Imagine winning a contract to build something, locking in your price for 15 years, and then watching your main raw material cost jump by a third within months. That is exactly what happened to India's Battery Energy Storage System (BESS) developers in 2026.
The government's Viability Gap Funding (VGF) 2.0 plan, worth ₹5,400 crore, was supposed to jumpstart the sector. Developers jumped in, bidding tariffs below ₹2 per kilowatt-hour (kWh). On paper, it looked like a massive success.
That is not a rounding error. That is a system under strain.
Why did developers bid so low? The short answer is they bet on a trend that was about to break. For years, battery prices, especially from China, had been falling. Turnkey BESS costs dropped about 40% in 2024 compared to 2023. Newcomers flooded the market, assuming this decline would continue forever. They anchored their bids to aggressive expectations of future cost cuts, not today's price tags.
The math simply stopped adding up.
The breaking point came in early 2026. China, which dominates global battery supply, changed its export policies. The value-added tax (VAT) rebate on battery exports was cut from 9% to 6% in April 2026, with a plan to eliminate it entirely by January 2027. At the same time, lithium carbonate prices rebounded. The India Smart Grid Forum reported that battery cell prices increased by 32% between January and July 2026.
For Indian developers who had locked in tariffs around ₹1.97 per unit, this was catastrophic. Batteries account for roughly 60% of a BESS project's capital expenditure. A 32% jump in battery costs translates to a massive hit to project economics. Suddenly, the projects that looked profitable on paper were bleeding red.
This exposed a critical vulnerability: India's heavy reliance on Chinese battery technology. Local projects are uniquely exposed to volatile Chinese raw material costs and shifting export policies. When the policy wind changed direction in Beijing, developers in New Delhi felt the chill immediately. Companies like Amara Raja Advanced Cell Technologies, which is building domestic manufacturing capacity, still depend on China for cathode materials. As management put it, there are "no two ways about it" for now. The hope is that local manufacturing will eventually reduce this dependence, but first-generation Indian plants are expected to run at only 60–70% of the cost efficiency of Chinese giants until they scale up. Transcript
It was not just cost pressures that derailed projects. Regulatory uncertainty played its part, most dramatically in Maharashtra. The Maharashtra State Electricity Distribution Company (MSEDCL) floated a massive 2,000 MW/4,000 MWh tender. Bidders submitted their offers based on operating the batteries for one cycle per day, or about 5,475 cycles over a 15-year contract.
Then, after the bids were in and tariffs discovered, the Ministry of Power stepped in. It granted approval for the one-cycle operation but added a condition: MSEDCL must retain the right to use the batteries for at least 6,300 cycles during the contract term without paying extra. The bidders argued this fundamentally changed the project economics, battery degradation assumptions, and their eligibility for VGF support.
The Appellate Tribunal for Electricity (Aptel) agreed. In June 2026, it quashed the entire tender process, calling the post-bid condition a material deviation that "changed the rules of the game." The tribunal cancelled the Letters of Intent and ordered MSEDCL to return all bank guarantees and security deposits within four weeks. This was not just a delay; it was a reset. One of India's largest standalone storage tenders was back to square one.
Behind these macro trends are real companies facing real consequences. Take GR Infraprojects Ltd. The company won a ₹413 crore EPC contract from NTPC for a BESS project at the Mouda Super Thermal Power Station. By September 2026, the contract was in tatters. GR Infraprojects issued a termination notice citing "force majeure and war risk circumstances." NTPC, for its part, terminated the agreement for failure to meet progress requirements and encashed bank guarantees and surety bonds worth about ₹91 crore. Other
The company's own earnings call just weeks before the termination hinted at the trouble. Management said civil work had started, but battery procurement was on hold. They were waiting for "external factors" like geopolitical issues and battery prices to improve. The fixed-price EPC contract, bid when costs were lower, had become a trap as input costs rose. Transcript
Then there is Power Mech Projects Ltd. Its subsidiary, PM Green, had won a 250 MW/1,000 MWh standalone BESS project from West Bengal State Electricity Distribution Company (WBSEDCL). This was a Build-Own-Operate model with a 15-year contract. But in March 2026, WBSEDCL annulled the tender and withdrew the Letter of Award. The reason? "Administrative and procedural exigencies" beyond anyone's control. Crucially, the company clarified there was no default or non-compliance on its part. Bid securities and performance guarantees were released in full. Yet, the company's order book took a ₹1,563 crore hit. Other +1
These cases illustrate different failure modes. GR Infraprojects faced an execution squeeze on a fixed-price contract. PM Green was collateral damage in a tender integrity collapse. Both outcomes undermine confidence.
The rush to build capacity has raised concerns about who is actually qualified to deliver. Industry data shows that only 46.3% of allocated standalone BESS capacity in 2025 went to developers with prior standalone execution experience. The rest went to newcomers.
The strict technical qualification frameworks needed to guarantee long-term asset safety and performance are "still not in place" in India. When tariffs are squeezed, there is a temptation to cut corners on battery quality or thermal management systems. Over a 15-year contract, that is a risk utilities and lenders cannot afford to ignore.
The Central Electricity Authority (CEA) has set a target of 208 GWh of BESS capacity by the end of the decade. So far, about 24 GWh of projects have been cancelled or re-tendered between 2018 and 2026. That is over 11% of the target already written off. With only 13.47 GWh actually installed as of late 2026, the gap between ambition and reality is widening.
The market is beginning to adjust. Re-tenders are showing higher tariffs.
This is still below the estimated viable level of ₹2.4, but the direction is clear. The sector is moving toward "realistic tariffs" that reflect actual costs.
Policymakers are also signaling a tougher stance. A Ministry of New and Renewable Energy official indicated that existing provisions, such as invoking bank guarantees, should be adequate to deter "irresponsible" bidders. Industry voices are calling for a shift from chasing the "lowest possible tariff" to building a bankable, resilient framework.
However, this correction comes with trade-offs. Stricter qualification and higher tariffs might slow down the pace of awards. There is a tension between speed and quality. The duck curve—the mismatch between solar generation at midday and peak demand in the evening—is not waiting for the market to mature. Every gigawatt-hour of storage that fails to materialize puts more pressure on the grid.
India's BESS sector is at a crossroads. The initial phase of aggressive bidding and rapid tender issuance has hit the wall of economic and technical reality. The coming months will reveal whether the upward correction in tariffs is sustainable and whether stricter qualification criteria can filter out speculative bidders without choking off competition.
For developers, the lesson is harsh but clear: betting on continued Chinese price declines is no longer a viable strategy. For policymakers, the challenge is to design tenders that balance the need for low tariffs with the imperative of bankable projects. The 208 GWh target is still within reach, but the path to get there will require more discipline, better risk allocation, and a acceptance that the cheapest bid is not always the best bid.
