Economic Sense for Owning a BESS and the Global Momentum around it Today
Welcome to the third edition of our BESS newsletter series. In our last edition, we explored how a Battery Energy Storage System works, its core components, associated costs, and physical setup. From lithium-ion cells neatly packed into modules and racks, power conversion units that talk to the grid, to the software brains (EMS, BMS, SCADA) that make it all work in sync. BESS is a coordinated system with cooling, safety, and control layers working together. We also explored what a full-scale project physically looks like, how long it can supply power, and what makes it viable now.
This week, we shift gears from the “working” to the “financial stream”.
- How do BESS projects make money?
- Who actually invests in them?
- Where are they being deployed around the world?
- Is India starting to see traction too?
But first a quick recap of our previous editions:
Newsletter 1 :- BESS: Solving the renewable puzzle
Newsletter 2 :- Inside the Box – Components That Power BESS
Not Just Power – Profits Too
Unlike solar panels or wind turbines, BESS don’t generate electricity; it simply stores it. That raises a fair question: if BESS doesn’t produce energy, how does it make money? While generators earn revenue by selling power, batteries earn by offering something just as critical – timing, reliability, and flexibility. In a way, BESS operates like a logistics hub for electricity: it doesn’t create the product, but it ensures it’s available exactly when and where it’s needed. In a power grid that’s becoming cleaner but more unpredictable, that service is not just useful; it’s billable. Before understanding the revenue stream of a BESS project, let’s understand various kinds of players investing or paying for such systems.
Who Pays for BESS and Why?
Batteries create value in different ways depending on who owns them and where they are located. Broadly, there are two categories of deployment: a) front-of-meter systems, which are connected directly to the grid and typically operated by utilities or power producers; and b) behind-the-meter systems, which are installed at customer facilities to provide savings and reliability benefits. The THREE main groups that invest in or pay for battery energy storage are i) utilities, ii) independent power producers (IPPs), and iii) large commercial and industrial users.
(Source: EnergySage)
1. Utilities (DISCOMs, Transmission Companies, Grid Operators)
For utilities, BESS is a cost-effective way to maintain reliability and manage the grid without committing to large capital upgrades. Batteries help them handle peak demand spikes, reduce congestion at substations, and smooth out the variable output of solar and wind energy. They also improve power quality by limiting outages and stabilising frequency. These systems are usually installed at substations, line ends, or renewable interconnection points, making them front-of-meter assets. The payment structures vary. In some cases, the utility owns the storage system directly, recovers costs through regulated tariffs, and earns a return based on “avoided costs.” For instance, a battery may defer the need for a substation upgrade, making it a cheaper solution in present value terms.
Why would a utility choose BESS instead of a substation upgrade?
A traditional substation upgrade is like widening a highway; it permanently increases the amount of electricity that can flow through a part of the grid. This is effective, but it is also expensive, takes several years to complete, and locks the utility into a large, long-term investment.
BESS, on the other hand, provide a more flexible and faster option. Instead of permanently increasing grid capacity, a battery acts like a smart buffer. It stores energy when demand is low and quickly releases it when demand peaks. For a utility, this can achieve the same outcome as a substation upgrade, reducing congestion and keeping the lights on, but at a lower upfront cost and with a much shorter installation timeline.
Approx cost of a typical substation upgrade
(Source: Bastion Research)
*400/220 kV substation: It receives electricity at 400 kV from the generation plant & it then steps it down to 220 kV towards city grid.
Approx cost of setting up a 40 MW / 120 MWh BESS:
(Source: Bastion Research)
*40 MW/120 MWh BESS: It can provide electricity at 40 MW per hour for three hours, totalling 120 MWh, which is the total capacity of the BESS.
*For this Calculation exchange rate of “₹87/$” is used. Here, 1 MW = 1000 KW.
Therefore, 120 MW = 1,20,000 KW.
In financial terms, utilities may prefer BESS when the problem they are solving is temporary or occurs only during certain hours. For example, if a feeder line is overloaded for just a few hours each evening, spending ₹250–300 crore on a battery that can handle those peaks might be more sensible than investing ~₹500 crore or more in a permanent substation upgrade.
2. Independent Power Producers (IPPs)
For IPPs, the primary motivation is economic. Adding storage to a solar or wind project increases the average price they can realise from their electricity. Without storage, they may be forced to sell during periods of low prices (for example, midday when solar output is high) or face curtailment when the grid cannot absorb more renewable power. Batteries allow them to store energy at those times and sell it later during peak demand when prices are significantly higher. Typically, the battery is either co-located with the renewable project to share the grid connection or built as a standalone front-of-meter facility in a high-value market zone. The revenue model for IPPs vary:
Capacity or tolling agreements: The buyer pays a fixed fee to ensure the battery remains available for use when required. This fee is independent of the actual energy consumed, which is billed separately. In essence, it compensates the provider (IPPs) for guaranteeing timely access to stored energy even if no energy is drawn.
Bundled PPA: The IPP signs a long-term contract to deliver a fixed supply profile, often during evening hours. The tariff is slightly higher than a plain renewable PPA because it includes reliability and predictability.
(Source:Ahmed Yehia LinkedIn)
3. Large Corporations and Industrial Users
For large commercial and industrial consumers, batteries are primarily a tool for cost savings and risk reduction. Facilities like factories, malls, hospitals, and data centers often face TWO key components in their electricity bills: a) energy charges, which are based on the total electricity consumed over the month, and b) demand charges, which are additional fees tied to the highest level of power drawn during any short interval even if it lasts just a few minutes. Batteries reduce these peaks (“peak shaving”), shift consumption from expensive peak periods to cheaper off-peak hours, and ensure power quality during brief outages or voltage dips. They can also reduce reliance on diesel generators, which are expensive and polluting. These systems are installed behind-the-meter at facilities such as factories, hospitals, malls, or data centers, often paired with rooftop solar. The financing options vary widely:
- Direct ownership: The company buys and runs the battery system. They keep all savings and may also benefit from tax depreciation.
- Energy as a service: A third-party owns the battery. The company pays either a fixed monthly fee or a share of the savings. No upfront investment required.
- Leasing / rent-to-own: The company pays a fixed rental fee for a set period, similar to leasing equipment.
- Performance-linked payments: The provider guarantees savings (for example, lower demand charges). The company pays only if those savings are delivered.
Where it all began? – The early days of BESS
In 2014, California made a pioneering move with the launch of the Tehachapi Energy Storage Project, marking one of the world’s earliest grid-scale battery installations. At the time, the state was already a frontrunner in renewable energy, particularly wind power sourced from the Tehachapi region. However, a key challenge remained: wind generation didn’t always align with periods of peak electricity demand.
To tackle this, Southern California Edison (SCE) deployed an 8 MW / 32 MWh lithium-ion battery system adjacent to one of the country’s largest wind farms. The aim was not commercial gain, but to evaluate whether a utility-scale battery could:
- Store excess wind energy during low-demand periods,
- Discharge it during peak hours to support the grid, and
- Deliver grid-stabilising services like voltage support and frequency regulation, typically managed by conventional fossil-fuel plants.
Though small by today’s standards, the Tehachapi project served as a critical proof-of-concept. It showed that batteries could move beyond backup applications and play a central role in renewable energy integration. More importantly, it generated technical insights that gave confidence to regulators, utilities, and investors, laying the groundwork for the global scale-up of grid-connected battery storage that followed.
(Source: Wikipedia; Photo by Loic Gaillac)
If California’s Tehachapi project was the pilot, the Hornsdale Power Reserve in South Australia marked the global breakthrough for grid-scale battery storage. Commissioned in 2017, Hornsdale began operations as the world’s largest lithium-ion battery at the time, with a capacity of 100 MW / 129 MWh. Developed by Tesla and Neoen, it was built in response to a series of grid failures that had exposed South Australia’s vulnerability to blackouts. Hornsdale’s significance extended far beyond its size. Within its first year, it demonstrated:
- The ability to stabilise grid frequency in milliseconds, far outperforming traditional gas plants.
- Substantial cost savings for the grid operator by efficiently delivering frequency control services.
- Enhanced grid resilience by instantly injecting power during faults, preventing potential outages.
What set Hornsdale apart was the compelling combination of speed, reliability, and economic value. It shifted global perception from viewing battery storage as a technological trial to recognising it as commercial-grade energy infrastructure. The project’s success catalysed a wave of large-scale storage investments worldwide, influencing both public policy and private sector confidence.
Today, Hornsdale has expanded to 150 MW / 193.5 MWh, and remains a landmark example of how battery energy storage can transform grid operations and accelerate the energy transition.
(Source: Australian renewable energy agency & Aurecon)
Global momentum today – Where the action is?
Across the globe, governments and utilities are rapidly deploying large-scale battery storage systems to modernize power grids, support renewable energy integration, and reduce operational costs. Let’s take a closer look at how different regions are emerging as frontrunners in this global transition:
(Source: Bastion Research)
What began as a handful of pilot experiments less than a decade ago has evolved into a full-scale global power infrastructure shift. Whether it’s California’s massive battery installations, China’s gigawatt-scale deployments, Europe’s grid stability programs, or Australia’s renewable balancing efforts. BESS is no longer an experiment. It’s fast becoming essential infrastructure for the energy systems of tomorrow.
The global story of battery storage is inspiring, but what about India?
Here at home, the stage is being set for something big. A few early projects have already demonstrated how batteries can complement our growing renewable capacity. But the real momentum lies ahead. With evolving policies, pilot deployments, and headline-worthy announcements, India’s storage story is just beginning to unfold, and it promises to be both ambitious and transformative.
Up Next…
In our next edition, we’ll dive into India’s own BESS story, where it began, what’s happening now, and why the coming decade may see batteries rise alongside solar and wind as pillars of our clean energy future. Stay tuned..
If you enjoyed reading this newsletter, please feel free to share it with others who might find it insightful. We’d also love to hear your thoughts and feedback on X. Connect with us there at @bastionresearch.
Happy Investing!!!
😂Meme of the Week🤣
