Why India Needs Large-Scale Batteries Now?

India stands at a critical juncture in its power sector evolution. Surging demand, driven by heightened industrial growth, rapidly expanding data-center infrastructure, electrification of households, and increasing digital load is colliding with the realities of a renewables driven transition. Simultaneously, the country's renewable capacity has been rising steadily, but the intermittent nature of solar and wind generation is creating stresses on grid stability and supply-demand balancing. Against this backdrop, grid flexibility is becoming a major constraint.

Large-scale Battery Energy Storage Systems (BESS) are emerging as a key solution for this flexibility gap. Batteries can absorb surplus generation (especially from renewables), store it, and dispatch it when demand peaks, offering a mechanism to smooth temporal and spatial mismatches between generation and consumption. Given India's ambition to vastly expand non-fossil power capacity, BESS offers a way to harness renewables reliably, maintain grid stability, reduce curtailment, and provide ancillary services like frequency regulation.

The national planning outlook recognizes this need, according to the Central Electricity Authority (CEA), BESS along with pumped storage hydropower, will play a central role in meeting India's future resource adequacy requirements, especially as conventional generation gives way to variable renewable energy sources.

Accordingly, rising demand, growing renewables, and the imperative for grid flexibility, together, make large-scale batteries not just desirable, but essential for India's power transition.

Legal and Regulatory Framework: Recognition of Energy Storage Systems under Indian Electricity Law

Rule 18 formally recognizes Energy Storage Systems (including BESS) as part of the power system under Section 2(50) of the Electricity Act. The Rule permits ESS to be developed and operated by generating companies, licensees, system operators and independent service providers. However, regulatory treatment and asset classification (generation-linked, transmission asset, distribution asset or standalone storage) depends on the functional deployment model and ownership structure.

This change opened the door for ESS to be developed, owned, leased or operated by generating companies¹, transmission² or distribution licensees³, system operators, or independent storage providers. It also allowed the possibility of owners leasing out storage capacity to utilities or load-dispatch centres.⁴

Standalone energy storage do not require any license under the Electricity Act, 2003. In terms of Rule 18 of Electricity (Amendment) Rules, 2022, such systems may be developed and operated by any entity, subject to compliance with applicable technical standards, connectivity regulations and grid code requirements.

Thus, in principle, battery storage is now recognized as a grid asset under law. That said, the business model of whether storage is treated as part of a power plant (for example, paired with a solar farm) or as a standalone storage facility, leads to practical differences, especially in terms of compensation, procurement, and regulatory treatment, which we examine below.

Key Central-Level Rules / Guidelines for BESS

The central government and regulators have, over the past few years, introduced a multiplicity of rules, policies and incentives aimed at making BESS deployment both feasible and attractive. Major elements include:

1. National Framework for Promoting Energy Storage Systems⁵: The Ministry of Power (MoP) published a national framework outlining the role of ESS (BESS and pumped storage) for generation, transmission, distribution, resource adequacy, and ancillary services. Under the framework, an Energy Storage Obligation (ESO) mandate has been established requiring obligated entities (e.g., distribution companies) to progressively build up storage capacity, starting from 1% in FY 2023-24 and rising to 4% by FY 2029-30.
2. Guidelines for Procurement and Utilisation of BESS (as asset in generation, transmission, distribution, or ancillary services)⁶: These were notified by MoP to standardize how BESS can be procured and used.
3. Viability Gap Funding (VGF) scheme for BESS⁷: The government allocated support (from the Power System Development Fund) to encourage BESS development. The scheme provides capital subsidy support for projects, targeting deployment of several thousands of MWh.
4. Inter-State Transmission System (ISTS) Charge Waivers⁸: To reduce project cost and encourage interstate sale, BESS co-located with renewables and even standalone storage in some cases, have been granted 100% waivers or discounts on ISTS transmission charges, subject to commissioning timeline of on or before 30 June 2028.
5. Mandate for Storage Co-location with Solar Projects⁹: More recently, MoP has issued policy directions encouraging implementing agencies to include a minimum co-located storage requirements in future solar tenders (typically structured as a two-hour storage capacity equivalent to 10% of installed solar capacity).

In sum, the central legal framework (through amendments to the Electricity Act rules, procurement guidelines, ESO mandates, financial support, and transmission-charge waivers) strongly supports BESS deployment, whether co-located with renewables or standalone.

How Batteries are Treated: As Part of Power Plants vs Standalone

The regulatory distinction between batteries paired with generation and standalone storage is meaningful in practice, as set out below:

1. When batteries are co-located with a generation project (e.g., solar or wind), they are viewed as part of that project's infrastructure, aimed at "firming" variable renewable generation, shifting dispatch, or extending supply hours. Under the MoP's procurement & utilization guidelines, such BESS capacity can be procured along with generation assets and benefit from incentives like ISTS waivers.
2. In contrast, standalone BESS (i.e., storage not tied to a dedicated generating station) is treated as an independent grid asset, non-licensed, but requiring registration with the CEA (with capacity and location details) per rules applicable to ESS.

From a business-model standpoint, standalone ESS developers may lease or sell storage capacity (or services) to utilities or load-dispatch centres, or use their storage to purchase, store and later sell electricity, thereby monetizing arbitrage, ancillary services or other value streams.¹⁰

However, while the law provides broad recognition, practical market mechanisms, especially for pricing, compensation for services, and standard contract structures are still evolving, which affects the bankability and commercial viability of standalone storage.

State-Level Developments and Incentives

While central rules form the backbone of India's storage policy, state-level actions and schemes are playing a crucial role in actual deployment. Different states are moving at varying speeds, depending on their renewable portfolios, grid needs, and regulatory appetite.

For instance:

1. Pursuant to MoP directions dated 1 October 2025, Rajasthan (as well as a few other states¹¹) was granted flexibility to implement standalone BESS projects in 2-hour or 4-hour configurations, provided the storage system can deliver at least 6,300 cycles during the contract period.¹²
2. Under the central VGF scheme, state utilities or authorised agencies are eligible to bid for storage projects (standalone or co-located), making states important actors in actual deployment.

State regulators and utilities are thus working on tenders and auctions for BESS, both to pair with renewable capacity and to build standalone storage for grid support, peak demand management, and other services.

At the same time, financial support (via VGF), transmission cost incentives (via ISTS waivers), and procurement guidance from the centre reduce costs and improve attractiveness.

States like Madhya Pradesh, Odisha, and Jharkhand have introduced their own incentives, including exemptions from electricity duty, partial reimbursement of stamp duty, and a 100% transmission/wheeling charge exemption for 10 years on in-state sales. These measures help reduce upfront and ongoing costs while enhancing locational flexibility. On a state level, it's important to note that Maharashtra has formally classified standalone BESS as distribution-level network assets, which may impact regulatory treatment and operational integration. Additionally, Karnataka's behind-the-meter threshold for energy storage systems is still under review, with the current status pending further clarification.

Primary Challenges and Roadblocks

Despite the strong legal grounding and supportive policy framework, several challenges remain.

Unclear / evolving mechanisms for pricing and cost-recovery

While storage is now legally recognized, the design of tariffs, compensation schedules, and revenue streams for standalone BESS, particularly in the merchant/storage-as-service model, remains immature and uncertain. The current market and operating rules (largely designed around conventional generation assets) do not fully capture the operational value and limitations of storage (e.g., state-of-charge constraints, fast response, duration limits).

Ancillary services markets, one of the key value streams for BESS, have not always provided adequate compensation. While storage is theoretically eligible to offer grid services, regulatory mechanisms to remunerate those services (frequency response, reserve capacity, grid balancing) are still evolving. The uncertainty can deter investors or lead to higher project risk premiums, affecting bankability.

Divergent rules across states / inconsistent implementation

Although the centre has laid out a national framework, actual adoption and implementation vary by state, depending on regulatory readiness, utilities' appetite, and capacity to structure tenders. As seen in Rajasthan's recent adoption of flexible BESS configurations, states may diverge significantly on how storage projects are structured.

Such divergence can create regulatory risk, especially for developers planning pan-India BESS portfolios.

Additional costs due to higher standards and safety / quality requirements

To encourage domestic manufacturing and ensure reliability, the VGF guidelines require indigenous energy-management software and prohibit use of refurbished battery cells, pushing for new and high-quality components.

While this enhances long-term safety and performance, it may raise upfront costs, particularly in a market where imported batteries (or lower-cost components) could be cheaper, potentially affecting competitiveness and returns.

Uncertainty in monetising stored power (especially for standalone systems)

Even though standalone storage is legally permitted, the lack of mature markets for storage services (duration-based contracts, time-of-day pricing, capacity payments, ancillary services) means that standalone BESS may find limited opportunities to monetise stored power. This is especially true if utilities/distribution companies are not willing or able to enter long-term storage-capacity contracts, or if regulatory mechanisms do not sufficiently reward discharge during peak demand or grid support services.

Way Forward: What Needs to Happen

To overcome these challenges and unlock the full potential of BESS in India, several policy, regulatory and market actions will be key.

Broader adoption of co-location mandates and retrofit of existing RE projects

Given that a large portion of India's renewable capacity is already installed (solar, wind), retrofitting these projects with storage or mandating storage in new tenders could deliver low-hanging flexibility gains. The recent mandate by MoP to include a minimum two-hour storage (10% of solar capacity) in new solar tenders is a step in this direction. More such interventions especially encouraging storage retrofit under incentives would accelerate grid-firming without requiring entirely new generation capacity.

Harmonised national-level market and pricing mechanisms for storage services

Regulators both central and state, must design and implement storage-specific market rules, i.e., auctions/tenders for storage services, time-of-day / peak-pricing regimes, capacity payments, ancillary services compensation, etc. This would provide predictable revenue streams and make storage projects bankable. Standardised contracts, transparent bidding processes, and clear compensation structures will be key for wider adoption.

Continued financial support and incentives; promote domestic manufacturing & quality compliance

The VGF scheme and the linked quality standards (e.g., indigenous software, no refurbished cells) represent a long-term, strategic push toward self-reliance and robust deployment. Sustained capital subsidies, along with long-term purchase agreements for storage services, will ease project financing and encourage newer entrants, including domestic manufacturers, essential if battery demand is to scale up rapidly.

Uniform state-level adoption and regulatory certainty across India

Central incentives notwithstanding, state-level regulatory frameworks and tenders will ultimately determine deployment on the ground. To avoid fragmentation and regulatory risk, states should align with national guidelines, adopt clear policies on BESS procurement and approvals, and encourage utilities/discoms to take up storage projects proactively.

Capacity-building, standardisation, and safety / quality regulation

As BESS deployment scales up, standard protocols for design, installation, maintenance, operation, safety, and battery-end-of-life management will be required. This includes robust standards for battery management systems, quality assurance, replacement/ recycling protocols, and grid-synchronization norms. The push for indigenous software is a beginning; more comprehensive standard-setting will be needed.

Conclusion

India's power sector is undergoing a fundamental transformation. Surging demand, steep growth in renewables, and the imperative for grid flexibility have together created a compelling need for large-scale energy storage. BESS offer a powerful and increasingly feasible route to meeting that need: enabling renewable integration, reducing curtailment, ensuring supply reliability, and delivering grid flexibility.

Importantly, the legal and regulatory framework has evolved significantly. With the Electricity (Amendment) Rules 2022 formally recognizing ESS as part of the power system, and subsequent guidelines around procurement, utilization, Energy Storage Obligations, transmission-charge waivers, and financial support under VGF, the foundation for BESS deployment in India is now firmly in place.

However, for BESS to truly scale and deliver at the scale India requires, a combination of policy consistency, market design, regulatory harmonization, state-level adoption, and strong incentives is essential. There remain significant challenges from uncertain pricing mechanisms to cost pressures from quality/safety standards, and varying state-level commitment.

The way ahead lies in converting policy momentum into sustained, large-scale deployment: through storage-inclusive tenders, retrofit of existing renewable assets, robust market mechanisms for storage services, support for domestic manufacturing, and clear regulatory standards.

If executed well, BESS could become a cornerstone of India's clean, reliable, and flexible power future, enabling the country to meet rising energy demand while embracing its renewable energy ambitions, all without compromising on grid stability.

Footnotes

1. "generating company" means any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person, which owns or operates or maintains a generating station.

2. "transmission licensee" means a licensee authorised to establish or operate transmission lines.

3. "distribution licensee" means a licensee authorised to operate and maintain a distribution system for supplying electricity to the consumers in his area of supply.

4. Article titled "From Grid Guests to Storage Stakeholders" https://www.rassociates.in/electricity-law-in-india-2025-draft-rules-on-ess-rights.

5. National Framework For Promoting Energy Storage Systems (https://powermin.gov.in/sites/default/files/National_Framework_for_promoting_Energy_Storage_Systems_August_2023.pdf)

6. Guidelines for Procurement and Utilisation of BESS (https://powermin.gov.in/sites/default/files/webform/notices/BESS.pdf)

7. Scheme for Viability Gap Funding for development of Battery Energy Storage Systems-reg. (https://cdnbbsr.s3waas.gov.in/s3716e1b8c6cd17b771da77391355749f3/uploads/2024/05/202405031640333573.pdf)

8. Waiver for IST Charges for ESS (https://cdnbbsr.s3waas.gov.in/s3716e1b8c6cd17b771da77391355749f3/uploads/2025/06/202506241253078614.pdf )

9. Advisory on co-locating ESS with solar projects to enhance grid stability and cost efficiency (https://static-cdn.publive.online/saur-energy/media/pdf_files/wp-content/uploads/notification/2025/02Advisory_on_colocating_Energy_Storage_System_with_Solar_Power_Projects_to_enhance_grid_stability_and_cost_efficiency.pdf)

10. Article titled "From Grid Guests to Storage Stakeholders" https://www.rassociates.in/electricity-law-in-india-2025-draft-rules-on-ess-rights.

11. Kerala, Odisha, Bihar, and Chhattisgarh

12. Article titled "Rajasthan pioneers flexible energy storage design after centre's new policy" https://government.economictimes.indiatimes.com/news/smart-infra/rajasthan-leads-the-way-in-flexible-energy-storage-design-post-new-government-policy/124287884?utm.

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