Declining battery costs to encourage faster adoption of BESS

Softening prices of raw materials and increasing production has led to a record decline in battery prices last year, which in turn will help in increasing the adoption of battery energy storage systems (BESS).

According to ICRA, the storage cost using BESS is estimated to have come down from over ₹8-9 per unit in 2022 to ₹6-7 per unit at present.

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, it said.

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“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, in ICRA’s view,” ICRA said.

Managing higher RE capacities

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 FY30 from less than 25 per cent currently.

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

“The ESS is currently mainly driven by BESS and pumped hydro storage projects (PSP). The recent appreciable decline in battery costs is encouraging, and ICRA expects to hasten the adoption of BESS projects,” it added.

Girishkumar Kadam, Senior Vice President and Group Head, Corporate Sector ratings at ICRA, pointed out that the discovered tariff under BESS tenders more than halved from ₹10.84 lakh per megawatt (MW) per month in the first Solar Energy Corporation of India (SECI) tender in August 2022 to ₹4.49 lakh per MW per month in the latest tender by Gujarat in March 2024 reflecting the decline in battery prices and improving competitiveness of such projects.

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“The viability of these projects remains pegged to the capital cost of the BESS. Based on the average battery cost of around $140 per 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 $220-230 per kwh,” he added.

BESS Vs PSP

The levelled cost from PSPs is lower compared to that from BESS making the former more preferable from a cost point.

“Based on prevailing battery costs, the storage cost using BESS is estimated to have come down from over ₹8-9 per unit seen in 2022 to ₹6-7 per unit at present. However, this remains relatively high as against ₹5 per unit in case of PSP hydro,” said Kadam.

Moreover, BESS projects have a relatively shorter life span and require replacement capex. Nonetheless, the execution risks and gestation period for the BESS projects remain relatively low compared to PSP hydro. Overall, a sustained reduction in battery prices and relatively low gestation period for these projects is expected to support their greater adoption for energy storage, going forward, he added.

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