India merchant battery projects face bankability test

Higher capital costs and inconsistent market rules could slow standalone storage deployment and price smaller developers out.

India’s battery storage buildout risks slowing if proposed rules constrain merchant projects, which have emerged as a significant source of operational capacity despite persistent execution problems.

Dhruv Garg, Energy Finance Analyst for South Asia at IEEFA, said India has commissioned only a fraction of storage capacity tendered in recent years. Of 12.8 gigawatt-hours tendered between 2022 and May 2025, only 219 megawatt-hours had become operational, whilst 6.4 gigawatt-hours had already been cancelled.

“Execution and not tendering here is the problem,” Garg said.

Merchant battery energy storage system projects have provided a brighter spot, accounting for nearly 82% of operational capacity around three months before June 2026, according to Garg. Restricting their flexibility could compound existing barriers including financing costs, contractual complexity and commissioning delays.

Financing is particularly critical for standalone projects operating on thin margins. IEEFA’s financial modelling found that a 10-percentage-point change in the cost of capital could result in a three-percentage-point change in internal rate of return.

Garg warned that sharply higher financing costs could make some projects unbankable. Larger developers may be better positioned to absorb the increase, whilst smaller players could be priced out, increasing market concentration.

Regulatory certainty will also determine whether private capital continues entering the sector. Garg identified consistent tender designs, clearer market structures for revenue stacking, and changes to tax and cost structures as key areas requiring attention.

Revenue sources could include energy arbitrage, ancillary services, and frequency regulation, but developers need predictable rules governing how these mechanisms operate.

India already provides support through fiscal subsidies, interstate transmission system waivers, and energy storage obligations. However, inconsistent operating rules between states could undermine those measures.

For India to accelerate deployment, the challenge is therefore shifting from awarding capacity towards ensuring merchant and standalone projects can secure financing and reach commissioning at scale.