Skip to main content

IEEFA: India needs to be ready to ride the energy storage wave

February 26, 2021

26 February 2021 (IEEFA India): Battery storage, green hydrogen and flexible coal-fired power generation can help India address its next big challenge of integrating large-scale variable renewable energy into the electricity grid over the next decade, according to a new report from the Institute for Energy Economics and Financial Analysis (IEEFA).

“The transition to low-cost, variable renewable energy generation requires a flexible grid that can respond rapidly to changes in power demand dynamics,” says the report’s author IEEFA Research Analyst Kashish Shah. “Battery storage can provide a solution to help the grid manage massive amounts of intermittent wind and solar, provide dispatchable power during peak demand periods and other essential grid services. And battery cost deflation is now making utility-scale battery storage projects possible for India.”

The International Energy Agency (IEA) in its India Energy Outlook 2021 says India has the potential to become a world leader in battery storage, predicting that it could add 140-200 gigawatts (GW) of battery capacity by 2040 – the largest of any country and more than 100 times as much as the amount installed in the U.S. today.

“Battery storage will likely play an important role in India achieving its renewable energy capacity target of 450GW by 2030. India already has 93GW of on-grid variable renewable energy and is targeting annual additions of 20-40GW,” says Shah.

The Central Electricity Authority (CEA) projects that solar and wind will form 51% of India’s total installed capacity, or 420GW, by 2030, with biomass and small hydro adding another 30GW, while the IEA’s India Energy Outlook 2021 says that India could add 900GW of renewable capacity by 2040.

Solar power is now the cheapest source of new Indian electricity capacity.

Solar power is now the cheapest source of new Indian electricity capacity, and with record low tariffs of Rs1.99-2/kWh (US$~27/MWh) it is now below the marginal fuel cost of coal-fired power plants.

However, the report says coal is likely to remain an important source of Indian electricity generation for some time to come and proposes that flexing its generation to cater to the majority of grid variability requirements should be an important focus area.

“Flexible generation is characterised by the ability to rapidly ramp up and ramp down the generation, quickly start up and shut down and operate efficiently at lower generation levels” says Shah.

“Flexible coal-fired plants would require retrofitting, operational and regulatory amendments. This would incur capital costs as well as additional operational expenditure depending upon the size, age and combustion technology of the plant, but this could be rewarded with a higher time-of-day price.”

The report calls for policy support for a time-of-day pricing mechanism to incentivise capital investment in key grid-firming solutions to ensure flexible, reliable peak-time power supply.

Time-of-day pricing could attract high initial capital investment into battery storage projects.

In the battery storage space, Shah says domestic and international developers as well as utilities are eyeing the very positive battery cost deflation trend but need to see a market signal in the form of time-of-day pricing to attract high initial capital investment into such assets.

The report also looks at the experiences of leaders in integrating large-scale renewables, such as Germany and the states of South Australia and California, in the context of the Indian electricity market.

“While the much-bigger Indian market benefits from its strongly connected national electricity grid, it has its own set of challenges and market structure dynamics in dealing with large-scale variable renewable energy,” says Shah. “But there are interesting lessons for India as renewable energy-rich states such as Rajasthan, Gujarat, Maharashtra, Karnataka and Tamil Nadu could see their shares of renewable generation increase to 50% by 2030 from the current levels of 10-30%.”

Though yet to be commercially deployed in India, green hydrogen, produced through water electrolysis using renewable energy, has a wide range of potential applications in transport, industrial production of ammonia, methanol, steel and electricity storage, and is an opportunity that India cannot afford to miss, says Shah.

According to The Energy and Resources Institute’s (TERI) recent analysis, the cost of alkaline electrolysers is projected to drop 56% from around Rs6.3crore/MW (US$0.86m/MW) today to around Rs2.8crore/MW (US$0.38m/MW) by 2030.

“Billions of dollars of capital commitments across the globe are building a critical mass in the green hydrogen space. So India will have the benefit of leveraging these learning-by-doing pilots that are underway in developed economies,” says Shah.

“India’s strategy should be to plan in advance and be prepared to ride the energy storage wave when it arrives.”

Read the report: Renewable Energy Integration: India’s Next Big Challenge

Media contact: Rosamond Hutt ([email protected]) +61 406 676 318.

Author contact: Kashish Shah ([email protected]).

The author is available for interviews or background briefings.

About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends, and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. (

Kashish Shah

Kashish Shah is a Senior Research Analyst with Wood Mackenzie. Previously,
he worked as an Energy Finance Analyst with the Institute for Energy
Economics & Financial Analysis (IEEFA). He specialises in financing, policy

Go to Profile

Join our newsletter

Keep up to date with all the latest from IEEFA