Whalesbook
Rating agency ICRA has stated that the integration of India's rapidly expanding renewable energy (RE) capacity into the national grid is critically dependent on the adoption of energy storage systems. The agency estimates that the share of power generation from renewables, including large hydro, will climb to over 35% by FY2030, up from 22.1% in FY2025, supported by an anticipated 200 GW of new capacity additions.
However, the pace of renewable project execution is being hampered by delays in transmission expansion, the signing of Power Purchase Agreements (PPAs), and the rollout of new bids. Following a robust award pipeline in FY2024 and FY2025, bidding activity has significantly slowed, with only 5.8 GW awarded in the first eight months of FY2026. Industry assessments indicate that 40–45 GW of RE capacity is still awaiting signed PPAs.
Girishkumar Kadam, Senior Vice President & Group Head – Corporate Ratings at ICRA, pointed out that delays in PPA signing and transmission constraints are becoming major obstacles. He noted that the decline in new project bids and PPA signing delays reflect concerns over available transmission connectivity, and grid curtailments in Rajasthan during solar hours are also a worry, especially without compensation clauses in PPAs.
Strengthening both storage and grid infrastructure in a time-bound manner is therefore essential as renewables increase their share in the energy mix. Battery Energy Storage Systems (BESS) are becoming indispensable for managing the variability of renewables. The government has introduced viability gap funding for storage and extended transmission charge waivers for BESS projects until 2028. Central nodal agencies and state distribution companies have already awarded over 20 GWh of standalone BESS capacity between April 2024 and October 2025.
Storage-linked RE projects, such as round-the-clock (RTC), firm and dispatchable renewable energy (FDRE), and solar-plus-storage, accounted for nearly 90% of the capacity awarded in the first eight months of FY2026. Falling battery prices have also improved project economics. ICRA estimates the levelised cost of storage for BESS (2–4-hour duration) to be around ₹4–7 per unit, considerably lower than the ₹8–9 per unit seen in 2022, though still higher than pumped storage hydropower (PSP) at approximately ₹5 per unit. BESS projects, however, offer shorter gestation periods and lower execution risks.
Kadam also mentioned that while BESS assets have shorter lifespans and require periodic battery replacement, their viability is largely dependent on capital costs. With average battery prices at $70/kWh in 2025 and total project costs estimated at $120–150/kWh, standalone BESS projects currently show a debt service coverage ratio (DSCR) of 1.15–1.25x. The ability of these systems to meet performance parameters like availability, round-trip efficiency, and degradation will be key monitorables, given their limited operational track record.
Impact
This news has a significant impact on the Indian energy sector, including renewable energy developers, power transmission companies, battery manufacturers, and energy storage solution providers. It signals critical investment needs and policy focus areas. The ability to overcome these integration challenges will determine the pace of India's energy transition and its energy security. Rating: 8/10.
Difficult Terms:
Renewable Energy (RE): Power generated from natural sources like sun, wind, water, and geothermal heat, which replenish themselves naturally. It is a sustainable alternative to fossil fuels.
National Grid: An interconnected network for delivering electricity from producers to consumers across a country. It ensures a stable and reliable supply of power.
FY (Fiscal Year): A 12-month period used for accounting and financial planning. In India, it typically runs from April 1st to March 31st.
GW (Gigawatt): A unit of electrical power, equivalent to one billion watts. It is often used to measure the capacity of power plants or electricity demand.
Transmission Expansion: The process of building new or upgrading existing high-voltage power lines and associated infrastructure to carry electricity from where it is generated to where it is consumed.
Power Purchase Agreement (PPA): A contract between an electricity generator and a buyer (such as a utility company) that agrees to purchase electricity at a specified price for a certain period. It provides revenue certainty for projects.
Bids: Offers submitted by companies in response to a tender or auction, proposing to undertake a project or supply goods/services at a certain price.
Discoms (Distribution Companies): Companies responsible for distributing electricity to end-users in specific geographical areas.
Grid Curtailments: Situations where the output of renewable energy sources is intentionally reduced or stopped by grid operators because the grid cannot absorb the electricity at that moment, often due to grid congestion or variability issues.
Battery Energy Storage Systems (BESS): Systems that store electrical energy in batteries for later use. They are crucial for grid stability and managing intermittent renewable energy sources.
Viability Gap Funding (VGF): Financial assistance provided by the government to make infrastructure projects economically viable when private investment alone is not sufficient.
Transmission Charge Waivers: Exemption from fees charged for using the electricity transmission network, often offered to encourage investment in specific types of projects like energy storage.
GWh (Gigawatt-hour): A unit of electrical energy, equal to one billion watt-hours. It is commonly used to measure the capacity of energy storage systems.
Levelised Cost of Storage (LCOS): The average cost per unit of energy stored and retrieved over the entire lifetime of an energy storage system. It helps compare the economics of different storage technologies.
Pumped Storage Hydropower (PSP): A type of large-scale energy storage that uses electricity to pump water to a higher reservoir when demand is low, and releases it through turbines to generate electricity when demand is high.
Gestation Periods: The time taken from the initiation of a project to its completion and operational readiness.
Battery Replacement: The process of swapping out old, degraded batteries in an energy storage system with new ones to maintain performance.
Debt Service Coverage Ratio (DSCR): A financial metric that indicates the cash flow available to pay current debt obligations. A DSCR above 1 means the company generates enough income to cover its debts.
Availability: The percentage of time a power plant or equipment is operational and ready to produce or store energy.
Round-trip Efficiency: The ratio of the energy delivered by a storage system to the energy put into it. For example, if 100 units of energy are put in and 85 units are retrieved, the efficiency is 85%.
Degradation: The gradual loss of capacity and performance of a battery over its operational life due to chemical and physical changes.