Sharp Fall In BESS Tender Bids Signals Faster Energy Storage Additions In India

In the past three months multiple BESS (Battery-based Energy Storage system) tender results have pointed to yet another mini-disruption in the fast-evolving Indian renewable energy sector. Energy storage targets for 2028 might be a lot closer in 2026 itself. The price drops have been attributed primarily to falling lithium cell costs, which have led to lower storage costs that are now cascading across the whole battery ecosystem including EVs as well.

Keep in mind that India’s Central Electricity Authority (CEA) has projected the need for a total installed Battery Energy Storage System (BESS) capacity of 41,650 MW/208,250 MWh as part of the installed capacity in 2029-30. This will be in addition to 18,986 MW of Pumped Hydro Storage Systems, envisaged to be a component of the installed capacity in 2029-30.

Lower prices have seen energy storage installations mimic the global jump (and overachievement) in solar capacity additions as well, which have also been driven by a sharp drop in costs, led by Chinese manufacturers. Already, across the US, European and Australian markets, large battery installations are proceeding much more faster than anticipated as recently as 2021.

In India however, much like the solar sector which operates in a relatively controlled environment of tariff protection and non-tariff barriers today whose viability depends on continuously falling or low solar prices sustaining, the BESS sector has also needed more than just a drop in Chinese lithium cell prices to move into a high growth phase on the back of lower prices. The big supporting change has been a shift to BOO (Build own operate) from BOOT Build Own Operate and Transfer) in the earliest tenders.

In the BOOT system, developers had to transfer the asset after 12 years to the relevant agency after the PPA period ended (usually 12 years), while in BOO, they can redeploy the asset as they see fit after the same period. Thus, this optimism, on the quality and residual value of the battery asset after the PPA period ends has supported much more aggressive price bids in the recent past, which have come in almost 70% lower than the first SECI tender for battery based storage in 2022.

Consider the numbers. In July 2024, SECI’s 1200MWh BESS project attracted winning bids at Rs 3.41 per unit. Interestingly, JSW Neo Energy, which won an allocation at Rs 3.42, had won a bid in 2022 at Rs 10.84 per unit effectively. JSW was in fact lucky that its bid was approved, for multiple subsequent tenders that attracted buds over Rs 10 were cancelled or dropped due to poor response. SECI offers is the lowest possible credit risk for developers in India, at par with profitable generators like govt. owned NTPC. But even state gencos and discoms have managed pretty attractive bids in recent months.

In 2024, besides the July response at Rs 3.41, even GUVNL managed to attract bids at Rs 3.72 from Gensol, further establishing the sub Rs 3.75 benchmark, widely considered as the new ceiling for bids now. Yes, most of these bids have come in for lower duration backup of 4 hours, but even that is set to change sooner than expected now.

That augurs well for India’s renewable addition plans, besides reducing the risk of curtailment and other challenges on the faster roll out of renewable capacity, as the C&I sector also steps in soon. While many have started making the case for focusing some more subsidies on faster adoption of battery energy storage rather than rooftop solar soon, it does seem that even that requirement will not be needed if prices fall any further, as widely expected. Presently, the full transmission of lower cell prices in China has not really happened, leaving the potential for at least a further 15% cut in the short term.

Besides this, an evolving ecosystem for battery development and installation means the real benefits of lower costs in India for such expertise should also flow at some stage.

The big risk factor, ironically, is the push to have more domestic capacity in the battery value chain, where, much like solar modules, we have a very real risk of protective tariffs from Chinese imports once domestic capacity ramps up. Those tariffs on the solar value chain have effectively  taken prices in India to 2X level of import prices (before tariffs) on DCR modules, for instance.  Will a better way out to protect energy storage consumers be found? Time will tell.