CERC’s Rejection of SECI’s BESS Tariff Petition Raises Alarm Over Project Delays and Growing Backlog

The recent order by the Central Electricity Regulatory Commission (CERC) rejecting the petition to approve the tariff for the first standalone Battery Energy Storage System (BESS) project under Solar Energy Corporation of India (SECI ) has intensified concerns about a growing backlog of renewable energy (RE) projects awaiting buyers. The issue, further exacerbated by CERC's decision, highlights the challenges facing India's transition to a clean energy future.

Key Findings from CERC's Rejection

The CERC order, issued on January 15, 2025, cites two primary reasons for rejecting the tariff petition submitted by SECI for its 1st standalone BESS project:

1. Project Delays: The project faced significant delays, which affected its alignment with the current market dynamics, especially in terms of cost reduction and technological advancements in the energy storage sector.

2. Subsequent Cost Reduction in BESS Prices: The tariff proposed by SECI did not reflect the significant reduction in BESS costs observed in the market over recent months, which led to concerns over the non-alignment of the tariff with prevailing market conditions.

As a result, CERC concluded that the tariff discovered through competitive bidding was not reflective of the market realities and rejected the approval of SECI’s tariff proposal. The order underscores that while the tariff itself is not overly high, its dissonance with market prices may pose risks for future projects in the sector. However, the order noted that the non-alignment with market prices, rather than excessively high tariffs, was the core issue leading to the rejection.

Impact on Energy Storage and Renewable Energy Projects

The broader implications of this rejection are far-reaching. The ongoing challenge faced by developers is that many awarded projects are yet to secure a buyer. According to industry insiders, the clause in standard tender documents that mandates the cancellation of projects if no buyer is found within 180 days is becoming a looming threat. This clause could potentially jeopardize a large pipeline of projects, including those that are already behind schedule.

Currently, around 9.5 GW of Energy Storage Systems (ESS) capacity, associated with 12 GW of renewable energy, is at risk as per market analysis and inputs. Notably, 2 GWh of ESS, along with approximately 5 GW of renewable capacity, has already breached the 6-month buyer identification deadline. While the tariff discovery for these projects varies—ranging from ₹4-5/kWh for firm dispatch renewable energy (FDRE), ₹3-4/kWh for standalone ESS, and ₹8.5/kWh for peak power—the issue stems from the market misalignment and delays in securing off-takers.

BESS Capacity (in GWh) in Utility Tender

What compounds the problem is that in some cases, off-takers were identified before the tenders were released, but later backed out following price discovery. This further complicates the situation for developers, who must now navigate both regulatory hurdles and uncertain market conditions.

India’s Urgent Energy Storage Needs

India’s energy storage requirements are set to escalate rapidly in the coming years. With the goal of achieving 500 GW of non-fossil fuel capacity by 2030, the country will require an energy storage capacity of at least 208 GWh to integrate these renewable energy sources effectively. To meet this target, India must commission 40 GWh of BESS capacity annually until 2030. However, the current installed BESS capacity is woefully inadequate, with just 0.2 GWh installed and an additional 1 GWh expected to be commissioned in 2025, leaving a massive gap in the pipeline.

If renewable energy projects fail to grow at an accelerated pace, energy storage systems will not scale accordingly, making it impossible to reduce reliance on fossil fuels. The delayed commissioning of storage capacity is increasingly seen as the bottleneck preventing India from meeting its renewable energy targets.

Regulatory and Market Dynamics

CERC's rejection has also raised broader concerns about the effectiveness of current regulatory frameworks and the challenges associated with the bidding and tendering processes. The commission's decision brings to light the need for greater alignment between the tariff discovered through competitive bidding and prevailing market prices. However, the decision also points to the larger issue of the lack of committed buyers for renewable energy and storage projects post-award.

A deeper analysis reveals that the mismatch between the pricing structure and the ability of off-takers to commit to long-term contracts is a persistent challenge. As one industry expert notes, the financial closure of projects is often dependent not just on tendering processes but also on post-bid certainty regarding buyers and long-term pricing stability.

Solutions and Industry Response

Several measures have been proposed to mitigate these challenges and facilitate smoother project execution:

1. Tariff Ceilings and Market Alignment: Implementing clear tariff ceilings and ensuring that the prices discovered during competitive bidding align with current market conditions and technological advancements.

2. Securing Buyers Before Tendering: Prioritizing the identification of committed buyers before tenders are issued, alongside the establishment of acceptable tariff ranges.

3. Innovation and Customization: Moving away from replicating previous project models and focusing on innovative use cases and customized solutions for each project, which can help address specific challenges and improve financial viability.

4. Penalties for Off-Taker Withdrawal: Introducing penalties for off-takers who back out after price discovery to ensure accountability and discourage disengagement after the tariff is finalized.

5. Pooling Tariffs Across Projects: Instead of pricing each project individually, pooling the tariffs across multiple projects and sharing the benefits with off-takers over a period of time could reduce risks and create more stability in the market.

Despite these proposals, experts agree that the solution lies in fostering greater collaboration and accountability across all stakeholders. This would require coordination between developers, off-takers, regulators, and government bodies, all of whom need to play an active role in addressing these systemic challenges.

A Call for Urgent Action

The delay in tariff approvals and the increasing number of projects that are awarded but left without buyers signal an urgent need for reform in India’s renewable energy and energy storage sectors. As highlighted in CERC’s recent order, while the tariff rejection is a specific issue, the underlying cause lies in the broader market dynamics that need to be addressed.

India’s clean energy goals, including the ambitious 500 GW non-fossil fuel target by 2030, cannot be achieved without a robust, scalable energy storage infrastructure. To ensure that both renewable energy and storage technologies can grow in tandem, regulatory frameworks must evolve, and market conditions need to align better with the realities of the sector.

Time is of the essence. India must act swiftly to resolve these issues and ensure that the energy transition remains on track, not just for individual projects, but for the broader goal of achieving a sustainable, low-carbon energy future.

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