India’s standalone battery energy storage system (BESS) tenders and storage-linked renewable energy auctions have seen bid prices fall sharply, intensifying concerns over whether projects can be executed and, if so, whether they can meet the required quality standards at such aggressive tariffs.

While lower prices offer immediate relief to distribution companies (DISCOMs) and offtakers, the industry cautions that winning bids are now operating on razor-thin margins.

Developers acknowledge that margins have tightened to mid-single-digit levels, forcing them to rely on disciplined cost management, operational optimization, and assumptions of gradual declines in battery prices over the next five to seven years.

Tight Margins and Cost Assumptions

The industry agrees that current bids leave little room for maneuver if things don’t go as planned.

Rounak Muthiyan, Founder and Managing Director at Kalpa Power, stated, “Winning bids currently operate with tight margin buffers of around 5%, reflecting intense competition and expectations of future battery cost reductions and operational optimization.”

This leaves limited room to absorb cost overruns or unexpected delays.

Mukesh Gupta, Co-founder and CMO at MaxVolt Energy Industries, shared a similar view.

“At current tariff levels, coverage of levelized cost of storage (LCOS) is tight and generally viable only under strict cost control and conservative operating assumptions,” he said, adding that even modest increases in input costs could significantly impact returns.

Battery price assumptions play a central role in LCOS calculations. Developers are modelling near-term battery prices ranging from $90/kWh to $110/kWh, with a gradual annual decline of about 3% to 5% over the next several years.

Kalpa Power expects container-level battery system costs to reach roughly ₹6,000 (~$65)/kWh and cell-level costs around ₹4,500 (~$49)/kWh within five to seven years, supported by manufacturing scale-up and localization.

However, industry leaders caution that serious developers are not basing their bids entirely on uncontracted cost reductions. While moderate price declines may be factored into some bids, aggressive step-change reductions are generally not assumed.

Degradation, Lifecycle, and Augmentation

Beyond upfront costs, long-term performance assumptions significantly shape LCOS projections. Both firms indicate that most developers are building in annual degradation rates of around 2% to 2.5%, consistent with proven lithium iron phosphate performance under controlled conditions.

Muthiyan explains that while 2% annual degradation is commonly assumed, real-world outcomes depend heavily on operational variables. “Actual degradation depends more on operational factors such as cycling frequency, depth of discharge, grid dispatch behavior, and ambient temperature rather than calendar age alone.”

There is also some variation in how developers estimate end-of-life capacity depending on the assumptions used in the bid structure. Kalpa Power assumes that batteries will retain around 60% of the usable capacity at the end of project life, describing this as a conservative benchmark for long-duration operations.

In contrast, Gupta indicates that developers typically model 70% to 75% usable capacity at the end of life, while more aggressive bidders may assume higher residual capacity to improve LCOS optics.

Most long-duration projects also plan for at least one round of mid-life augmentation, which may involve partial battery replacement or capacity addition during the project term.

This lifecycle strategy helps maintain performance commitments over the project tenure and manage degradation-linked risks.

Cycling patterns defined in tenders also influence economic modelling. Projects designed for two cycles per day may achieve roughly 12 years of high-utilization operation, while single-cycle daily operations can extend effective battery life to 15 years or more.

Gupta notes that “cycling limitations are being built into dispatch models, with revenue expectations aligned to contracted cycles rather than theoretical maximum utilization,” underscoring a shift toward more disciplined revenue forecasting.

Execution Risks and Quality Concerns

Even though most developers are working with similar LCOS assumption, the real challenge lies in execution, particularly at low tariff levels.

Land acquisition, evacuation infrastructure, and grid integration remain critical bottlenecks. Muthiyan emphasizes that these risks are being mitigated through early technical due diligence, flexible system design, and close coordination with utilities. “Close coordination with tendering authorities and utilities is critical to ensure timely project execution.”

According to Gupta, developers are prioritizing early site control, modular system design, and collaboration with transmission utilities to minimize execution risk. However, narrow margins leave little buffer to absorb delays or cost escalations, raising concerns about potential project slippage or renegotiations.

Sustained low tariffs could push some players to compromise on procurement standards or system design to protect margins. Yet established developers argue that credibility and long-term positioning outweigh short-term margin protection.

Gupta acknowledged the risk but asserted that responsible players are taking preventive measures. “Sustained low tariffs could encourage quality trade-offs; however, credible players are mitigating this through vertical integration, in-house cell validation, and lifecycle-focused procurement,” he said.

Balancing Act

India’s energy storage sector is at a pivotal stage. Falling auction tariffs reflect strong competition and increased confidence in technology cost reductions. At the same time, these lower tariffs are compressing margins and leaving very little room for mistakes.

The shared view emerging from the industry is that current tariffs are not necessarily below cost but leave a limited margin for comfort. Viability depends on strict cost control, realistic degradation modelling, prudent assumptions on future battery pricing, and meticulous project execution.

If battery costs decline steadily as anticipated and operational performance aligns with modelling assumptions, projects may deliver acceptable returns. However, any combination of slower-than-expected cost reductions, greater degradation, grid-integration delays, or penalty triggers could affect financial viability.

Between July and November 2025, 24 GWh of storage tenders were issued, while 25.6 GWh of projects were auctioned, according to the ‘LCOS and Bidding Trends in Indian Energy Storage Projects’ report released by Mercom India Research.

The report revealed that only 50% of standalone battery energy storage projects analyzed showed positive project economics under the modeled assumptions.