India’s ambitious battery energy storage system (BESS) journey is entering a crucial transition phase as rising battery costs, aggressive bidding strategies and execution delays force developers and utilities to reassess project economics.

Ambit Capital Turns Selective on Power Sector; NTPC Emerges as Preferred Pick With 16% Upside Potential Amid Battery Storage Uncertainty

Brokerage firm Ambit Capital believes the sector is moving into a “reset phase”, where initial optimism around large-scale battery storage deployment is being replaced by a more cautious approach focused on profitability, execution capability and long-term sustainability.

While energy storage remains a key requirement for India’s renewable energy expansion, Ambit believes several utility companies may face limited upside due to increasing project risks.

The brokerage has retained a selective approach in the power sector and identified NTPC Ltd as its preferred choice, assigning a Buy rating with a target price of ₹410, indicating around 16% upside from recent levels.

BESS Revolution Faces Reality Check After Rapid Expansion Expectations

India has positioned battery storage as a critical pillar of its clean energy transition.

With rapid growth in:

Solar power capacity
Wind energy installations
Renewable energy integration

the demand for energy storage solutions has increased significantly.

BESS technology helps solve one of renewable energy’s biggest challenges:

Intermittency of Solar and Wind Power

Battery storage enables electricity generated during high-production periods to be stored and supplied during peak demand hours.

However, Ambit believes the industry’s initial growth expectations were based on assumptions that are now being challenged.

Why Ambit Sees a Reset Phase in BESS Market

According to Ambit Capital, the sector is facing multiple challenges that could impact profitability.

Major concerns include:

1. Rising Battery Costs

Increasing battery prices have reduced project viability.

2. Aggressive Tender Bidding

Several developers offered highly competitive tariffs without fully accounting for lifecycle costs.

3. Project Execution Delays

Supply chain issues and infrastructure requirements are slowing implementation.

4. Battery Performance Uncertainty

Long-term battery degradation and replacement costs remain key concerns.

Battery Prices Rise, Procurement Activity Slows

One of the biggest challenges for the sector is the increase in BESS costs.

Ambit highlighted that battery storage prices have increased to around:

$80 per kWh

The increase represents a rise of nearly:

$15 per kWh compared with previous levels

Higher costs have resulted in:

Delayed procurement decisions
Reassessment of project economics
Pressure on expected returns

Developers who secured projects at aggressive tariffs may face profitability challenges if costs remain elevated.

India May Miss FY27 BESS Installation Target

The Central Electricity Authority (CEA) had set ambitious targets for battery storage deployment.

However, current industry expectations indicate that FY27 installation targets may fall short.

Expected FY27 Capacity

Incremental installation: Around 5 GWh
Total cumulative capacity: Around 13–15 GWh

This compares with the CEA’s target of:

23 GWh

The gap highlights the challenges involved in converting policy targets into operational capacity.

Aggressive Bidding Creates Pressure on Project Returns

Ambit pointed out that many developers aggressively participated in BESS tenders without fully considering the complexity of storage economics.

Unlike traditional renewable projects, battery storage profitability depends on several additional factors.

Battery Degradation Risk

Battery efficiency declines over time.

Developers must account for:

Reduced storage capacity
Replacement requirements
Maintenance costs

Failure to consider degradation can significantly impact project returns.

Lifecycle Management Challenges

Long-term BESS projects require careful planning around:

Battery replacement cycles
Technology upgrades
Operational costs

Auxiliary Consumption Impact

Battery systems consume energy during operation.

This additional consumption affects:

Efficiency
Revenue generation
Overall economics

CEA Considering Stricter Rules for Future BESS Projects

To improve project quality and reduce risks, the Central Electricity Authority is considering stronger technical qualification requirements.

Future tenders may include:

Higher technical standards
Better financial evaluation
Improved project feasibility checks

The move could reduce unrealistic bidding and encourage participation from financially stronger players.

Government Evaluates Additional 40 GWh Viability Gap Funding Support

To accelerate battery storage adoption, the government is considering additional support through:

Viability Gap Funding (VGF)

The proposed support could cover:

40 GWh of additional BESS capacity

The government is also considering stronger domestic manufacturing requirements.

Expected domestic content requirements:

40–50%

The objective is to:

Promote local battery manufacturing
Reduce import dependence
Create a domestic energy storage ecosystem

FDRE Projects Could Become the Main Growth Engine

A large portion of upcoming BESS demand is expected from:

Firm and Dispatchable Renewable Energy (FDRE) projects

These projects combine:

Renewable generation
Battery storage
Guaranteed power delivery

Most FDRE projects are expected to become operational around:

FY28

Why FDRE Economics Are Better Than Standalone BESS

FDRE projects have certain advantages because battery systems can share infrastructure with renewable assets.

Benefits include:

Lower capital costs
Shared transmission infrastructure
Better asset utilisation

Standalone battery projects face higher costs because they require separate infrastructure.

Merchant Arbitrage Model Faces Questions

Battery storage projects can generate revenue by buying electricity during cheaper periods and selling during high-demand periods.

This model is called:

Merchant Arbitrage

However, Ambit believes the sustainability of this model remains uncertain.

The industry has requested removal of the:

₹10/kWh exchange price cap

to improve profitability.

Some projects have achieved revenue levels near:

₹20/kWh

under specific grid procurement mechanisms.

However, Ambit believes long-term returns will likely depend on multiple revenue streams rather than pure arbitrage.

NTPC Emerges as Ambit’s Preferred Power Stock

Amid sector challenges, Ambit remains positive only on selected companies.

The brokerage’s top pick:

NTPC Ltd

Recommendation

Buy

Target Price

₹410

Potential Upside

Around 16%

Why Ambit Likes NTPC

NTPC benefits from:

Strong Operating Scale

The company remains India’s largest power producer.

Energy Transition Opportunity

NTPC is expanding into:

Renewable energy
Storage solutions
Green hydrogen initiatives

Execution Capability

The company has a strong track record of implementing large infrastructure projects.

Ambit Warns NTPC Must Continue Winning Orders

Despite its positive view, Ambit highlighted a key risk.

The brokerage believes NTPC needs to continue securing new projects and orders.

Failure to maintain growth momentum could create valuation concerns.

Ambit’s View on Other Energy Companies

The brokerage remains selective across the power and renewable energy space.

Positive View

Suzlon Energy

Target Price: ₹61

Emmvee Photovoltaic Power

Target Price: ₹345

Saatvik Green Energy

Target Price: ₹520

Cautious View

Ambit has assigned Sell ratings on:

Tata Power — Target ₹410
JSW Energy — Target ₹525
Torrent Power — Target ₹1,255
Power Grid Corporation — Target ₹290
NTPC Green Energy — Target ₹85

The brokerage believes valuations already reflect significant future growth expectations.

Battery Manufacturing Push Faces Execution Delays

India’s domestic battery manufacturing ambitions under the Production Linked Incentive (PLI) scheme have also faced challenges.

Several companies have experienced delays in scaling operations.

Key PLI Challenges

Technology Transfer Issues

Battery manufacturing requires advanced technology capabilities.

Manufacturing Learning Curve

Achieving large-scale production with consistent quality remains challenging.

Demand Uncertainty

Lower-than-expected demand has affected commercial expansion plans.

Long-Term Outlook for India’s Energy Storage Sector

Despite short-term challenges, the long-term opportunity remains strong.

India’s renewable energy growth requires reliable storage solutions.

BESS will become increasingly important for:

Grid stability
Renewable integration
Peak power management
Energy security

Key Investment Themes in BESS Sector

Positive Drivers

✅ Renewable energy expansion
✅ Government policy support
✅ Rising electricity demand
✅ Need for grid flexibility
✅ Domestic manufacturing push

Risks Investors Should Monitor

1. Cost Inflation

Higher battery prices can reduce returns.

2. Project Execution

Delays can impact profitability.

3. Competitive Bidding

Aggressive tariffs may hurt margins.

4. Technology Changes

Rapid innovation may affect existing assets.