Budget 2026–27 advances energy storage through cost and financing reforms, but unresolved execution bottlenecks and limited domestic technology support risk constraining India’s ability to scale storage and accelerate its renewable energy transition
The Union Budget for 2026–27 was unveiled on 1 February 2026, signalling the government’s commitment to infrastructure-led growth and energy security. This year’s Budget emphasises accelerating manufacturing and mitigating risks in renewable energy investments, with energy storage also highlighted.
The emphasis on energy storage is crucial, as it can enhance grid stability and facilitate the adoption of renewables. For India, the need for energy storage is even more urgent. The country has committed to increasing the share of non-fossil fuel-based electricity to 40 percent of installed capacity by 2030, which requires greater flexibility in power systems. Rising electricity demand, expected to reach 446 GWh by 2035, compounds this challenge by necessitating a balance between supply and demand. Moreover, as India seeks to accelerate electric vehicle adoption, battery demand is projected to grow significantly at a rate of 48 percent compound annual growth rate (CAGR) until 2030. Collectively, these factors underscore the necessity for large-scale energy storage deployment and present opportunities for cost reductions through economies of scale.
The emphasis on energy storage is crucial, as it can enhance grid stability and facilitate the adoption of renewables.
In response to these growing demands, the Budget seeks to promote energy storage deployment through several measures, yielding both gains and missed opportunities.
The Budget intervenes in three critical areas: lowering project costs, enhancing access to long-term financing, and supporting decarbonisation through Carbon Capture, Storage, and Utilisation (CCUS).
1. Lowering upfront costs for BESS deployment
A key highlight of this year’s Budget was the exemption of basic customs duty on capital goods used in the manufacture of Battery Energy Storage Systems (BESS). This measure helps reduce project and manufacturing costs across the energy storage value chain and enhances the viability of BESS projects. It was complemented by a substantial increase in viability gap funding for BESS, with the allocation rising to INR 10 billion in the current financial year from INR 1 billion in the previous one. Together, these steps directly support the tariff competitiveness of storage projects, which are crucial for strengthening the grid and accelerating the deployment of grid-scale storage.
A key highlight of this year’s Budget was the exemption of basic customs duty on capital goods used in the manufacture of Battery Energy Storage Systems (BESS).
2. Access to Finance
Energy storage projects face higher financing costs than other renewable energy ventures due to perceived risks. Project commissioning delays and complex contracts can add up to 400 basis points to their cost of capital. In addition, as these projects remain relatively new, the lack of battery performance data and uncertainty over replacement costs make them harder to finance than conventional solar or wind projects. To address this, the Budget proposes establishing an Infrastructure Risk Guarantee Fund (IRGF) to provide partial credit guarantees to lenders. This is expected to boost lender confidence and attract long-term capital to renewable infrastructure projects. For BESS developers, the IRGF can help de-risk innovative storage and hybrid projects.
3. Introduction of CCUS
The Budget announced an INR 20,000 crore outlay over the next five years through a dedicated scheme for Carbon Capture, Storage, and Utilisation (CCUS). The scheme will support CCUS initiatives aimed at achieving the decarbonisation targets of five key industrial sectors: power, steel, cement, refineries, and chemicals. CCUS encompasses technologies that capture carbon dioxide emissions from industrial processes or power plants and either reuse them or store them safely underground, thereby reducing climate-warming gases released into the atmosphere. For India, such projects are important to shield exports from Carbon Border Adjustment Mechanisms, which impose tariffs on goods from high-emission sectors.
The Budget provides an investment-ready framework with targeted incentives for the storage sector. While the measures reduce costs for manufacturers and enhance project viability, several notable challenges remain unaddressed.
1. Execution Risks
Project execution risks continue to affect the BESS sector in India. Since 2021, 83 GWh of Battery Energy Storage Systems (BESS) have been tendered, but only 18 GWh are under construction, with just 500 MWh operational by September 2025. These delays result from aggressive underbidding and infrastructure constraints. Recent low bid prices for BESS projects threaten project viability and hinder the transition to renewables. Moreover, the lack of evacuation infrastructure delays the commissioning of new projects, which must await grid connection. Currently, renewable energy growth in India is outpacing transmission capacity, a complex process that can take three to six years to complete. To address this, policies targeting land acquisition, grid evacuation, and Power Purchase Agreements (PPA) are essential.
The Budget 2026–27 lays the groundwork for energy storage through cost reductions and de-risk financing.
2. Limited Focus on Domestic Technology Development
The core issue of technology sourcing remains unaddressed. In the EV battery sector, although there has been a push to localise production, import dependencies persist for both components and core technologies. The Budget provides limited support for the domestic development of cell chemistries or for testing and validation infrastructure. Measures such as a Production Linked Incentive Scheme for cell research and development, technology transfer incentives, and dedicated testing hubs are necessary.
The Budget 2026–27 lays the groundwork for energy storage through cost reductions and de-risk financing. The next step will be to address execution bottlenecks and technology indigenisation to enable large-scale energy storage deployment in the country. Reforms in land access, better alignment between transmission planning and storage, and bankable offtake agreements will be crucial. Additionally, investing in domestic technological capabilities through testing and validation infrastructure and strategic partnerships will be essential to sustain competitiveness. Targeted policy measures in these areas could position India more strongly as a renewable energy leader.
Anika Chhillar is a Research Assistant at the Centre for Economy and Growth at the Observer Research Foundation.
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Anika Chhillar is a Research Assistant at the Centre for Economy and Growth, ORF New Delhi. Her work focuses on international trade and industrial policy ...
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