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ESS Essential for India’s Grid Stability Amid Renewable Growth- SBI CAPS' Report

SBI Caps’ report highlights the vital role of energy storage systems (ESS) in stabilising India’s power grid, projecting significant growth in storage capacity by FY32 to support the country’s renewable energy transition and ensure grid reliability.

November 06, 2024. By EI News Network

Energy Storage Systems (ESS) are essential to maintaining grid stability in India as the share of renewable energy (RE) in the power mix rapidly increases. This was revealed by SBI Caps’ recent report on energy storage systems titled - 'Storage Ability for Grid Stability'.

The report highlights the important role energy storage systems (ESS) will play in India’s shift towards renewable energy. As per the report, without adequate storage, the grid could face instability due to the mismatch between variable renewable generation and demand patterns. "As the country moves towards a future where variable renewable energy (VRE), especially solar and wind power, will be a dominant source of electricity, there is a risk of grid instability if proper measures aren’t taken," pointed out the report.

"By FY32, VRE’s contribution to India’s power generation is expected to triple, but without significant changes to the power system, this could lead to problems. The mismatch between when renewable energy is generated and when it is needed can destabilise the grid, cause excess energy during peak production times, and make India overly reliant on fossil fuels," said the report.

The report further adds that to fix this, energy storage systems can store excess renewable energy when production is high and release it when there is less solar or wind energy, helping to stabilise the grid and smooth out the production curve.

The report predicts that India will significantly increase its energy storage capacity, with a 12-fold rise to about 60 GW by FY32, which is higher than the expected growth of renewable energy sources. This trend is already visible in the renewable energy tenders, where the share of projects incorporating energy storage solutions has increased from 5 percent in FY20 to 23 percent in FY24. The report points out that the falling cost of energy storage technologies is driving this adoption, with recent projects achieving storage tariffs that are competitive with or even cheaper than thermal power generation costs.

Two main types of energy storage technologies—Battery Energy Storage Systems (BESS) and Pumped Storage Projects (PSP)—are seen as the key solutions. BESS, which is more flexible in terms of location, faster in response, and cheaper due to improvements in technology, will be the dominant choice. It is expected to grow by 375 times, reaching 42 GW by FY32. On the other hand, PSP, though it takes longer to develop and has its own set of challenges, will still see significant growth. With lower operational costs and the ability to provide grid services like reactive power, PSP is expected to grow by 4 times to reach 19 GW by FY32, complementing BESS.

The report also discusses the challenges of reducing the cost of BESS, particularly the fact that about 80 percent of its cost comes from imported battery cells. These battery cells and their components are mostly manufactured in China, making India vulnerable to geopolitical tensions.

To address this, the Indian government has launched a Production Linked Incentive (PLI) scheme aimed at developing a domestic manufacturing ecosystem for Advanced Cell Chemistry (ACC), with plans to set up 55 GWh of production capacity. This will help reduce dependence on imports and improve the overall cost structure.

Several major players have already announced investments in battery cell components like cathodes and anodes, indicating a positive outlook for the sector. The rise of local manufacturing will likely drive growth in the entire value chain, from BESS projects to battery production.

The funding opportunities for both BESS and PSP are huge, with an estimated INR 3.5 trillion in investments required by FY32. The report suggests that financing for BESS projects will be driven by factors like the presence of strong Power Purchase Agreements (PPAs) with reliable electricity distribution companies (DISCOMs), and the type of battery technology used. As battery technology advances, especially with the introduction of 4-hour and 6-hour discharge batteries, the risk of obsolescence in BESS projects is expected to be reduced. Many DISCOMs still have unmet energy storage and renewable energy purchase targets, meaning there will be ongoing demand for storage solutions.

For PSP projects, which are typically funded through a mix of government equity and debt, investment could reach INR 1.2 trillion by FY32. However, these projects face challenges like long development timelines, delays in approvals, and a mismatch between the lifespan of the assets and power purchase agreements, which may create risks of stranded assets. Nevertheless, interest from the private sector and foreign investors is expected to grow, especially in States like Andhra Pradesh and Maharashtra, which have large potential for both renewable energy and PSP development.

Overall, the report stresses the need for India to ramp up its energy storage infrastructure to ensure that the growing share of renewable energy doesn’t destabilise the grid. The expansion of ESS is essential to balance the supply and demand of energy. The government’s efforts to support local manufacturing and reduce the costs of storage technologies will play a key role in this transformation. With an estimated INR 5 trillion investment opportunity in ESS, India’s energy storage sector is poised for rapid growth, helping to ensure the country’s renewable energy future remains secure and stable.

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BESS projects in India

RE and energy storage

Grid stability in India

PSP

ESS

Energy storage technology

Energy storage system