The Indian government’s push towards bolstering renewable energy infrastructure, buoyed by grants and favorable policies, is set to significantly boost battery storage capacity. By fiscal 2028, an estimated 4 gigawatts (GW) of battery storage systems are projected to be operational, a marked increase from the current capacity. This surge is primarily attributed to government initiatives such as viability gap funding (VGF), aimed at reducing project costs and enhancing returns for developers.
Ankit Hakhu, Director at CRISIL Ratings, emphasizes that the VGF scheme could slash battery storage project costs by up to 40%, potentially improving project returns by 200-300 basis points. Furthermore, falling battery prices, which dropped to approximately $140 per kilowatt-hour (kWh) in November 2023, are anticipated to continue declining or stabilize due to increased mining capacities of key elements like lithium.
These developments are expected to propel returns on standalone storage projects by 300-400 basis points, reaching 12-13%. Varun Marwaha, Associate Director at CRISIL Ratings, highlights that government policies including passthrough on duties, interstate transmission charge waivers, and allowances for additional revenue streams are contributing to this positive trajectory.
The surge in renewable capacity, primarily solar and wind, from 70 GW in December 2019 to around 120 GW by December 2023, further underscores the need for effective energy storage solutions to mitigate grid instability caused by intermittent generation. As renewable energy’s share in the power mix is expected to surpass 20% by fiscal 2028, the importance of battery storage in maintaining grid stability becomes even more pronounced.
Currently, over 1 GW of battery storage capacity has been auctioned, indicating early traction in the sector. However, the pace of adoption and tariff trends will hinge on clarity regarding VGF grants and macroeconomic factors impacting commodity and battery prices. Overall, the confluence of improving returns and supportive government policies is poised to drive significant investments in battery storage infrastructure over the coming years.
