As India pursues its ambitious renewable energy targets and aims to enhance energy security, energy storage systems are set to play a critical role in the country’s power sector. The integration of large amounts of variable renewable energy into the grid presents significant challenges, which energy storage can help address. Two key technologies have emerged as front runners for grid-scale energy storage in India – pumped storage projects (PSPs) and battery energy storage systems (BESSs).
Renewable Watch presents the strengths, challenges and evolving dynamics of these two technologies in the Indian context…
Need for energy storage in India
India’s aggressive renewable energy targets present challenges for grid stability and power quality due to the intermittent nature of wind and solar power. Energy storage systems can help address these issues by storing excess renewable energy when generation exceeds demand and discharging it when needed. This improves grid integration of renewables, enhances grid reliability, eases the management of demand and supply, and reduces the curtailment of clean energy.
Storage helps manage peak demand by shifting energy from off-peak to peak hours, reducing the need for expensive peaking power plants. By enabling time-shifting of energy, storage creates opportunities for cost savings and optimises the utilisation of generation assets. Strategically deployed storage can alleviate transmission congestion and defer costly grid infrastructure upgrades.
Energy storage is particularly relevant for remote areas, ensuring a reliable power supply in off-grid and microgrid settings. As electric vehicle adoption increases, storage will play a key role in managing charging loads and enabling vehicle-to-grid applications.
Recognising the importance of energy storage, the Indian government has introduced several supportive policies. In 2022, the Ministry of Power notified energy storage obligations (ESOs) for power entities, mandating a certain percentage of their renewable energy to come from storage-integrated projects. The ESO targets start at 1 per cent for 2023-24 and increase by 0.5 per cent every year, reaching 4 per cent by 2029-30. To further promote battery storage, the government launched a viability gap funding (VGF) scheme in September 2023 to support 4 GWh of BESS capacity by 2030-31, providing VGF for 40 per cent of the project capital cost over three years, with a total budgetary allocation of Rs 37.6 billion. For pumped storage, the government announced plans for a comprehensive PSP policy in the Union Budget 2024-25 to facilitate the seamless integration of renewable energy. This builds on the policy framework introduced in April 2023, which includes measures such as no upfront premium for project allocation, simplified approval processes, monetary benefits like reimbursement of state GST and stamp duty, no obligation to supply free power to the host state, and eligibility to participate in the hydro purchase obligation market.
PSPs
PSPs have long been the traditional solution for large-scale energy storage. India already has several operational pumped storage plants with a cumulative capacity of about 3.3 GW. PSPs offer many advantages, including large storage capacity, long discharge duration of 6-10 hours or more and a lifespan exceeding 40 years. They demonstrate a high round-trip efficiency of 75-80 per cent and can provide various ancillary services to the grid.
However, PSPs often face challenges such as site-specific requirements, long construction periods of five to seven years and high upfront capital costs. Environmental and social impacts, including land acquisition and resettlement issues, are also significant considerations.
Despite these challenges, PSPs are viewed as a promising option for long-duration energy storage in India. As of April 2024, the government has identified a potential of over 130 GW of pumped storage capacity across the country.
BESSs
Battery storage, particularly that with lithium-ion technology, has seen rapid advancements and cost reductions in recent years. BESSs offer several advantages for grid-scale energy storage. They are modular and scalable, enabling quick deployment in various sizes. Unlike PSPs, BESSs have location flexibility and are not restricted by geographical requirements. Their fast response times make them ideal for grid services such as frequency regulation. BESSs also have a high round-trip efficiency of 85-90 per cent, with benefits of declining costs due to technology improvements and economies of scale.
However, BESSs also face certain challenges. They have a limited cycle life and tend to degrade over time. Currently, BESSs have a higher levellised cost of storage compared to PSPs. There are also concerns about raw material supply chains for battery production and end-of-life disposal and recycling.
Comparing PSPs and BESSs
When comparing PSPs and BESSs, several factors come into play. PSPs excel in long-duration storage and have longer lifespans, while BESSs offer faster deployment and greater location flexibility. While PSPs currently have a cost advantage, especially for long-duration storage, BESS costs are also declining sharply. The discovered tariff for BESS tenders has more than halved from Rs 1,084,000 per MW per month in August 2022 to Rs 381,000 per MW per month in September 2024.
Financial analysis from ICRA estimates the current capital cost for BESS at around $220-$230 per kWh, based on an average battery cost of $140 per kWh in 2023. This has reduced BESS storage costs from Rs 8-Rs 9 per unit in 2022 to Rs 6-Rs 7 per unit currently, though still higher than the estimated Rs 5 per unit for PSPs. Global lithium-ion battery pack prices have plummeted from $780 per kWh in 2013 to $139 per kWh in 2023, significantly improving BESS competitiveness in recent years.
According to CareEdge’s analysis, the levellised cost for supplying 20 hours of firm green power daily, using PSP storage, is estimated at Rs 4.74 per kWh, compared to Rs 6.59 per kWh using BESS. However, the gap is narrowing, and a continued decline in battery prices is expected to support greater BESS adoption in the future.
In terms of project gestation, PSPs typically take five to seven years to develop and construct, whereas BESSs can be deployed in one to two years, giving batteries an advantage in terms of fulfilling near-term storage needs. Land requirements differ significantly, with PSPs requiring large contiguous land parcels and specific topography, while BESSs have lower land requirements and greater location flexibility.
Project lifetimes also vary greatly, with PSPs offering lifespans of over 40 years, compared to 8-10 years for BESSs before major component replacements are needed. Meanwhile, BESSs have a higher round-trip efficiency of 85-90 per cent compared to PSPs at 75-80 per cent.
Both technologies can provide various ancillary services to the grid, with BESSs having an advantage in fast-response applications. However, environmental considerations differ, with PSPs having larger land and water requirements while BESSs face end-of-life disposal challenges.
The path forward
India’s energy storage market is poised for significant growth, driven by ambitious renewable energy targets and declining technology costs. To achieve these targets, India will require substantial energy storage capacity. As per Central Electricity Authority estimates, the country may need around 16.13 GW of storage capacity (7.45 GW PSP and 8.68 GW BESS) by 2026, increasing to over 73.93 GW (26.69 GW PSP and 47.24 GW BESS) by 2030 as per the National Electricity Plan.
Both PSP and BESS technologies are witnessing increased momentum in terms of project tenders, auctions and investments. As per Renewable Watch Research, 80 GWh of energy storage tender capacity has been floated till August 2024, which includes 14 GWh of battery storage, 51 GWh of PSP and 15 GWh of technology-agnostic capacity. Moreover, there is a significant upcoming pipeline of PSP projects in India. Renewable Watch Research has tracked over 200 PSPs totalling 229 GW at various stages of development, slated for commissioning by 2032.
While PSPs currently have a cost advantage for long-duration storage, BESSs are becoming increasingly competitive, especially for shorter-duration and fast-response applications and may surpass PSPs in terms of the levellised cost if current market trends continue.
However, a diversified approach leveraging both PSPs and BESSs is likely the best path forward. To support this growth, continuous research and development, supportive policies and addressing challenges such as land acquisition for PSPs and battery recycling for BESSs will be crucial. Developing a skilled workforce and exploring hybrid solutions will also be important. As the energy storage market expands, it will play a pivotal role in achieving India’s renewable energy targets and ensuring long-term energy security.
