India’s energy storage capacity must grow 888-fold to 888 GWh by fiscal 2036 to support renewable energy goals. While battery storage is accelerating, high borrowing costs of up to 15% and project execution risks act as primary barriers to investment. Developers now focus on securing better financing structures to manage project costs.
India is embarking on a massive expansion of its energy storage sector, with projections indicating a need to scale capacity from the current 1 GWh to 888 GWh by fiscal year 2035-36. This growth is essential to integrate large-scale solar and wind energy into the national power grid, ensuring consistent electricity supply even when renewable generation fluctuates. The roadmap involves a dual approach, combining Battery Energy Storage Systems (BESS) and Pumped Storage Projects (PSP), with BESS expected to contribute 321 GWh and PSPs accounting for 567 GWh.
BESS Growth and Market Activity
The BESS segment has gained notable momentum, with installed capacity reaching 8.7 GWh by June 2026, marking an elevenfold increase over just six months. A significant portion of these additions, roughly 70%, comes from merchant projects—facilities built to sell power directly to the market rather than through long-term supply agreements. While industry forecasts anticipate operational BESS capacity to reach 12-15 GWh by the end of 2026, the sector faces a reality check in its tendering process. Since 2018, over 281 GWh of storage tenders have been issued; however, a large volume remains stalled in the bidding phase or has seen cancellations, highlighting a gap between intent and actual project completion.
Financing and Execution Risks
Financial viability is currently the most significant challenge for developers. The estimated investment for battery storage alone is between Rs 4-5 lakh crore over the coming decade. High interest rates, often reaching 15%, combined with the fact that debt financing can constitute 20% of total project costs, place heavy pressure on margins. Industry analysis suggests that if borrowing costs were lowered to 9%, overall project expenses could drop by about 6%.
Lenders currently view energy storage as a relatively new asset class with limited operational track records. Financial institutions, including major lenders like the State Bank of India, are developing specialized frameworks to assess risks such as battery degradation, technology warranty enforceability, and long-term revenue certainty. Investors should note that past volatility in global battery prices has caused some projects to struggle after bidding. To manage this, developers are increasingly prioritizing the immediate procurement of equipment after financial closure and maintaining contingency funds to absorb potential cost spikes.
Policy and Future Outlook
To bridge the gap, the government has introduced the National Framework for Energy Storage, alongside viability gap funding and production-linked incentives for advanced chemistry cell manufacturing. These measures aim to lower the cost of domestic production and encourage grid-scale integration. Moving forward, the industry’s ability to attract commercial capital will depend on creating standardized contracts and clearer technical requirements in tenders. Investors may monitor the progress of upcoming storage tenders and the successful commissioning of projects currently in the pipeline to gauge the sector's operational maturity.