BESS market enters reset phase; Ambit prefers NTPC, sees 16% upside

Ambit Capital sees the BESS market entering a reset phase, citing rising costs, aggressive bids, project delays, and battery life-cycle uncertainties as key challenges for utilities.

Ambit Capital believes that India’s battery energy storage system (BESS) market is entering a reset phase and that the utility companies have limited room for growth due to rising landed BESS prices, aggressive bidding, execution delays, and uncertainty about battery life-cycle performance.

 

It has retained a positive stance only on NTPC, while maintaining a cautious stance on several other power and renewable energy players. The brokerage has recommended a 'Buy' rating and assigned a target price of ₹410 on NTPC, implying an upside of 16 per cent from Tuesday’s close of ₹348.15.

 

"NTPC remains our only BUY, though the company will need to win new orders; failing to do so may lead it into a value-trap zone," analysts said. 

 

 

On Suzlon Energy, Emmvee Photovoltaic Power, and Saatvik Green Energy, the brokerage has maintained a 'Buy' rating as well for targets of ₹61, ₹345 and ₹520, respectively. Meanwhile, Tata Power (target ₹410), JSW Energy (₹525), Torrent Power (₹1,255), Power Grid Corporation (₹290), and NTPC Green Energy (₹85) have attracted a 'Sell' rating from Ambit Capital. 

 

FY27 installation target may be missed

 

BESS price rose to $80/kWh, which is $15/kWh higher than a few months ago, causing a halt in procurement activity. The industry now expects 5 gigawatt-hours of incremental installed capacity, and a cumulative installed capacity of 13-15 GWh in the current financial year (FY27), which is well below the Central Electricity Authority’s (CEA) target of 23 GWh.

 

In the utility space, several developers bid aggressively without properly calculating battery degradation, life cycle, auxiliary consumption, and lifecyle management requirements. These operating assumptions are vital to project returns as BESS economics are considerably more complex than solar. 

 

Now, CEA is mulling introducing stricter technical qualification criteria for future tenders. Meanwhile, Maharashtra and Rajasthan are evaluating re-tendering of certain projects, and the centre is considering an additional 40 GWh of viability gap funding (VGF) support, with higher domestic-content requirements (40–50 per cent). 

 

Ambit Capital believes most utility stocks offer limited upside at current valuations amid rising BESS prices, aggressive bidding, execution challenges and uncertainty over battery lifecycle performance.

 

Merchant arbitrage looks uncertain

 

Most BESS projects are part of Firm and Dispatchable Renewable Energy (FDRE) projects, which will be commissioned in financial year 2028. Hence, companies that have won FDRE tenders have not yet started their BESS procurement.

 

As the grid station needs to be available, not everyone can commission BESS ahead of the FDRE PPA deadline. The capital cost for BESS for FDRE is lower than that for standalone stations, as BESS shares pooling substations etc., with solar and wind in FDRE projects. However, the scenario is different for the standalone projects.

 

The industry has proposed to remove the ₹10/kWh exchange price cap to improve the merchant economics, while some projects are earning close to ₹20/kWh under GRID India’s TRAS procurement. “However, most participants do not expect such merchant arbitrage to be sustainable and believe long-term project returns will depend on multiple stacked revenue streams,” the brokerage said. 

 

PLI  execution remains a challenge

 

Execution across the cell projects awarded in the production-linked incentive scheme (PLI) has been slower than anticipated. Reliance Industries has sought a two-year extension, Ola Electric Mobility has requested timeline and capacity modifications, and Exide Industries has commissioned capacity, but commercial shipments remained limited. 

 

Technology transfer challenges, a steep manufacturing learning curve, and weaker-than-expected offtake have largely driven the delay in execution.

 

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