Battery energy storage systems (BESS) operating without fixed contracts – commonly known as merchant BESS – became profitable for the first time in 2024, according to a new report from energy think tank Ember. This milestone comes as a result of sharply falling battery costs and rising revenue potential from India’s volatile power exchanges.
Ember’s projections suggest that new BESS projects commissioned in 2025 could deliver internal rates of return (IRRs) of up to 17% by operating in the day-ahead market (DAM) alone.
Battery Costs Down 80%, Revenues Up 5x
The report outlines a dramatic decline in battery costs – from INR 7.9 million/MWh in 2015 to INR 1.7 million/MWh in 2025, an 80% reduction over the decade. At the same time, potential market revenues have increased fivefold, from INR 0.5 million/MWh in 2015 to INR 2.4 million/MWh in 2025.
This convergence led to merchant battery revenues surpassing costs for the first time in 2024, making BESS a viable and bankable electricity asset.
Volatility Drives Revenue Growth
“Merchant BESS has often been viewed as a low-return investment,” said Duttatreya Das, Energy Analyst at Ember and co-author of the report. “But the changing dynamics of the wholesale power market, with rising price volatility, coupled with falling battery costs, have made it a commercially viable investment opportunity today.”
Batteries typically charge when power is cheap and abundant, such as during sunny midday hours, and discharge during evening peaks, capitalising on steep price differences.
The report underscores that price volatility in India’s day-ahead market is growing more extreme. Between 2022 and 2024, electricity prices nearly reached the INR 10/kWh cap in one out of every six hours. Meanwhile, average midday power prices dropped by nearly 20% during summer months over the same period. On some summer days in 2025, prices even fell to near zero.
“These swings are becoming a regular feature on India’s power exchanges,” Das noted.
Up to 24% IRR With Ancillary Services
Ember’s modelling shows that DAM arbitrage alone could yield IRRs of up to 17% for BESS projects commissioned in 2025. However, when participating in ancillary (grid-balancing) services, the total revenue potential rises.
“While arbitrage in the DAM contributes nearly 80–85% of total earnings, ancillary services can account for the remaining 15–20%,” said Neshwin Rodrigues, Senior Energy Analyst at Ember and co-author of the report.
Under optimistic conditions, total annual revenues could reach INR 3.3 million/MWh, pushing project IRRs to around 24%. Even under conservative scenarios, the report estimates returns at 21%, with a larger share coming from ancillary market participation.
BESS Positioned to Capitalise on Energy Transition
The report concludes that India’s evolving electricity system — marked by growing solar penetration and structural inflexibility in thermal generation — is driving sharper intra-day price swings and grid balancing needs. These trends enhance the commercial case for battery storage.
“This is both a risk and an opportunity,” said Satyadeep Jain, Director – Equity Research at Ambit Private Limited. “Battery storage appears well placed to capitalise on this.”
