How battery energy storage is influencing India's renewable and utility investment

Why is storage becoming critical for renewable scale-up?

The most useful way to understand why storage matters is through what energy experts call the duck curve. As solar capacity has scaled, electricity generated in the middle of the day has begun exceeding demand, pushing grid prices to near zero or even negative during peak solar hours.

Then, as the sun sets, demand surges and the grid has to scramble to replace the lost solar output. The steeper the drop in the evening, the harder the grid has to work, and the more carbon-intensive the backup generation tends to be.

India is already seeing this problem in real terms. Karnataka curtailed 1,200 gigawatt-hours of renewable energy in 2024 alone because the grid could not absorb the surplus at that moment.

That is clean energy generated and wasted. Battery storage solves this by absorbing the surplus during the day and releasing it in the evening when it is actually needed.

According to the Central Electricity Authority (CEA), India will need around 411 gigawatt-hours of total energy storage by 2031 to 32. Of this, around 236 gigawatt-hours are expected to come from battery systems, with the remainder from pumped hydro.

To put this in perspective, as of the end of 2025, India had less than 1 gigawatt-hour of battery storage actually operational. The distance between where India is today and where it needs to be is vast. That gap is where the investment opportunity lives.

The government has responded with a meaningful policy push. Here’s what it looks like:

• A Production Linked Incentive scheme of roughly ₹18,100 crore for domestic cell manufacturing
• Viability Gap Funding covering up to 40% of standalone battery project capital costs
• Energy Storage Obligations require distribution companies to source a growing share of power from storage-backed contracts.
• Waiver of interstate transmission charges for solar-plus-storage and pumped hydro projects through 2028

The result is a pipeline that went from 19 gigawatt-hours in 2024 to 92 gigawatt-hours by the end of 2025.

In that same year, 69 new tenders totalling 102 gigawatt-hours were issued, roughly equal to the cumulative total of all tenders issued from 2018 to 2024 combined.

The market is moving fast. 2026 is expected to be the first year where project commissioning actually starts to reflect this scale, with around 5 gigawatt-hours of new capacity expected to come online.

How does battery storage change economics for utilities and power exchanges?

Beyond the engineering case, battery storage is changing the financial logic of power for utilities, distribution companies, and power exchanges.

Historically, distribution companies managed evening demand spikes by procuring expensive short-term power from the exchange or keeping inefficient peaker plants on standby.

Battery storage gives them a third option, which is to charge cheaply during midday solar surplus and discharge into the evening peak.

One of the live examples could be the Adani's 1,126 MW project in Gujarat, charging at roughly ₹2.50 per unit during solar surplus and discharging during evening demand at roughly ₹7 per unit. That arbitrage is the entire business model.

For utilities like Tata Power and JSW Energy, the shift is even more strategic. Battery storage allows them to offer "round the clock" or "firm and dispatchable" renewable power, products that sell at a premium to vanilla solar or wind because the buyer gets a guaranteed supply, not just generation when the weather cooperates.

This is opening an entirely new category of long-term power purchase agreements with better economics than simple renewable contracts.

Power exchanges are also affected. As storage grows, the spikes in exchange prices during evening peak hours, which currently reward generators who can deliver at short notice, will moderate as batteries absorb and release power more predictably.

This shifts value from opportunistic generation to systematic, contracted storage assets. For investors tracking how macro-economic indicators shape India's energy sector, the power sector's evolving economics are worth watching closely.

Where listed opportunities exist across the storage value chain

The storage theme does not sit in one neat sector. It cuts across battery manufacturers, utilities, transmission companies, and materials suppliers. Each carries a different risk and return profile.

The opportunity set is broader than it first appears. The market tends to focus on battery cells, but listed beneficiaries are likely to emerge across multiple adjacent sectors.

1. Battery manufacturers

Battery makers and cell-integrated energy solution companies sit at the most visible layer of the theme.

The listed opportunity may include:

• lithium-ion assembly players
• cell pack integrators
• thermal management providers
• industrial battery companies
• power electronics firms
• energy management software-linked hardware players

Domestic manufacturing incentives and localization efforts can create margin expansion if scale efficiencies improve.

This is where understanding factor cycles in India’s equity market and smallcase performance becomes useful, because these companies often move through distinct rerating phases before earnings catch up.

For investors looking for the best smallcase in India, this can become an attractive high-beta satellite theme.

2. Utility and transmission companies

Transmission and utility players may actually become the more stable compounding beneficiaries.

Battery storage cannot scale without:

• transmission corridor upgrades
• substation digitization
• balancing infrastructure
• flexible dispatch systems
• grid analytics
• smart load routing

This expands order books for:

• power transmission EPC firms
• transformers and switchgear makers
• digital substation vendors
• utility-scale renewable operators
• grid software and balancing firms

The earnings visibility here may be stronger than pure battery manufacturing because it is tied to long-cycle capex.

So, a natural fit for this part of the theme is PINC Evergreen Wealth Fund Fundamental, particularly because utilities and infrastructure-led balance-sheet quality businesses often benefit from long-duration structural transitions.

3. Chemical and materials suppliers

One of the less obvious but potentially powerful investment layers sits upstream. Battery deployment growth directly influences demand for:

• specialty chemicals
• electrolyte compounds
• thermal interface materials
• separator inputs
• graphite processing
• conductive materials
• advanced industrial compounds

India’s domestic manufacturing ecosystem may increasingly create listed opportunities in specialty chemical players that service both EV and stationary storage demand.

For a smallcase portfolio, this upstream layer can often provide better operating leverage than downstream utilities, especially when capacity utilization rises sharply.

How storage-led capex can influence future earnings cycles

Understanding how earnings cycles drive smallcase performance is especially relevant in a capital-intensive theme like energy storage, where the relationship between investment today and earnings tomorrow plays out over years rather than quarters.

The current phase is predominantly a capex phase. Companies are committing capital to gigafactories, storage projects, and transmission infrastructure.

Earnings from these investments will come with a lag, usually 18 to 36 months from project commissioning to meaningful revenue contribution, longer for manufacturing assets.

This creates a specific investment pattern worth understanding:

• In the early phase, capex announcements and order wins drive re-rating, often before earnings materialise.
• In the mid phase, commissioning of projects and initial revenue from operational assets begin to show up in financials
• In the mature phase, sustained utilisation and long-term power purchase agreements convert into predictable, growing earnings streams.

India's battery storage sector is between the first and second phases right now. Projects tendered in 2023 and 2024 are beginning to be commissioned.

The earnings inflection for utilities like Tata Power and JSW Energy from storage revenues is a FY27-28 story. For battery manufacturers, it depends on when cell factories reach commercial production at scale.

For investors tracking India's capex-driven growth themes, the storage and transmission sectors offer a multi-year earnings cycle that is still in its early chapters. The capex is being spent now. The earnings are coming.

Risks in technology costs, policy support, and project execution

No investment opportunity of this scale is without meaningful risks. These are the ones that matter most.

• Technology and cost assumptions: Many projects were tendered at aggressive prices, assuming battery costs would keep falling. China has been tightening its export posture on battery materials, which may slow that decline. Projects that won tenders at the lowest bids could face financial stress if costs do not follow the assumed trajectory.
• Import dependence: The majority of battery cells used in Indian projects today are imported, largely from China. Geopolitical tensions, export controls, and currency movements all introduce supply chain risk. Domestic manufacturing is being built, but the beneficiaries of the PLI scheme are still years away from producing at scale.
• Execution delays: The BESS sector has already seen delays in PPA signing, grid approvals, and financing closures. The Central Electricity Regulatory Commission cancelled one significant SECI tender in 2025 due to prolonged holdups. Not all of the 92 gigawatt-hours in the pipeline will be commissioned on schedule.
• Regulatory lag: Grid tariff structures, offtake contracts, and market rules for battery assets are still being refined. Ambiguity around how batteries can participate in ancillary services markets and how tariffs will evolve adds uncertainty to long-term revenue projections.
• Policy continuity: Viability gap funding, transmission charge waivers, and energy storage obligations are the pillars holding project economics together. Any reversal or delay in these, particularly for standalone projects, directly affects whether the numbers work.

How smallcase investors can approach this theme strategically

The battery and storage theme cuts across multiple sectors, including power utilities, battery manufacturers, capital goods, and materials.

That breadth makes it both interesting and complex for investors trying to gain exposure. Here are some principles you must remember.

1. Distinguish capex stories from earnings stories.

Battery manufacturers and new-generation renewable developers are fundamentally capex stories right now.

The question is not current earnings but whether the capital being deployed will generate returns at scale.

Transmission utilities like Power Grid are closer to visible earnings stories where the capex translates into regulated assets with predictable return on equity.

2. Prefer quality execution over ambitious pipelines.

The companies with a track record of commissioning projects on time and on budget deserve a valuation premium in this space. The sector rewards execution, not just announcement.

Execution quality also improves earnings visibility, which often leads to stronger market confidence during long capex cycles.

In emerging themes like battery storage, companies that consistently convert bids into commissioned assets usually capture the rerating first.

3. Think across the value chain.

Instead of leaning too heavily on one part of the battery storage story, spread exposure across battery manufacturers, utilities adding storage, and transmission infrastructure.

This allows your portfolio to benefit from multiple parts of the theme while reducing the risk of any single technology, policy, or execution setback.

It’s also why structured smallcase portfolios work well here, offering diversified exposure across India’s generation, storage, and transmission capex cycle rather than relying on a single winner. India's capex push entering the execution phase and what it means for earnings is a framework that applies directly here.

Smallcase investment in thematic areas like energy storage rewards patience and conviction over short-term timing. The tender pipeline is real, the policy support is in place, and the earnings inflection is coming.

The investors who will benefit most are those who understand the cycle well enough to stay through the volatility, rather than chasing the theme only after the re-rating has already happened.

The missing link in India's power system is being built. The question is how thoughtfully you position yourself around it.

Conclusion

Battery energy storage is not a speculative theme for India. It is a structural necessity.

The country's 500-gigawatt renewable energy target cannot be achieved without addressing intermittency, and battery storage is the primary tool for doing so at scale.

The pipeline is real. The policy is supportive. The companies building in this space, across manufacturing, utilities, and transmission, are committing capital that will drive earnings for years to come.

For the best smallcase in India investors, the opportunity is in understanding where the earnings will actually materialise, separating genuine execution capability from ambitious announcements, and building exposure across the value chain rather than concentrating in any single segment.

India is building the infrastructure for its next energy era. The investors who understand that cycle, and approach it with patience and a framework rather than noise-driven decisions, are the ones who are likely to benefit most. Start your investment journey today.