India's Record-Low Battery Bids Spark Project Concerns

The Rising Concerns Over India's Battery Storage Projects

India is witnessing a surge in battery energy storage system (BESS) projects as part of its ambitious plan to double renewable energy capacity to 500 gigawatts by 2030. However, the current trend of record-low bids for these projects has raised alarms among industry experts and analysts. These low bids are not only potentially making some projects economically unviable but also posing significant safety risks.

The development of battery storage is crucial for managing excess power generated by renewable sources, especially as the grid operator curtails surplus electricity. Since 2021, India has tendered out 83 gigawatt-hours (GWh) of battery storage capacity. However, meeting the 2032 target of 236 GWh requires a much faster pace of development, according to the India Energy Storage Alliance (IESA).

Of the 83 GWh tendered, nearly 36 GWh have been awarded, 15.4 GWh are in the open tender stage, 18 GWh are under construction, and about 8 GWh have been canceled. Despite this progress, experts suggest that coal will continue to be the backbone of India’s power supply for another decade, potentially leading to increased coal power generation beyond 2035.

As of September, India had only 500 MWh of battery storage systems operating, highlighting the gap between ambition and reality.

The Impact of Low Bids on Project Viability

Debmalya Sen, president of the India Solar Association (ISA), has expressed concerns over the race to provide the lowest tariffs, stating it "is killing the game." The lack of technical eligibility criteria in the tender process has attracted inexperienced players from sectors like real estate and food processing, while established players are turning away from such projects.

Recent bids in Rajasthan, a leading renewable power state, have come in at less than 1.5 rupees (about 2 U.S. cents) per kilowatt-hour, which industry experts consider unsustainable. Vivek Bharadwaj, CEO of pathtogreenhomes.com, called this level "bonkers," noting it is just a third of what he considers reasonable.

A healthy value, according to Bharadwaj, is typically between 2 rupees and 2.2 rupees per unit for fixed costs, with delivered power around 4.5 rupees per unit when charging costs are included.

Use of Cheaper, Lower-Quality Batteries

The government is reviewing support policies around storage, with Power Secretary Pankaj Agarwal acknowledging that some prices of about 3.80 rupees per kWh discovered in the tender process are workable. However, lower tariffs are encouraging the use of cheaper, lower-quality batteries with shorter lifespans, as noted by analysts and industry experts.

In high-temperature regions, IESA's Sen warned that projects risk relying on "super cheap cells" that raise safety and performance concerns. Globally, there have been safety issues with lithium-ion batteries used in power and storage projects, including fires in China, Japan, South Korea, and the United States.

The Finance Play in Battery Storage

Bharadwaj is working with at least two companies that have won storage tenders but do not plan to build them, instead seeking to sell the projects for a premium. This practice, he says, has turned the entire game into a "finance play," cautioning that such activities may leave banks stuck with non-performing assets.

The IESA is advocating for revisions to tender guidelines, including the adoption of technical criteria and tighter performance benchmarks. It is also pushing for a phased approach to domestic manufacturing incentives, such as a gradual increase in basic customs duty and targeted support for cell makers.

These developments underscore the challenges and complexities facing India's battery storage sector as it strives to meet its renewable energy goals.