlights that an increasing share of VRE in the power grid could impact stability if not complemented by energy storage systems. Consequently, it identifies battery energy storage as an effective option to address the diurnal “duck curve” problem. ESS offers a solution by storing excess VRE energy during peak production periods and releasing it during non-solar hours, smoothing the VRE generation curve.

 

SBI CAPS anticipates that India will significantly expand its energy storage capacity, with a projected 12-fold increase to approximately 60 GW by FY32, outpacing the impressive growth already forecast for RE sources. This growth aligns with the evolving landscape of RE tenders and an increase in the proportion of projects incorporating storage solutions, from 5% in FY20 to 23% in FY24.

 

Another critical factor is the decreasing cost of energy storage technologies, which is essential in driving their widespread adoption. In recent projects, tenders have seen storage solutions achieving tariffs below the levelized cost of thermal power generation, making them a financially attractive option due to the implicit time-of-day differential (diurnal range of exchange price of power).

The report found a drop in cost of battery costs over the past 10 years, by a dramatic 82%, helped by economies of scale and improvements in technology which increased life and discharge periods. A cheaper battery leads to lower LCOS

The report recommends addressing challenges, such as the domestication of battery cell manufacturing and development of the component ecosystem, as key strategies to reduce BESS tariffs. With these trends, the report anticipates an astronomical surge in BESS capacity by FY32, with a projected 375-fold increase to 42 GW, and Pumped Storage Projects (PSP) growing 4-fold to 19 GW from FY24 levels.

The report also identifies indigenization as crucial, especially within the PLI for Advanced Cell Chemistry (ACC), which envisions the establishment of 55 GWh of capacity, including a special allocation of 5 GWh for technologically advanced systems. To date, winners comprise a diverse mix of captive and third-party cell manufacturers. The report notes a gap between announced capacity and anticipated future demand, projecting that nearly 120 GWh of cell capacity announced by major players may still be insufficient to meet demand over the next 2-3 years, suggesting further expansions could be forthcoming.

The study notes, “Close to 120 GWh of cell capacity has been announced by major players, which will barely suffice to meet projected demand over the next 2-3 years – hence, more could be on the horizon. The sector is set for a boom across the value chain—from BESS projects to cell manufacturing and components. This expansion will be supported by favorable government directives, such as waivers of ISTS transmission charges and ESO/RPO requirements, creating a steep compliance trajectory for DISCOMs and driving demand.”

BESS Ecosystem

Funding for the BESS ecosystem represents a Rs. 3.5 trillion opportunity until FY32, with an Rs. 800 billion medium-term boost provided by upcoming cell manufacturing capital expenditure.

Obsolescence risks in BESS projects arise from anticipated reductions in battery prices and the shift from 2-hour batteries to more advanced 4-hour and 6-hour options. However, these risks are largely mitigated as most DISCOMs remain behind on their ESO and RPO targets, current tariffs remain competitive, and project lifespans are comparable to PPA tenures.