Marketwatch: India – storage incentivised, but challenges ahead

• Energy Vault and Energy Dome among storage providers making moves in Indian market
• Government’s viability gap funding scheme offers 30% capex support for BESS projects
• But financing constraints, PPA delays, and a shortage of vendors to execute BESS projects mean challenges remain

Energy storage system providers looking for growth are targeting India as a key market. Last month, Energy Vault signed a $100 million licensing and royalty agreement with SPML Infra, a publicly listed infrastructure development company in India, for the deployment of battery energy storage system (BESS) projects in the country. An Energy Vault statement said it was expected the agreement would facilitate a “minimum volume of 500 MWh over the next 12 months and a minimum targeted BESS volume of 30-40 GWh-plus to be manufactured over the next ten years”. Commenting on the deal, Robert Piconi, chairman and chief executive officer of Energy Vault, said that India was becoming “one of the larger energy storage growth markets globally given their ambitious energy transition goals”.

‘Creating win-win opportunities’

India is an attractive destination for energy storage manufacturers due to its large labour pool, low operating costs and links to major international markets. Italy-headquartered long-duration energy storage provider Energy Dome is another company that has spotted significant opportunities in the Indian market. In February this year, Indian integrated power generation company NTPC launched a 160MWh CO2 battery energy storage project, which will be executed on a turnkey basis by Triveni Turbine along with Energy Dome. Claudio Spadacini, founder and CEO of Energy Dome, emphasised the key role local supply chains in India would play in the project. He said: “The best projects are those that create win-win opportunities. Our collaboration with Triveni Turbines and NTPC to deploy the CO2 Battery achieves this by advancing NTPC’s decarbonisation goals and round-the-clock power delivery while strengthening India’s local supply chain through domestic sourcing.”

India needs 42GW of BESS by 2030

The Indian government has been clear about the need to dramatically increase energy storage deployment in the country by the end of the decade. The Government of India’s Central Electricity Authority has said India will require 42GW of battery energy storage systems (BESS) and 19GW of pumped hydro storage capacity by 2030. It’s an environment that has created a vibrant market for standalone energy storage in particular. The Institute for Energy Economics and Financial Analysis (IEEFA) has said standalone energy storage systems are “becoming the backbone” of India’s utility-scale energy storage system auctions – indeed, standalone storage accounted for 64 per cent of all utility-scale tenders issued in the first quarter of this year (see chart below). This capacity, issued across 11 tenders has already surpassed the total issued in 2024. The big increase in capacity has been largely attributed to the Indian government’s viability gap funding (VGF) scheme, which offers up to 30 per cent support for capital expenditure of standalone battery storage projects.

Making projects more economically viable

A report by the IEEFA says the VGF has made projects more economically viable by helping to tackle the issue of the high initial BESS project capex. The report highlights how, in recent auctions, battery energy storage tenders have secured tariffs as low as Rs219,000-221,000 per megawatt (MW) a month (US$2,561-$2,586/MW/month), which amounts to around a 40 per cent reduction compared to similar non-VGF projects.

Wider use of ESaaS

The Indian market is also seeing the greater use of alternative business models. Among the most notable is Energy Storage as a Service (ESaaS), which has the effect of lowering the entry barrier for users by offering storage as a service through subscription or pay-per-use arrangements. ESaaS helps to decarbonise business by outsourcing energy conservation measures (ECMs) – which contribute to a company’s energy savings – to a sustainable service provider. The service provider works with on-site efficiency teams to identify ways in which energy use can be reduced, before financing and implementing the proposed solutions. The service provider will also be responsible for maintenance and energy management, and will also have an obligation to achieve the agreed energy savings target. Globally, the ESaaS market, which was valued at $1.2 billion in 2022, is expected to be valued at $3.6 billion in 2032.

However, despite the positive outlook for the Indian energy storage market, the sector also faces considerable challenges. They are:

• Trouble securing financing: Investors are still hesitant about investing in standalone BESS, largely due to the high initial capex, longer payback periods, and the fact the Indian ESS market is not yet fully established.
• Delays to the signing of PPAs: It is expected that tariffs will continue to reduce due to falling battery prices – this has led to the delay or cancellation of PPAs because of hesitancy on the part of off-takers.
• Project execution: India has a number of 1GW-plus standalone battery storage projects in the pipeline but faces the problem of a lack of vendors available to supply and execute projects of such a size. In addition, a lack of domestic BESS manufacturing capability means India is heavily reliant on imports from China, which means it is vulnerable to supply chain disruptions and price volatility.
• Critical minerals supply chain problems: India’s BESS market is struggling to secure reliable and affordable supplies of minerals such as lithium and cobalt, a market in which China has a dominant position.

India’s viability gap funding scheme has set the country on the road towards its 42GW energy storage capacity target but there will be bumps in the road – key to success will be sourcing vendors to execute projects and resolving supply chain challenges.