Even before the world woke up to AI’s insatiable electricity needs, India was adding renewable energy capacity at a fast clip. Now, it’s aggressively building standalone battery storage systems, relaxing rules for states to approve projects and fund them. 

The result is a mad rush to lower the tariffs. 

This movie has played before—in solar and wind energy, where India checked the box on rapid installation but failed on building local manufacturing. But no one is watching the rerun. 

Last week, Rajasthan awarded contracts for standalone battery energy storage systems through a tender process that set a new “lowest tariff” record at Rs 1.77 lakh per megawatt (MW) per month. That’s 15% lower than what the state awarded a year ago. Earlier, Andhra Pradesh had set the previous record at Rs 2.08 lakh per MW per month. After the most recent award, the Rajasthan government claimed that it was a “milestone” that reflects its “robust policy ecosystem and proactive facilitation”. 

The Ken has learnt that Maharashtra is sending out feelers to developers for an upcoming battery energy storage tender, and indicating that it expects lower tariffs than Rajasthan’s. 

What was meant to lead to price discovery and spur innovation has led to market distortion. 

In Rajasthan, say industry insiders, there were 50 bidders. This kind of interest, from anyone and everyone, has not been seen in renewable energy before. Eleven bidders eventually won the tender, but it’s evident this could become a race to the bottom.

“You know it’s a problem when state governments try to get in a bidding process,” said a senior executive from the energy storage industry, referring to how states are using the flexibility in viability gap funding to influence pricing. 

Firstly, the tender document is designed to encourage new players. And understandably so, because it’s a new sector and more competition is welcome. Secondly, the construct of standalone projects is such that anyone who can muster up some capital can become a battery storage builder. 

“Due to the viability gap funding scheme, the government funds 16% of your project cost.