In an interview with ET Now, Apoorva Bahadur, Senior VP, IIFL Capital highlighted how India’s power demand has rebounded sharply after a brief slowdown over the past two years, driven by rising appliance usage, climate volatility, and structural economic growth.
“The power demand definitely has increased quite significantly and this comes after a lull of almost two odd years,” Bahadur noted, pointing out that FY26 is seeing a sharp reversal after subdued demand conditions in FY25.
Renewables Meet Their Limit in the Evening PeakIndia’s installed renewable base—led by nearly 150 GW of solar capacity—is now capable of meeting daytime demand comfortably. In fact, during recent peak load conditions of around 256 GW, the grid did not face shortages during the day.
However, the evening hours remain the critical bottleneck.
“The challenge lies in the evening bit wherein the solar does not generate anything, so the contribution of solar goes down to zero,” Bahadur explained.This mismatch between daytime surplus and evening shortage is now defining the urgency for energy storage systems, particularly Battery Energy Storage Systems (BESS) and pumped hydro projects.Storage Becomes the Critical Missing LinkWith gas-based plants facing fuel constraints, hydro output uncertain due to weaker monsoon expectations, and coal plants carrying most of the load, the system is becoming increasingly dependent on storage technologies to balance demand.
“We will also have to add a lot of batteries and pump storage to meet the gap,” Bahadur said, adding that while progress has been made, scaling remains a challenge.
Recent capacity additions have come from players like Adani Green and ACME, while NTPC has also commissioned pumped storage assets. However, the pace is still insufficient to match the speed of demand growth.
“Quite likely that this year if the summer demand continues to outperform, we might see peak shortages like we saw two years back or maybe more than that as well,” he warned.
Storage Arbitrage: The Emerging Profit PoolA key structural shift is also emerging in pricing dynamics. Daytime electricity prices in India’s merchant market are increasingly falling—sometimes below ₹1 per unit—due to excess solar supply.
This creates what experts describe as a “time-shift arbitrage opportunity,” where electricity stored during low-price hours is sold during high-demand evening peaks.“Any player who has merchant storage capacity, specifically batteries or pump storage, should corner a large portion of the profit pool,” Bahadur said.
Coal and gas assets with merchant exposure may also benefit, but rising fuel costs are expected to compress margins, especially for gas-based generation.
Power Prices Likely to Trend Higher—For NowOn electricity tariffs, the outlook appears inflationary in the near term due to heavy infrastructure investment across generation, transmission, and distribution.
“Generally there will be an inflationary trend in electricity prices,” Bahadur said, citing large-scale government capex in grids and distribution upgrades, including nearly ₹9 trillion earmarked for transmission expansion up to 2032.
However, this trajectory may eventually reverse.
“Once we cross a certain threshold in terms of renewable plus storage capacity addition, the view will change and it becomes deflationary,” he added, pointing to the near-zero marginal cost of renewable generation.
BESS Competition Raises Concerns on ReturnsA growing concern in the sector is aggressive bidding in Battery Energy Storage System (BESS) projects, which are increasingly bundled with renewable contracts.
Bahadur noted that early-stage optimism in emerging technologies often leads to overly competitive bidding cycles.
“We have seen similar story play out in solar as well when we started this journey in 2014-15 onwards,” he said.
He cautioned that battery economics are still heavily influenced by global supply chains, particularly China, where lithium pricing and policy shifts can directly impact project viability.
“Batteries are commodities so pricing is largely decided by China which has the entire upstream industry,” he said, adding that recent cost pressures could strain returns on aggressively bid projects.
Over time, he expects the market to stabilize, with returns likely converging to more sustainable levels, similar to solar projects where equity IRRs have ranged between 11% and 17% depending on competition.
The Road AheadIndia’s power transition is now clearly entering a storage-led phase. While renewable capacity continues to expand rapidly, the real competition is shifting toward who can effectively store and deploy electricity across time. In this evolving landscape, storage assets are no longer supporting infrastructure—they are becoming the core profit centre of the energy system.
