India’s renewable energy sector is entering a decisive phase where storage adoption has become essential for integrating large volumes of variable solar and wind power into the national grid. According to ICRA, the share of generation from renewable energy, including large hydro projects, is expected to rise to more than 35 percent by FY2030, up from 22.1 percent in FY2025. This expansion depends on an incremental capacity addition of nearly 200 GW over the next five years, but progress will hinge on timely execution of existing projects, availability of transmission connectivity and quicker signing of power purchase agreements by central nodal agencies.
Over the past two years, the bidding environment has shown sharp contrasts. FY2024 saw 47.3 GW of renewable capacity awarded, followed by 40.6 GW in FY2025. In the current year, the pace has slowed considerably, with only 5.8 GW awarded in the first eight months of FY2026. At the same time, nearly 40 to 45 GW of capacity remains stuck due to unsigned PPAs. ICRA notes that these delays reflect concerns about the adequacy of transmission infrastructure. Grid curtailments in Rajasthan during solar hours, particularly for solar assets, underline the stress on local networks. Because typical PPAs do not compensate developers for such curtailments, the risk directly affects project viability. Strengthening transmission systems within states and across regions, along with scaling up storage capacity, has therefore become critical as renewable penetration rises.
Battery Energy Storage Systems are emerging as the linchpin for grid stability, especially as India confronts fluctuations in renewable generation. Government measures such as viability gap funding for storage and waivers on transmission charges until 2028 have improved the economics of these projects. Since April 2024, more than 20 GWh of standalone BESS capacity has been awarded by central and state agencies. In addition, round-the-clock, firm and dispatchable renewable energy projects, including solar plus storage configurations, have accounted for nearly 90 percent of all renewable energy capacity awarded in the first eight months of FY2026.
Declining global battery prices have significantly improved the cost structure of energy storage. ICRA estimates the levelized cost of storage for a 2 to 4 hour BESS to be in the range of Rs 4 to 7 per unit, compared with roughly Rs 5 per unit for pumped storage hydropower. This marks a major improvement compared with the Rs 8 to 9 per unit storage cost recorded in 2022. Although BESS costs for longer duration storage still exceed those of pumped hydro, battery projects benefit from shorter gestation periods and fewer execution risks. However, their long-term viability will depend on sustained reduction in battery costs and improved operational performance on parameters such as availability, round-trip efficiency and degradation.
ICRA maintains a Stable outlook on the renewable sector, supported by strong policy momentum, competitive tariffs and rising demand from commercial and industrial consumers. However, sectoral challenges persist, including land acquisition hurdles, transmission bottlenecks, delays in signing PPAs and exposure to fluctuations in equipment prices. Rating movements reflect these mixed trends. The sector recorded 29 upgrades and six downgrades in FY2025, followed by 49 upgrades and 13 downgrades in the first half of FY2026. Upgrades were driven by successful commissioning, improved generation performance and stronger parent credit profiles, while downgrades stemmed from generation shortfalls, commissioning delays and rising leverage. |
