Energy storage systems pivotal to increase share of RE in power generation: ICRA

ICRA on sustainable energy: Energy storage systems are vital for increasing the share of power generated through renewable energy sources, according to the rating agency ICRA. The contribution of renewable energy power generation, including large hydro, to India's total power production will increase to close to 40 per cent by FY2030 from less than 25 per cent currently, ICRA said in a report.

The spurt will be driven by the large RE capacity addition process, added the report. As per the report, ICRA expects the share of generation from the renewable energy (RE) capacity, including large hydro, to increase to close to 40 per cent  of the all-India electricity generation by FY2030 from less than 25 per cent currently, driven by the large capacity addition underway. 

“Achieving such a high level of RE share would require the development of energy storage systems (ESS) to manage the intermittency associated with wind and solar power,” the report added. 

The ESS is currently mainly driven by the battery energy storage systems (BESS) and pumped hydro storage projects (PSP), said the report adding that the recent appreciable decline in battery costs is encouraging, and ICRA expects to hasten the adoption of BESS projects. “The ESS also plays a role in improving grid stability, providing ancillary support services and peak load shifting,” said the ICRA report. 

“Post the notification of the bidding guidelines by the Ministry of Power for BESS projects, there have been multiple bids called by Central nodal agencies and state distribution utilities,” the report added.  The tariff under these bids is fixed and payable based on the availability and round-trip efficiency. 

Commenting on the bidding trends, Girishkumar Kadam, Senior Vice President & Group Head - Corporate Ratings, ICRA, said:  “The discovered tariff under the BESS tenders more than halved from Rs 10.84 lakh/MW/month in the first Solar Energy Corporation of India (SECI) tender in August 2022 to Rs. 4.49 lakh/MW/month in the latest tender by Gujarat in March 2024, reflecting the decline in battery prices and improving competitiveness of such projects,”

“The viability of these projects remains pegged to the capital cost of the BESS. Based on the average battery cost of ~USD 140/kwh seen in 2023 along with associated taxes/duties and cost of the balance of plant, the capital cost is expected to be in the range of USD 220-230/kwh,” Kadam added. 

As per the ICRA report the decline in battery costs over the past decade leading up to 2021 helped reduce the cost of energy storage and adoption of BESS projects globally. While the prices went up in 2022, they declined in 2023 to an all-time low, led by the moderation in raw material prices, amid the increase in production across the value chain. Cheaper battery prices are the key to increased adoption of BESS projects, said the ICRA report.