In a bid to accelerate the goal of achieving energy transition from fossil fuel sources to non-fossil fuel based sources and ensuring energy security, the Ministry of Power (MoP) in August 2023, as notified in September, 2023, unveiled a comprehensive National Framework for Promoting Energy Storage Systems (Framework) in India. The variability associated with renewable energy (RE) sources creates a need for flexibility solution such as Energy Storage Systems (ESS). Key details of the framework have been set out below:

Objectives of the Framework:

The objectives of the Framework are:

1. to ensure round the clock (RTC) dispatchable RE power;
2. to reduce greenhouse gas emissions and overall energy costs;
3. to support ESS development through policy, incentives and performance based measures;
4. to redesign energy markets to incentivize participation of ESS and establish market mechanisms;
5. to improve grid stability and reliability with ESS;
6. to promote energy independence and innovation through deployment of ESS in remote islanded communities;
7. to develop technical standards and equitable access to ESS, as well as monitor and evaluate ESS performance;
8. to foster innovation and research for improvement and development of new energy storage technologies. 

Estimation of Storage Requirements:

The Framework provides the estimate of storage requirements for the years 2026-2027, 2029-2030, and 2031-2032. The CEA predicts that the energy storage requirement would reach 320 GW (90 GW Pumped Storage Projects (PSPs) and 230 GW Battery Energy Storage Systems (BESS)) with a capacity of 2,380 GWh (540 GWh from PSPs and 1,840 GWh from BESS) by 2047.

In order to develop the storage capacity during 2022-27, approximately Rs. 54,203 crores would be required for PSPs and Rs. 56,647 crores for BESS. Additionally, for the period 2027-2032, approximately Rs. 75,240 crores would be required for PSPs and Rs. 2,92,637 crores for BESS.

Applications and Use Cases of ESS in Power Sector:

ESS can be integrated at various levels of power sector, (i.e., generation, transmission, distribution) and therefore find use in applications such as storage with generation, transmission, distribution, standalone ESS, lease and sale of ESS and storage for ancillary services.

Existing Policy Framework for ESS Promotion:

The MoP has already notified the following policies and regulations to promote the development of ESS in the country:

Legal Status to ESS

The Electricity (Amendment) Rules, 2022 recognized ESS as part of the power system and allowed ESS to be used independently or in conjunction with generation, transmission, and distribution infrastructure. ESS would be accorded status based on its application area.

ESS developers or owners are permitted to use, or lease or sell storage space to utility companies or load dispatch centers to buy and store electricity for future sale. As per Section 7 of the Electricity Act, 2002, the independent energy storage system shall be a delicensed activity at par with a generating company. However, if an ESS owner wants to operate an independent energy storage system, they will need to register with the CEA and meet their safety requirements. Standalone ESS shall be provided connectivity under the Electricity (Transmission System Planning, Development, and Recovery of Inter State Transmission Charges) Rules, 2021.

Energy Storage Obligations

The MoP vide an order dated July 22, 2022, established a long term trajectory for Energy Storage Obligation (ESO) to ensure that sufficient storage capacity is available with the obligated entities. The trajectory specifies that the ESO of the obligated entities shall gradually increase from 1% in the FY 2023-24 to 4% by the FY 2029-30, with an annual increase of 0.5%. Further, the RE power purchased from an ESS shall also count towards the RPO compliance of the obligated entities.

Waiver of Inter State Transmission System (ISTS) Charges

In pursuance of the National Tariff Policy, 2016, the transmission charges for using ISTS have been waived for ESS including BESS and PSPs projects commissioned up to June 30, 2025, subject to certain conditions. The transmission charges for ISTS network for the projects commissioned after June 30, 2025, shall be gradually increased by 25% annually from July 1, 2025, till June 30, 2028.

Rules for Replacement of Diesel Generator (DG) sets with RE/Storage

The Electricity (Right of Consumers) Amendment Rules, 2022, encourages the consumers to shift from DG sets to cleaner technologies like RE with battery storage within 5 years or as per the timelines given by the state commission, to enhance reliability of power supply.

Guidelines for procurement and utilization of BESS

The MoP vide resolution dated March 10, 2023, issued detailed guidelines for procurement and utilization of BESS as part of power generation, transmission, or distribution or along with ancillary services. These guidelines aim to standardize procurement of BESS, promote competition, enhance project bankability as well as provide transparency in such procurement processes.

Guidelines for the development of PSPs

The MoP vide notification dated April 10, 2023, introduced guidelines to expedite and cost effectively develop PSPs to enhance energy security in the country. These guidelines inter alia establish transparent criteria for site allocation, enable self-identification of off-river PSP sites, removal of upfront premiums, promote market reforms for PSP ancillary services monetization, offer government land on concessional rate, if available, exempt PSPs from free power obligations, streamline environmental clearances for off-river PSP sites, and encourage the use of exhausted mines for PSPs development.

Timely concurrence of Detailed Project Reports (DPRs) of PSPs

As per the guidelines issued by the CEA for formulation of DPRs for pumped storage schemes in June 2023, the timelines for DPR approval have been reduced from 900 days to 840 and 690 days in Himalayan and non-Himalayan regions, respectively.

Additionally, the guidelines reduce the timeline for concurrence of PSPs allotted through (i) tariff based competitive bidding, or (ii) as part of integrated RE project or (ii) as captive plants to 50 days and for other PSPs, to 90 days.

Introduction to High Price Day Ahead Market (HP-DAM)

The MoP vide note dated October 11, 2022, released a detailed framework for HP-DAM segment in the existing integrated DAM. The HP DAM was launched on March 9, 2023, and allowed sellers with higher generation costs, including BESS, to participate in the HP DAM segment of the energy exchange. This allowed ESS developers to take advantage of the price differential between peak and off peak tariffs.

Harmonized Master List for Infrastructure

The Department of Economic Affairs vide notification dated October 11, 2022, included ESS in the harmonized master list of infrastructure, thus facilitating access to institutional credit, concessional funds and reducing borrowing costs for ESS projects. The notification defined ESS as a dense charging infrastructure and grid scale energy storage system with a minimum qualifying capacity of 200 MWh, that is not being established on merchant basis.

Budgetary support for enabling infrastructure for PSPs

The central government is providing budgetary support for road and bridge construction by hydro power project developers, including PSPs to up to Rs. 1.5 crore/MW for projects up to 200 MW and up to Rs 1 crore/MW for projects above 200 MW.

RE Must Run Rules

The Electricity (Promotion of Generation of Electricity from Must-Run Power Plant) Rules, 2021, notified on October 22, 2021, designated power plants, as notified by the appropriate government, that have entered into an agreement to sell electricity to anyone, as "must-run" power plants.

A must-run power plant shall not be subjected to curtailment or regulation of generation or supply of electricity on account of merit order dispatch or any other commercial considerations, except during technical grid constraints or for grid security. In situations where supply from a must-run power plant is curtailed, the procurer must compensate the plant according to the rates specified in their supply agreement. These rules aim to encourage the adoption of ESS to prevent curtailment of renewable energy and avoid associated penalties.

Ancillary services from ESS under CERC (Ancillary Services) Regulations, 2022

The Central Electricity Regulatory Commission (CERC) notified the CERC (Ancillary Services) Regulation, 2022 on January 31, 2023. The notification made ESS providers eligible to offer ancillary services such as Secondary Reserve Ancillary Service and Tertiary Reserve Ancillary Services, under certain conditions. This created additional revenue streams for ESS service providers and encourage investment in energy storage.

Inclusion of ESS in Technical standards for Connectivity to the Grid

To ensure seamless integration of ESS with the Grid, the CEA notified the CEA (Technical Standards for Connectivity to the Grid) Regulations 2007. On February 6, 2019, an amendment to the regulation outlined the requirements for ESS to connect to the Grid at voltages of 33kV and above.

Bidding guidelines for round the clock RE supply

The government in November 2020, notified the Guidelines for Tariff-Based Competitive Bidding Process for Procurement of RTC Power from Grid Connected RE Power Projects. The guidelines enable the use of firm power from storage to complement renewable energy and provide RTC power to the buyers and DISCOMs. This aids State Load Dispatch Centers in ensuring grid stability. The procurement of RTC power would create demand for ESS and accelerate the transition to cleaner energy sources.

Way Forward:

The policies enumerated above collectively aim to promote the development and utilization of ESS in India’s energy landscape. However, more steps are required to taken at the policy and regulatory level to develop an enabling ecosystem for ESS. The Framework provides that the following measures are under consideration:

Financial Incentives
The Framework proposes to offer the following financial incentives:

1. Viability Gap Funding (VGF) for BESS
   To support initial ESS uptake, the government has proposed to offer VGF of up to 40% of the project's capital cost. VGF will be provided with the condition that the project must be commissioned within 18 to 24 months. This funding is expected to help reduce the levelized cost of storage, making ESS economically viable for peak power management.
2. Additional Budgetary support for enabling infrastructure for PSPs
   PSPs are often located in remote areas, and therefore lack necessary infrastructure. However, the infrastructure developed for these projects can benefit the region by enabling additional development for various purposes. The scope of enabling infrastructure may be considered to cover transmission infrastructure up to pooling point.
3. Green Financing
   Concessional green finance such as sovereign green bonds, may be used to initiate and accelerate the pace of establishment of ESS industry. Financial institutions like PFC, REC and IREDA may also extend long term loans to ESS projects.

Guidelines for Resource adequacy plans

The Electricity (Amendment) Rules, 2022 requires that the guidelines for assessment of resource adequacy shall be issued by the central government in consultation with CEA. The government plans to develop a Resource Adequacy Plan (RAP) that incorporates ESS into the planning process. This plan aims to ensure that there is sufficient generation as well as demand-responsive resources are available to meet expected peak demand.

SERCs would be mandated to issue regulations in accordance with the guidelines issued by the central government, as well as review the resource adequacy for distribution licensee as per the guidelines and determine non-compliance charges for failure to comply with the resource adequacy targets approved by SERCs.

The CEA also plans to release a long term national resource plan (LT-NRAP) to estimate storage requirements at the national level for the next 10 years. This would facilitate the developers to plan for additional capacity, well in advance, and provide certainty in future demand of ESS.

The distribution licensees would also be required to undertake long term DISCOM resource adequacy plan (LT-DRAP) for 10 years. This statutory provision to supply power 24x7 would require the distribution licensees to make ESS an integral part of their respective RAP. The statutory obligation of RAP would provide certainty in future demand of ESS.

Connectivity and Grid Access

ESS may receive priority connectivity to the nearest ISTS. Further, ESS may be integrated into both national and state-level transmission and distribution planning to facilitate its seamless integration into the grid.

Technology Agnostic Bidding Guidelines for procurement of ESS

The central government may notify technology agnostic bidding guidelines for long duration energy storage (LDES), short duration energy storage (SDES), and ancillary services to assist developers in development of financially viable and sustainable ESS projects in India. Further, nodal agency may be designated for inviting and aggregating bids and associated works of ESS. The bidding may be based on either composite tariff in case the input power is arranged by the developer or on tariff for storage on a per Megawatt Hour basis in case the input power is to be arranged by the procurer of the storage capacity. The tariff so adopted shall be in consonance with the Electricity Act, 2003.

Storage Capacity with future renewable generations

In order to ensure adequate storage capacity and reliable power supply, RE projects, excluding hydro projects, with a capacity of over 5MW may be mandated to install ESS, of at least 1-hour storage, for a minimum of 5% of their capacity. Such ESS capacity can be co-located with RE projects or integrated with storage located elsewhere.

Facilitating Ease of Doing Business

The government may come up with comprehensive and integrated regulatory and policy framework to facilitate ease of doing business for ESS. It shall, inter alia, simplify regulatory procedures, establish timeframes for the entire process, develop interactive interfaces for ESS developers and investors, minimize clearance and permission procedures. The government shall also appoint a nodal agency to oversee the process, ensure adherence and address any grievances.

Regulatory Measures

ESS developers and agencies may be permitted to offer a range of market based energy and power products. These products may include:

1. Spot Energy Market;
2. Capacity Market/Energy Arbitrage;
3. Provision of ancillary services to the grid;
4. Providing storage to other generating stations;Bundling to make RE firm and dispatchable RE power;
5. Replacing diesel generation at various sites;
6. Any other product that meets market demand or requirements.

Power purchase guidelines would be framed to encourage the use of ESS to meet demand and reliability requirements. ESS may also be considered as an alternative by the appropriate commission when approving CAPEX requirements for any new transmission and/or distribution system.

Appropriate commission would specify Time of Day Tariffs for commercial and industrial consumer category and other categories in accordance with the Electricity (Rights of Consumers) Amendment Rules, 2023.

Other measures to incentivize consumers and utilities to use ESS includes:

1. ESS using renewable energy may receive carbon credits;
2. Regulations to promote distributed energy storage systems;
3. BESS used in rooftop solar projects may be aggregated at the grid scale for utility of both DISCOMs and owners/users. Appropriate commission may establish a supportive framework for peer to peer trading;
4. Appropriate commission may release a separate tariff regulation for PSPs to ensure tariff viability.

Waiver of Cess, Tax, and Duties

To promote rapid ESS development, tax benefits may be considered. Following the principle of avoidance of double taxation, electricity duty (ED), and cross subsidy surcharge (CSS) may not be levied on input of power for ESS as they merely facilitate conversion of energy where electricity is stored during off peak hours and discharged during peak hours. ED and CSS may only be levied on the final consumption of electricity. Stamp duty and registration fee shall also be exempted by the state governments on acquisition of land for setting up of ESS. Government land, if available would be provided at concessional rate on annual lease rent basis. 

Promoting Indigenous Manufacturing

The government may introduce Product Linked Incentive scheme for BESS to be used in the power sector, to promote indigenous manufacturing.

Quality and Standards

To ensure quality, the government may issue an approved list of models and manufactures (ALMM) for BESS. Further, specifications, standards, and test methods including fire safety would be prepared by appropriate agency to manage safety when ESS is in use. Test labs for safety and performance testing may be set up to demonstrate commercial readiness of ESS. Further, CEA safety standards and CEA (Technical Standards for Connectivity to the Grid) Regulations may be suitably updated to cover ESS and other technologies like electrolysis for green hydrogen.

Research and Development (R&D)

The government plans to encourage investment in R&D of ESS technologies such as liquid metal, Ni-Fe, green hydrogen storage etc. Such investments would lead to enhancement in efficiency and longevity of these technologies and make them cost effective and viable for commercial use.

The government may establish a nodal agency which would coordinate the R&D efforts in the field and provide funding for the same. A national portal may also be created to facilitate knowledge sharing and avoid duplication of R&D efforts.

Pilot Scheme

The government plans to undertake technology demonstration projects/ Pilots for emerging storage technologies like novel Advanced Chemistry Cells, Compressed Air Energy Storage, Flywheel etc. The central government may also provide financial assistance from power system development fund or any other fund to utmost two Pilot ESS Projects with a maximum capacity of 20MW, for both LDES and SDES applications, to a maximum cumulative capacity of 80MW.

Recycling and Sustainability

In order to ensure that all ESS projects comply with the principles of 3Rs (i.e., Reduce, Reuse and Recycle), the end-of-life management plans may be included in the bidding documents of all ESS projects. Manufactures may design systems with end-of-life management approach and promote reuse and recycling of ESS components. The framework proposes to use exhausted and exploited mines as repurposed hydro storage facilities, that serve as natural facilitators for PSP developments. A standard operating procedure may also be developed to encourage recycling efforts. Further, all environmental concerns may be addressed and monitored to ensure compliance.

Monitoring and Evaluation

The framework for ESS may be revised periodically based on feedback from the stakeholders, technological advancement, or based on maturity in the operating system. The concessions and incentives may be provided for a limited period of time and may be reviewed regularly as the ESS supply chain matures. In the long term, the goal is to make ESS deployment self-incentivized.

This framework aims to accelerate the development and adoption of ESS in India, while ensuring sustainability, quality, and regulatory support. Investment would be promoted by offering stakeholder-friendly schemes, exemptions, or incentives as considered suitable.

Please find attached a copy of the Framework.

This update has been contributed by Rachika Agrawal Sahay (Partner) and Sirisha Prasad (Associate).

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