Why Co-Locating of Storage And RE Matters

India has ambitious goals to install 450 GW of renewable energy (RE) capacity by 2030. Even though India has an impressive track record of quickly deploying renewable RE generation assets, the share of RE (excluding large hydro) in total generation continues to be low (13.75 percent) hindering grid decarbonization. The generation-installation gap can be addressed by co-locating energy storage systems (ESS) with RE projects to improve grid stability and cost efficiency.

To do this, the government must incentivize battery ESS and renewable co-location through financial incentives and a simplified tender design.

Meeting India’s Growing Power Demand

The cumulative RE capacity in India stands at 167 GW. RE (excluding large hydro) accounts for 35 percent of the total installed capacity, however its share in generation is 13.75 percent opposed to a global average of 39 percent. The generation-installation gap can be attributed to the intermittent nature of renewable sources which impacts grid stability, need for firm baseload power, inadequate transmission infrastructure, and the financial health of distribution companies.

Co-locating RE sources with ESS can address intermittency challenges, help utilities meet peak power demand cost-effectively, and increase RE share in generation.

Merits of Co-locating Renewable Energy and Storage

Co-location of RE and storage means physically situating battery and RE generation assets at one location. Co-location can help India address the challenges around land availability, and meet the requirement of deploying 41 GW of battery energy storage systems (BESS) by 2029-30.

Furthermore, co-location offers a cost advantage. In the United States, a co-located RE and ESS project costs 20 percent lower due to cost savings related to land site preparations, permitting, interconnection, and hardware.

Way Ahead

Out of 32 RE and storage tenders issued in India in FY24, less than 10 percent required co-location whereas in California and Australia, these numbers were 50 and 40 percent respectively.

The government of India (GoI) can take the following measures to accelerate the deployment of co-located projects.

1. Offer Financial Incentives

 The merits of co-location are evident from prices discovered in recent tenders. The winning bids in two Solar Energy Corporation of India’s (SECI) and one NHPC tender were INR 3.41/kWh (2-hour storage), INR 3.52/kWh (4-hour storage) and INR 3.09/kWh (2-hour storage) respectively. This is cost competitive when compared with the cost of thermal (INR 5-5.50/kWh) and intermittent standalone solar (INR 2.60-2.80/kWh) power. Despite this, the takers are sparse, potentially due to India’s cash strapped distribution companies’ fears over further falling tariffs.

GoI can incentivize adoption by offering the same financial support—viability gap funding (VGF)—currently being offered to standalone BESS. This can potentially bring the tariff on par with solar. Unlike thermal and hydro plants which can earn revenue for providing ancillary services like black start, reserve capacity, frequency regulation, co-located RE and storage plants in India don’t have that avenue available . VGF subsidy support can be crucial to making the projects financially viable.

According to a study by UC Berkeley, battery pack prices in India at $150/kWh in 2024 are a third of what they were three years ago. The same study suggests, if the trend holds up, then these prices in India will fall below $100/kWh by 2030 and continue to fall further as in China, where the battery pack prices have fallen to $65/kWh. Therefore, financial support from GoI can temporarily bridge the cost differential and provide the initial hand holding needed to enable rapid deployment as market forces further drive the prices down in the long term.

The Central Electricity Authority’s recent notification advising co-location to tendering authorities is a positive development in this direction. Strengthening this with financial support can go a long way.

2. Simplify Tender Design

India’s RE tendering landscape is becoming complex with an increasing share of non-vanilla RE tenders. This has resulted in tender undersubscription (15 percent in 2024 vs. 7 percent in 2023) and non-signing of power sale agreements.

The tendering authorities should consider simplifying the tender design. First, they should issue tenders in accordance with utilities’ resource adequacy requirements. For instance, in California, tender designs offer considerable flexibility to both developers and the utility in terms of technology, configuration, and contract model.

Second, the tender should factor in the system reliability benefits that co-location offers in evaluation criteria. Adding storage to solar assets allows excess RE generated during the day hours to be saved and used during the non-solar hours. This not only facilitates grid integration, it also provides cheaper electricity during evening peak hours and contribute to system reliability because of stricter tender requirements around availability. This intervention has been implemented in Australia’s Capacity Investment Scheme and 40 percent of the awarded projects were co-located RE and storage.

Low RE generation does not align with India’s impressive RE capacity addition. Co-locating RE and ESS will enable India to increase the share of renewable generation to meet growing demand and better integrate 500 GW of clean energy to decarbonize its grid, while addressing prince and land availability concerns.

 

Dr. Shashwat Kumar is a fellow with the Chair on India and Emerging Asia Economics at the Center for Strategic and International Studies (CSIS), Washington, DC.