In a significant move to accelerate India’s transition towards a cleaner power system and promote storage, the Ministry of Power (MoP) has introduced two key policy updates aimed at promoting the deployment of storage systems. These include the draft amendments to Rule 18 of the Electricity Rules, 2005, positioning energy storage systems (ESS) as an integral part of the country’s power sector infrastructure. Also, this month, the government has approved the waiver of interstate transmission system (ISTS) charges for co-located ESS projects as well as pumped storage hydro projects.
Draft amendments to Electricity Rules, 2005
The MoP’s draft amendment to Rule 18 of the Electricity Rules, 2005, proposes an expanded regulatory framework for energy storage. It explicitly recognises that ESS may be deployed either independently or as an integral part of generation, transmission, or distribution networks. The draft further allows ESS to be developed, owned, leased, or operated by a wide array of entities. These include generating companies, transmission and distribution licensees, system operators, consumers and independent energy storage service providers.
To address the legal and operational classification of ESS, the draft amendment provides a clear framework. An ESS will assume the legal status of its owner. For example, if a generating company owns the storage system, it will be treated as a generation asset. However, the draft introduces a distinction in the case of non-co-located ESS. If an ESS is not located at the site of the associated generation, distribution licensee, or consumer, it will still carry the owner’s legal identity, but will be treated as a separate storage entity for scheduling, despatch and related regulatory purposes.
One of the most significant provisions of the draft is the flexibility granted to ESS developers or owners to monetise their storage capacity. They are allowed to sell, lease, or rent out their storage – either fully or partially – to any entity engaged in power generation, transmission, distribution, or to a load despatch centre. This clause opens the door to innovative business models such as capacity leasing, storage-as-a-service and multi-user shared storage infrastructure.
ISTS charges waiver for energy storage projects
The MoP has issued a new notification extending the provisions for waiver of ISTS charges. This waiver, which applies to electricity generated from renewable energy, ESS and green hydrogen or ammonia, is designed to ease the cost burden for projects seeking to transmit power across states. The updated waiver builds upon earlier notifications issued between November 2021 and June 2023, offering additional clarity, particularly for hydro pumped storage and battery energy storage systems (BESS).
As per the latest order, hydro pumped storage projects, which are awarded for construction on or before June 30, 2028, will receive a 100 per cent waiver of ISTS charges. Likewise, BESSs that are co-located with renewable energy projects and commissioned by the same date will also be eligible for full ISTS charge exemption, provided the power is consumed outside the state where the project is situated.
To qualiFY for the ISTS waiver, BESS must meet the co-location criteria, which are defined as both the storage system and the renewable energy project being connected at the same ISTS substation.
However, pumped storage hydropower plant projects awarded after June 30, 2028 and co-located BESS commissioned beyond that date will not be eligible for the waiver. Additionally, BESS projects that are not co-located with renewable energy sources will be subject to ISTS charges in accordance with the existing MoP orders and the Central Electricity Regulatory Commission’s regulations.
The way forward
By clearly defining the ownership structure, legal status and commercial use of storage systems, alongside incentivising co-located storage with cost waivers, MoP is addressing both operational clarity and financial viability.
This month, another crucial policy measure has been the announcement of the VGF scheme expansion to support 30 GWh of BESS. The VGF amount has been set at Rs 1.8 million per MWh, sourced from the Power System Development Fund, with a total financial outlay of Rs 54 billion.
Of the total allocation, 25 GWh of capacity has been distributed across 15 states, including Rajasthan, Gujarat, Maharashtra, Tamil Nadu, Karnataka, Andhra Pradesh, Madhya Pradesh, Telangana, Uttar Pradesh, Haryana, Kerala, Punjab, Chhattisgarh, Odisha and Uttarakhand. NTPC Limited has been assigned the remaining 5 GWh to utilise its existing thermal and transmission infrastructure.
As India scales up its renewable energy capacity, such frameworks will be crucial to ensuring that ESSs are seamlessly integrated into the grid, helping manage variability, ensure reliability and support round-the-clock green power delivery.
Akanksha Chandrakar