In a marked departure from years of cautious optimism, merchant battery energy storage systems (BESS) in India have turned profitable. According to a new report from energy think tank Ember, BESS projects commissioned in 2025 could deliver internal rates of return (IRR) of up to 17% by engaging solely in India’s power exchanges—without fixed power purchase agreements (PPAs).
This shift is driven by two converging trends: plummeting battery storage costs and increasingly volatile electricity prices. Between 2015 and 2024, the levelised cost of two-hour BESS fell from INR 7.9 million/MWh to INR 1.7 million/MWh—an 80% reduction. Over the same period, potential market-based revenue rose fivefold, from INR 0.5 million/MWh in 2015 to INR 2.4 million/MWh projected for 2025.
This convergence has turned merchant BESS from a theoretical arbitrage play into a tangible investment opportunity. “Merchant BESS has often been viewed as a low-return investment. But the changing dynamics of the wholesale power market, with rising price volatility, coupled with falling battery costs, have made it a commercially viable investment opportunity today,” said Duttatreya Das, Energy Analyst at Ember.
The mechanics of merchant BESS are straightforward: systems charge during low-price hours—typically midday when solar generation is at its peak—and discharge during high-price evening hours. However, the profitability hinges on price spreads that have only recently become large enough to justify merchant investments.
Price data from India’s day-ahead market (DAM) reveals a sharp rise in volatility. Between 2022 and 2024, electricity prices approached the INR 10/kWh ceiling in one out of every six hours, while midday prices in summer dropped by nearly 20% over the same period. In 2025, some hours even saw prices fall to near-zero levels.
These swings are no longer sporadic. “Such market swings are no longer isolated events; they are becoming a regular feature on India’s power exchanges,” Das noted. The structural drivers—growing solar penetration and inflexible thermal capacity—are unlikely to reverse. With solar driving down prices in daylight hours and coal plants struggling to ramp up in the evening, volatility is expected to become more entrenched.
Ember’s modelling projects that merchant BESS participating only in DAM trading can achieve IRRs of up to 17% for projects entering the market in 2025. And that’s a conservative estimate: combining DAM participation with ancillary services—such as frequency control or reserve power—could push IRRs even higher.
Even under more conservative assumptions of price spreads, projects remain financially robust with IRRs around 21%, primarily buoyed by ancillary service revenue.
The growing investor interest in merchant BESS mirrors broader structural shifts in India’s power system. With renewables projected to account for 50% of generation capacity by 2030, intraday volatility is expected to intensify. This not only creates arbitrage opportunities but also highlights a growing need for fast-response storage to stabilise the grid.
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