By Debabrata Ghosh, Head of India; Siddhant Shah, Research Associate; and Namit Agrawal, Research Associate, Aurora Energy Research
Severe heatwaves in April and May 2026, followed by a delayed southwest monsoon and below-average rainfall, have highlighted the growing challenge of balancing one of the world’s fastest growing renewable power systems. As solar capacity continues to expand and grid constraints become more apparent, India’s battery energy storage sector is at a pivotal moment.
Falling battery prices in the first three quarters of 2025 have also led to record low tariffs in standalone battery tenders in the range of Rs 160,000-Rs 190,000 per MW per month. However, an increase in battery prices in recent months, driven by the tightening supply of raw materials and policy changes in China – still the world’s dominant battery manufacturer has pushed standalone battery tender tariffs to around Rs 210,000 per MW per month, while also putting some of the previously tendered capacity at risk of delays or non-delivery.
These developments illustrate how quickly market conditions can change for battery developers. While project economics remain attractive over the long term, short-term fluctuations in battery prices and weather conditions mean developers will increasingly need flexible procurement strategies and diversified revenue models to manage periods of volatility. Despite this volatility, there is a broad consensus that batteries will play a very critical role in India’s power sector.
Weather volatility exposes the need for greater flexibility
This year’s delayed monsoon and severe heatwaves mean there are extended periods of hot, dry weather across parts of India, creating favourable conditions for stronger solar generation. The higher renewable output increases the risk of curtailment where transmission infrastructure and grid flexibility cannot keep pace. The challenge is not new. In 2025, delays in the commissioning of transmission lines, record solar capacity additions of more than 38 GW and subdued power demand during an extended monsoon season resulted in more than 5 TWh of renewable generation being subject to temporary general network access curtailment.
Retrofitting batteries at solar sites can also provide a hedge against such curtailment, allowing excess generation to be stored, while also creating opportunities to sell power in the evening when prices are higher.
How battery storage is helping India manage rising renewable capacity and peak electricity demand
The Central Electricity Authority’s Generation Adequacy Plan of 2026-36 estimates 147 GWh of battery storage to be required by 2031-32 and 321 GWh by 2035-36 to maintain reliability as renewable energy grows. Given the Indian power sector’s solar-heavy nature, batteries are uniquely positioned to charge up excess solar generation during the midday hours and discharge in the evening hours to meet demand when solar output falls.
This balancing role becomes important as coal capacity additions struggle to keep pace with the growth in peak demand. Unlike large thermal projects, batteries have short commissioning timelines and can be deployed quickly. Over time, as technology improves and costs fall further, India is likely to see a shift towards longer-duration storage, allowing batteries to cover extended periods of evening and night-time demand. Grid-forming batteries have also picked up globally in recent years, providing better voltage and frequency regulation in addition to load-shifting capabilities.
How battery demand is expanding beyond government procurement
Most battery storage projects in India have been contracted through tenders conducted by the renewable energy implementing agencies or discoms. These range from relatively simple capacity-based tolling contracts to complex firm and despatchable renewable energy (FDRE) tenders, where developers commit to delivering electricity during specified time periods rather than simply generating renewable power when it is available. Meeting these obligations requires optimisation across renewables, storage and market procurement to meet the power delivery requirements. These tenders have provided the revenue certainty required to kick-start the market, with batteries forming a crucial component of FDRE project portfolios due to the strict non-delivery penalties.
The interest in batteries is also growing beyond the government tender route. The commercial and industrial (C&I) sector has also seen an increase in interest in contracting battery capacity in recent months, driven by tightening electricity banking regulations in some states and mandatory storage capacity requirements. Maharashtra’s recent Renewable Energy and Energy Storage Policy mandated at least two hours of energy storage equivalent to 50 per cent of project capacity for new projects.
Growing participation from C&I buyers is a very important milestone for the sector, as it broadens demand beyond government procurement and creates additional opportunities for developers as the market continues to mature. Regulatory changes are also strengthening the case for battery storage. The tightening of deviation bands under the deviation settlement mechanism from April 1, 2026 has increased the penalty risk for standalone solar and wind projects, leading to developers exploring the addition of battery storage on plants facing high penalties, or at a pooling substation to collectively manage deviations at the substation level rather than at the plant level.
The merchant market for batteries in India remains nascent but offers an advantage compared to fully contracted models. Rising price volatility, driven by excess midday solar generation and strong evening demand, has widened arbitrage opportunities, with average one-hour price spreads increasing to Rs 7.42 per kWh in 2025 from Rs 6.95 per kWh in 2024. Events such as this year’s delayed southwest monsoon and the severe heatwaves earlier this year further demonstrate how weather-related shifts in supply and demand can create additional value for flexible storage. This allows batteries to capture value from changing market conditions by storing electricity during periods of excess supply and supplying it when demand is stronger. This is already translating into real activity, with developers commissioning merchant battery projects and trading power on exchanges, such as Juniper Green’s 100 MWh system.
Although contracted projects are expected to remain the dominant route to market, early merchant projects are helping demonstrate how batteries can participate in a wider range of electricity markets. This experience will be important as the sector develops more diverse commercial models over time.
Domestic manufacturing remains the missing piece: Building India’s battery manufacturing sector
An important next step for the sector is the development of domestic battery manufacturing. India’s production-linked incentive scheme has allocated 40 GWh of manufacturing capacity across two auctions, but progress on the ground has been slower than hoped. Establishing large-scale battery manufacturing is a complex and capital-intensive process, requiring significant investment across production facilities, supply chains and technical expertise before capacity can be brought online.
Most battery projects being deployed in India today are also using batteries imported from China, which has most of the global battery manufacturing capacity. Scaling up domestic manufacturing, first in cell-to-pack assembly and eventually in manufacturing cells, will be key to reducing costs, improving security of supply and supporting long-term growth.
What India can learn from global battery markets
Globally, there is no single model for deploying battery storage. Some markets like the UK support batteries through capacity markets, while others like Australia’s National Electricity Market rely on highly volatile energy and ancillary service markets, and still others like India are building systems based on long-term contracts which provide revenue certainty.
These different approaches reflect the fact that battery storage does not rely on a single source of value. Depending on the structure of the electricity market, batteries can support reliability, integrate renewable energy, participate in electricity trading or provide services that help maintain grid stability. What is clear is that batteries can be deployed under different frameworks, provided market design evolves alongside system needs to provide batteries with the ability to stack various revenue streams together.
For India, this evolution is under way, but further reforms will strengthen the business case for battery storage. Despite high volatility in power exchange prices, the Rs 10 per kWh price cap in the day-ahead market and real-time market limits revenue potential for batteries and constrains the growth of merchant models. Revising this cap would improve project economics and unlock greater private investment.
Batteries are also well suited to provide ancillary services such as frequency control due to their bidirectional and despatchable nature and quick response times. While primary, secondary and tertiary reserve ancillary services exist in India, only the tertiary reserve is currently procured through the power exchanges. Expanding procurement across these services would create additional revenue streams and accelerate deployment.
The next chapter for battery storage in India
Ultimately, the opportunity for battery storage in India is clear, but the pace of scale-up will depend on how quickly these market constraints are addressed. The next phase will be shaped by how effectively pricing signals, ancillary service markets and procurement structures support battery deployment across different use cases, from grid balancing to commercial applications.
