Enhancing Grid Stability and Cost Efficiency

The Ministry of Power has issued an advisory emphasising the integration of Battery Energy Storage Systems (BESS) with solar power projects to enhance smart grid and energy storage capabilities, ensuring grid stability and cost efficiency. With battery storage trends showing a significant drop in BESS tariffs - nearly one-third over the past two years - due to declining battery costs, technological advancements, and increased market competition, energy storage is becoming a more viable solution for grid integration and renewable energy balancing.

A key challenge in the power sector is the mismatch between solar energy generation and peak electricity demand. In most states, peak demand occurs in the evening hours, typically between 18:00 and 22:00, as observed in regions such as Madhya Pradesh, Andhra Pradesh, Chandigarh, and Chhattisgarh. The rapid adoption of solar energy increases the need for smart grid and energy storage solutions to manage fluctuations in supply and demand. Co-locating BESS with solar power plants provides an effective solution by storing excess solar energy during the day and discharging it during peak hours. This not only reduces reliance on conventional energy sources but also enhances grid stability and improves cost efficiency by reducing expensive peak-hour procurement.

The recently announced PM Surya Ghar Muft Bijli Yojana is intended to produce electricity through rooftop solar installations, significantly reducing household energy costs. Integrating Battery Energy Storage Systems (BESS) with rooftop solar under this scheme can enhance energy reliability, ensuring a continuous power supply even after sunset. Large-scale adoption of BESS under this scheme would also mitigate grid fluctuations and improve smart grid and energy storage efficiency.

Moreover, under this scheme, the deployment of BESS in urban and rural areas can facilitate energy access and promote self-sufficiency with smart grid and energy storage solutions, reducing the burden on distribution networks. Increased battery storage capacity allows households to manage power outages and take advantage of time-sensitive electricity pricing, improving affordability as well as ensuring a stable energy supply. This move aligns with India's vision of energy independence and decentralised renewable energy adoption.

The Ministry of Power has mandated Time-of-Day (ToD) tariffs from 1 April 2024 for large commercial and industrial consumers, and from 1 April 2025 for other consumers, excluding agriculture. ToD tariffs introduce dynamic pricing, with peak-hour rates set 20% higher and solar-hour rates at least 20% lower. This policy will encourage greater flexibility in energy consumption, incentivising consumers to shift demand to lower-cost solar hours.

BESS plays a crucial role in optimising ToD tariffs by storing energy during lower-priced off-peak hours and discharging it during peak hours. This way, consumers can manage costs and achieve potential savings of 40-45%. Industrial consumers stand to benefit as they can strategically utilise stored energy to minimise high operational costs during peak periods. Furthermore, the integration of BESS with ToD tariffs supports grid balancing by flattening demand curves and lowering stress on transmission infrastructure.

The High Price Day Ahead Market (HP-DAM) allows high-cost generators, including BESS developers, to participate in energy trading by leveraging price differentials between peak and off-peak hours. This mechanism optimises revenue generation and enhances smart grid and energy storage capabilities. BESS operators can capitalise on these market dynamics by storing energy during off-peak hours and supporting the grid during peak hours. HP-DAM also provides greater competition in the energy market, ensuring that storage assets play a central role in maintaining supply reliability. With increasing renewable energy penetration, BESS-supported energy trading mechanisms will be crucial in preventing grid imbalances and ensuring a smooth transition.

Despite declining costs, the high initial investment for battery energy storage system (BESS) remains a barrier. The provision of Viability Gap Funding (VGF) will help lower the Levelised Cost of Storage (LCoS).  Additionally, government-backed funding for BESS projects ensures that battery energy storage systems can scale efficiently, reducing long-term costs and enabling widespread adoption. Expanding financial support mechanisms such as concessional loans, tax benefits, and subsidies can further catalyse the growth of BESS infrastructure across diverse applications.

To accelerate BESS adoption, clear regulatory frameworks must be developed by updating net metering, ToD tariffs, and energy trading rules to explicitly include BESS while defining incentives for grid support services like frequency response and peak shaving. Technical standards should mandate certified inverters, battery safety guidelines, and grid-compatible storage protocols, along with smart metering and control systems for optimised BESS dispatch. Dynamic ToD tariffs should incentivise storage for peak demand management. Additionally, strengthening low-voltage networks and upgrading distribution transformers is essential to ensure seamless BESS integration into the power grid.

The Ministry of Power’s advisory on co-locating BESS with solar power projects highlights a strategic shift toward a resilient, cost-effective energy ecosystem. The integration of BESS with rooftop solar under the PM Surya Ghar Muft Bijli Yojana, along with ToD tariffs, HP-DAM, and VGF, strengthens India’s push towards sustainable and decentralised energy solutions. As the nation moves toward its renewable energy goals, BESS will be critical in enhancing grid stability, improving cost efficiency, and facilitating a seamless transition to a net-zero energy future.