The age of storage: Batteries primed for India’s power markets

Battery participation in power markets, without long-term contracts, has often been viewed as a low-return business riddled with uncertain revenue streams. But India’s evolving electricity landscape has created an environment where battery energy storage systems (BESS) can earn strong returns from power exchanges, while offering critical system-level support to the grid.

Batteries are increasingly recognised as the multitool of the power sector transition. A flexible solution capable of addressing various challenges emanating from a high-renewables grid, from storing low-cost renewable energy to ensuring real-time grid stability, batteries solve several problems. Yet their large-scale deployment has, until recently, been constrained by high upfront costs and uncertain revenue streams.

As more variable renewable energy enters India’s electricity grid, coinciding with sharp declines in battery costs, new business cases are emerging for BESS. One particularly promising opportunity is battery participation in India’s wholesale power and ancillary services market. 

Price volatility in the day-ahead market segment of the power exchanges is becoming the norm. Electricity prices are now regularly crashing during solar hours and surging during the evenings and nights. 

BESS can buy electricity, charge when prices are low and sell when the rates surge. This unique ability allows them to not only generate revenue from the market inefficiency but also reduce the volatility over time. The report finds that this kind of arbitrage alone is enough to recover the full lifecycle costs of BESS.

Add ancillary (grid balancing) services, and the scenario improves further. Batteries’ ability to store energy and ramp quickly can fundamentally reshape how grid balancing reserves have worked in India. While serving this crucial role for the grid, BESS can actually get paid for drawing electricity when there is an excess in the system. 

Since revenue realisation over the lifetime of a merchant BESS project is closely tied to the market inefficiencies they would address, it is essential to assess these issues with a forward-looking lens, especially in the context of a changing energy mix. Yet, even under conservative assumptions, the report finds that batteries show attractive returns across varying cost and efficiency levels, with shorter duration BESS showing even better revenue prospects.

With the regulatory groundwork in place and the economics making sense, BESS, even without long-term power purchase agreements, appears poised to balance a renewables-heavy grid while delivering strong returns.